The Impact of Tax Collection Efficiency on Public Sector Financing: A Case Study of the Federal Inland Revenue Service (FIRS)
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Background of the Study
Tax collection efficiency plays a crucial role in the ability of governments to finance public sector programs and infrastructure. In Nigeria, the Federal Inland Revenue Service (FIRS) is tasked with overseeing tax collection for the federal government, ensuring that businesses and individuals comply with tax laws and regulations. Efficient tax collection is necessary for funding various government expenditures, including healthcare, education, security, and public infrastructure.
Despite efforts by the FIRS to streamline tax collection processes and improve compliance, Nigeria still faces significant challenges in achieving optimal tax collection efficiency. These challenges include issues related to tax evasion, corruption, inefficient use of technology, and inadequate data on taxpayers. The gap between the potential tax revenue and actual collections is substantial, which directly affects the government's ability to finance its public sector operations. As a result, the government often faces budget deficits and has to rely on external borrowing, which affects long-term fiscal sustainability.
The FIRS has undertaken several initiatives to improve tax collection, including the introduction of online tax payment systems, data-driven enforcement mechanisms, and the expansion of the tax base. However, there remains a need to assess the impact of these reforms on the efficiency of tax collection and the overall ability of the government to finance public services.
This study will focus on the FIRS as a case study, evaluating the impact of tax collection efficiency on public sector financing in Nigeria and identifying key areas for improvement in the country's tax administration.
Statement of the Problem
Tax collection efficiency is central to the ability of governments to finance public sector activities, yet Nigeria continues to struggle with low tax revenue relative to its economic potential. Despite efforts by the FIRS to enhance tax collection, there are significant inefficiencies, including underreporting, non-compliance, and inadequate enforcement. The effectiveness of tax collection mechanisms in financing public sector expenditures is unclear, as there is a need to explore how improvements in tax collection efficiency could positively impact the government’s ability to meet its financial obligations.
This study aims to examine the relationship between tax collection efficiency and public sector financing, specifically focusing on the role of the FIRS in improving tax collection and the impact on government revenue generation.
Objectives of the Study
- To evaluate the effectiveness of the FIRS in improving tax collection efficiency in Nigeria.
- To assess the impact of improved tax collection efficiency on public sector financing.
- To identify challenges faced by the FIRS in improving tax collection efficiency.
Research Questions
- How effective has the FIRS been in improving tax collection efficiency in Nigeria?
- What is the impact of tax collection efficiency on the ability of the Nigerian government to finance public sector activities?
- What challenges does the FIRS face in improving tax collection efficiency?
Research Hypotheses
- H0: The FIRS has not significantly improved tax collection efficiency in Nigeria.
- H0: Improved tax collection efficiency has not significantly impacted public sector financing in Nigeria.
- H0: The FIRS faces significant challenges in improving tax collection efficiency.
Scope and Limitations of the Study
The study will focus on the role of the FIRS in improving tax collection efficiency in Nigeria, with an emphasis on its impact on public sector financing. The period of focus will be from 2015 to 2025. Limitations include difficulties in obtaining detailed internal data from the FIRS and challenges in measuring the direct impact of tax collection efficiency on public sector financing.
Definitions of Terms
- Tax Collection Efficiency: The effectiveness with which a government collects taxes from businesses and individuals, relative to the total potential tax revenue.
- Public Sector Financing: The funding of government expenditures, including infrastructure, public services, and social welfare programs, through tax revenue and other sources.
- FIRS: The Federal Inland Revenue Service, the agency responsible for tax administration in Nigeria.
- Tax Evasion: The illegal practice of deliberately avoiding paying taxes owed to the government.
- Tax Compliance: The degree to which taxpayers adhere to tax laws and regulations.
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