An Overview of the Nigerian Tax System by Olamide Animashaun
According to Black Law’s dictionary, tax is a monetary charge imposed by the government on persons, entities and transactions or property to yield public revenue.[1]It encompasses all governmental impositions on the person, property, privileges and includes duties, imposts and excises. Taxes aids in financing public health and education, national defence and security in a country, roadway construction and social service programs. According to J. S. Mill, “Taxes are either direct or indirect. A direct tax is one, which is demanded from the very persons who, it is intended or desired, should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another.”
CANONS OF TAXATION.
A canon of taxation in its simplest form means the characteristic or quality which a good tax system should possess. Canons of taxation refer to the administrative aspects of a tax. They relate to the rate, amount, method of levy and collection of a tax.
According to Adam Smith, there are four canons or maxims of taxation on the administrative side of public finance which are still recognized as classic. To him, a good tax is one which contains:
1. Canon of equality or equity.
2. Canon of certainty.
3. Canon of economy.
4. Canon of convenience.[2]
To these four canons, economists like Charles Bastable have added a few more which are as under:
5. Canon of elasticity.
6. Canon of productivity.
7. Canon of simplicity.
8. Canon of diversity.
9. Canon of expediency[3]
EXPLANATION OF THE TYPES OF CANONS OF TAXATION.
Canon of Equality: Every fiscal economist, along with Adam Smith, stresses that taxation must ensure justice. The canon of equality or equity implies that the burden of taxation must be distributed equally or equitably in relation to the ability of the tax payers.
Equity or social justice demands that the rich people should bear a heavier burden of tax and the poor a lesser burden. Hence, a tax system should contain progressive tax rates based on the tax-payer’s ability to pay and sacrifice.
Canon of Certainty: Taxation must have an element of certainty. According to Adam Smith, “the tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the amount to be paid ought to be clear and plain to the contributor and to every other person.”
The conditions to fulfil for certainty of taxation are:
1. Certainty of effective incidence i.e., who shall bear the tax burden.
2. Certainty of liability as to the tax amount payable in a particular period. This the tax payers as well as the exchequer should unambiguously know.
3. Certainty of revenue i.e., the government should be certain about the estimated collection of revenue from a given tax levied.
Canon of Economy: This principle suggests that the cost of collecting a tax should not be exorbitant but be the minimum. Extravagant tax collection machinery is not justified. According to Adam Smith, “Every tax has to be contrived as both to take and keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state.” Owing to the complex and ever-changing nature of taxation laws in India for instance, government has to maintain elaborate tax collection machinery with a large staff of highly trained personnel involving high administrative costs and inordinate delay in assessment and collection of tax, which is not exactly in compliance with this canon.
Canon of Convenience: According to this canon, tax should be collected in a convenient manner from the tax payers. Adam Smith stresses “Every tax ought to be levied at the time or in the manner in which it is most likely to be convenient for the contributor to pay it.” For example, it is convenient to pay a tax when it is deducted at source from the salaried classes at the time of paying salaries.
Canon of Elasticity: Taxation should be elastic in nature in the sense that more revenue is automatically fetched when income of the people rises. This means that taxation must have built-in flexibility.
Canon of Productivity: This implies that a tax must yield sufficient revenue and not adversely affect production in the economy.
Canon of Simplicity: This norm suggests that tax rates and tax systems ought to be simple and comprehensible and not be complex or beyond the understanding of the layman.
Canon of Diversity: Canon of diversity implies that there should be a multiple tax system of diverse nature rather than having a single tax system. In the former case, the tax payer will not be burdened with a high incidence of tax in the aggregate.
Canon of Expediency: This suggests that a tax should be determined on the ground of its economic, social and political expediency.
Animashaun Olamide Ololade is a Final Year student of the Faculty of Law, University of Lagos. She has a keen interest in Dispute Resolution and is an Associate Member of the Institute of Chartered Mediators and Conciliators of Nigeria. She is the current Director of Research of the Maritime Forum Unilag and she has also attained a certification from Harvard University’s
Copyright X program. Olamide has interned in prestigious firms such as Banwo and Ighodalo, Aluko and Oyebode amongst others. She has also participated both in delegate and Staff capacity at Various Model United Nations regionally in Lagos and Ghana and internationally in the United States. She is a seasoned writer and has been featured on Lawyard occasionally and Unilag Law Review and has been an Editor-in-Chief for an online and print publication. She is the immediate past Public Relations Officer of the Law Students Society. She has also maintained a good academic standing throughout her stay in school till date. She is driven by excellence and aspires to be an expert in Dispute Resolution.
[1] Black Laws Dictionary.
[2] The Wealth of Nations- Adam Smith
[3] Public Finance 1892- Charles F. Bastable
