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CHAPTER ONE
GENERAL INTRODUCTION
1.1 BACKGROUND INFORMATION
Nigeria operates a federal system of government under which system each tier of government has its legislative competence or functions conferred on it as the case may be. It is significant to note that Federalism in Nigeria dates back to 1954 when the country which had hitherto been administered as a Unitary state was restructured into three quasi-self-governing and administered regions[1].
It is equally noteworthy that shortly before and since the independence of Nigeria in 1960, all the constitutions that have been enacted have taken the pattern of federalism. Section 2(2) of the 1999 constitution also re-enacts the doctrine of federalism when it provides that:
“Nigeria shall be a federation consisting of states and a federal capital territory” However, there is no doubt that Nigerian federalism is anomalous in practice. It is fraught with various phenomena that conflict with the universal precepts and normative imperatives of federalism to the extent that the danger and apprehension that the nation is susceptible to unitarism becomes heightened[2].
However, the focus of this study is to appraise the legal issues and aspects of it that affects Uniform Personal Income.
Tax system. It is expedient to note that one of the most constant sources of inter- governmental wrangles, which any federal system is likely to confront is the distribution of financial resources among the various levels of government. The pivotal concern in this regard is to ensure the different tiers of government have adequate financial resources for the effective discharge of their essential political and constitutional responsibilities[3].
The division of taxing power between the various parts of Nigeria has been a recurrent problem since the amalgamation of North and South in 1941[4]; and perhaps, for the texture of Nigerian Federation, it has succeeded in rearing its ugly head into our nascent democracy. The enthronement of a democratically elected civilian government in Nigeria on May 29th 1999 was preceded by about fifteen years of Military interregnum during which a somewhat unitary system of administration was practiced because of the command structure of the military[5].
That is a system where power flow from the centre. For instance, the Federal Military Government was vested with sweeping powers to make laws on any subject –matter whatsoever such as police affairs, census, imposition of taxation on incomes and profits, trade and commerce, etc. including Local Government matters which is hitherto residual to the state governments[6].
This made the military era witnessed the enactment of certain Tax Decrees and edicts some of which are bound to generate jurisdictional conflict between the federal and state Governments with the coming into effect of the constitution of the Federal Republic of Nigeria, 1999. The recent observation of the Chief Justice of Nigeria[7] lend credence to this view as thus:
Our present constitution seems to have been completely obliterated, negating the principles of federalism… the military as politicians under a constituent assembly to review and update the nation’s constitution and thereafter embark on windy transition programmes whenever it suited them to vacate. They (Military regime) simply remove the suspension orders and modifications made on the constitution while handling over power to the elected civilian. These constitutional alterations by various military regions have created numerous problems for successive civilian administration in the country.[8]
A corollary of the above observation of His Lordship that is relevant to the topic under research is that since the inception of this democracy, the tension has been heightened on the arrangement of centralized financial and fiscal jurisdiction on federal government bequeathed by long years of military rule at the expense of the financial sovereignty of the federating states.
Be that as it may, there is another strong view that the Nigerian federalism is not bound to tow the pattern of foreign federalism lock, stock and barrel. The importation of formal structures or institutions of governments however excellent they may be on paper, cannot guarantee their success if the conditions which make them work in their country of origin are lacking. This cannot be imported from outside; but have to be developed and nurtured from within[9]. It is further contended that each federal experiment has to cope with the peculiarities dictated by its own history, political economy, social cultural environment and leadership profile, even when it is simultaneously open to learning, borrowing, emulation or even stealing from the experience of other federations.[10]
However, it is instructive to note that under the 1999 constitution there exists two separate legislative lists. One enumerating Exclusive central powers and the other enumerating concurrent powers, leaving the state governments with exclusive authority over unspecified residual fields. Personal Income Tax is a significant tax that has all the time being the problem item of Nigeria’s revenue structure since its adoption of federalism in 1954, However, to reduce this attendant problem, the Federal Government is vested with the exclusive power under item 59 of the second schedule to the constitution [11] to legislate on
1.2 STATEMENT OF PROBLEM
The quest for an acceptable pattern for sharing of powers to levy personal income tax between the Federal and State governments have been a recurring problem in Nigeria. There is hardly any civilian regime since independence till date that has not experienced contentious litigation on income tax jurisdiction. It therefore becomes imperative to examine, nay appraise why the Federal government personal income tax with the view to harmonize the rates of taxes, reliefs and allowances. As straight forward as this arrangement seems, it has excited mixed feelings from cross section of professionals. structure and also make the State governments virtually junior partners in Federal- State relationship.
It is equally worthy of thorough examination the belief that once the subject-matter of taxation has been allocated to one tier of government, the proceeds therefrom usually belong exclusively to the authority levying the tax. Is this a water-tight arrangement? Particularly when in the 1999 constitution the power to impose and or collect a tax is allocated to one level of government while the proceeds therefrom are disbursed to another level of government or shared among different tiers of government. There is therefore the need to examine which of these two arrangements will augur well for the Nigerian Federation.
1.3 OBJECTIVES OF RESEARCH
A thoughtful consideration of the idea of vesting the exclusive power to legislate on personal income tax on federal government portends an intricate and complex financial implication. This is because the state governments will be left with inelastic revenue bases. A corollary of this is that the scope for the enlargement of state jurisdiction/taxation seems disappointingly small. This will make them excessively dependent on statutory allocations from federally collected revenue to discharge their functions. This, according to Professor Ayua is not a recipe for in the 1999 Constitution, and will also not affect the provision of the Personal Income Tax Act.13 1993political unity particularly in a developing heterogeneous society like Nigeria where there is differential/socio economic development with the central government apparently lacking any definitive policy to bring even development.14
Again, a cursory look at the position of the personal income tax before 1975 15 reveals that the era was fraught with internal double taxation problems, as a result of multiplicity and diversity on rates or tax reliefs and personal allowances on mobility of labour.
The tax administration of that period was adjudged inefficient to the extent that tax experts opined and suggested that unless and until a uniform personal income tax system is established in Nigeria, the tax cannot play the significant role it should play in Nigeria’s revenue structure and economic development 16 A.O. Philips has this comment on the situation:
Personal Income Tax has all the time been the problem item of Nigeria’s revenue structure particularly since its rationalization in the late 1950s. Nigeria is the only federation in the world in which a significant tax such as this is vested in an authority other than the central authorities. Thus Nigeria has as many tax systems as there are governments in Nigeria, resulting in differential income tax burdens throughout the country, and hampering its use as a significant source of revenue and as an instrument of economic control. The administration is generally thought to be inefficient… The opinion has gained ground that unless and until a uniform personal income tax system is established in Nigeria, the tax cannot play the significant role it should play in Nigeria’s revenue structure and economic development.17
Against this background therefore; this research work aims to achieve the following objectives VIZ:
- to have a critique of the personal income tax jurisdiction in Nigeria
- to appraise the rationality of uniform personal income tax arrangement within the structure of Nigeria fiscal federalism with the view to consider whether uniformity and/or harmonization of personal income tax will assist in quick realization of Nigeria’s fiscal objectives.
III. to make suggestions and recommendations on how the present uniform personal income tax arrangement should be improved upon to foster economic growth and meaningful development.
1.4 SCOPE OF RESEARCH
It is not in doubt that the whole gamut of Nigerian federal structure requires streamline and overhaul to make it more efficient and better organized for the visions, aspirations, ambitions and focused statesmanship of the founding fathers of Nigerian federalism to be realized in a perspective that will better the lot of the present-day Nigeria.
However, this study is constrained by scope to appraise the entire facet of Nigerian federalism. Instead, it shall attempt an appraisal of the rationality of the practice of the Uniform personal income tax system within the set-up of Nigerian federal arrangement. In doing so, the research work shall come out with a finding on whether the present Uniform Personal Income Tax Regime can guarantee even and meaningful desirable economic development and as such be retained; or that the exclusive power to levy and collect personal Income tax be allocated to the state governments with the attendant effect of strangulating interstate commercial intercourse which may result in intolerable discriminations and unneighbourly regulations.
Be that as it may, the finding cannot be achieved without appreciating the essence of federalism. This is because in a federal set up like Nigeria, the federal government and state cannot avoid facing each other as equals on constitutional provisions which define their respective taxing jurisdiction18, especially when there is an infraction of same.
1.5 RESEARCH METHODOLOGY
The materials to be used in this research work are documentary. They consist of both primary and secondary documents; such as statutes like the 1999 Constitution of the Federal Republic of Nigeria, the Personal Income Tax Act 19 etc. as well as various textbooks. The researcher will adopt both eclectic and doctrinal methods of data collection.
Several visits shall be made to the National Archives Ibadan wherefrom the researcher envisages getting the authentic text of the report of the two-man fiscal commission chaired by Sir Jeremy Raisman in 1958. The terms of reference of the commission requires it to have regard to the desirability of securing that the maximum possible proportion of income of regional governments should be within the exclusive power of those governments to levy and collect, and at the same time to take into account considerations of national and inter-regional policy. There is no doubt that the commission find itself in a cleft stick out of which a proper balance had to be stricken between these somewhat conflicting considerations.
The researcher will peruse the report in its entirety to be able to elicit some vital information, which shall constitute valuable materials with which this dissertation is expected to be fleshed up.
Also, we will study the 1974/75-budget speech wherein the Federal Government announced its intention to introduce uniform taxation throughout the country. A thorough reading of this important archival document will reveal attempt by the Federal government to justify the introduction of uniformity of taxation in Nigeria; and its attendant problems. The researcher will sift the substance from that document and use it to strengthen his view in what shall make up the whole of this treatise.
[1] Fajana O. – Three-and-a-half decades of fiscal federalism in Nigeria In: Elaigwu J.I and Akindele R.A (ed) Foundations of Nigerian Federalism 1960 – 1995, NCIR, Abuja (1996) p.105
[2] Kupolati I. – Democratic Federalism in the cloud of Assault being one of the issues discussed as fourth Anniversary editorial message in (2004) All FWLR (P t 211) PXIX
[3] Ayua I.A. – The Nigerian Tax Law. Spectrum Law Publishing, Ibadan, First edition (1996) p. 25 see also Fajana O. op cit. 106
[4] Note that in 1914 what Nigeria achieved was only amalgamation not unification or unitarism, and at independence in 1960 it became a federation, not a unitary dispensation.
[5] Abiola S. – Division of Taxing Powers In: Abdulrazaq M.T. (ed) Chartered Institute of Taxation of Nigeria – Tax guide and statues, P. 650
[6] See generally sections 2 and 5 of the constitution suspension and modification Decree 107, 1993 quoted in Abiola S. op. cit P.650.
[7] Hon. Justice Mohammed Lawal Uwais (CJN)
[8] See New Nigerian Newspaper edition of 31st May, 2004 P.5
[9] Nwabueze B.O. – The United State Constitution in Global Perspective In: Olaniyan R.A. (ed) Federalism in Changing World. O.A.U. Press, Ile-Ife (1988) P.1
[10] Akindele R.A. – Nigeria in the Global Market of Experiments in Federalism In: Elaigwu J. I and Akindele R.A. (ed) Foundations of Nigerian Federalism, NCIR, Abuja (1996) P.1
[11] Constitution of the Federal Republic of Nigeria 1999