EFFECT OF EFFICIENCY TAX ADMINISTRATION IN TAX COMPLIANCE
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Background to the Study
Several groups have urged the government to revamp the country's tax system. Nigeria has a monolithic economy with a high reliance on the oil sector; this reliance renders the economy vulnerable to external manipulation and has a negative impact on the country's planning horizons. The recent global crisis has highlighted the need to recognize that overdependence on oil produces unneeded shocks, highlighting the necessity for diversification of the nation's resource base and long-term growth path. Oil is an exhaustible resource, whereas taxation is the government's only non-exhaustible veritable source of revenue production (Oloyede, 2020:1).
In most industrialized nations, governments levy a variety of taxes; individuals pay income taxes when they earn money, consumption taxes when they spend it, property taxes when they own a home or land, and estate taxes when they die. Federal, state, and municipal governments all collect taxes in the United States. Income taxes are key components of all developed countries' revenue streams.
As previously said, non-oil revenue, particularly tax revenue, has been the mainstay of most industrialized countries, as opposed to emerging countries, which continue to rely on primary products. In addition, while indirect taxes appear to be popular in rich countries due to larger returns, fewer administration costs, and higher compliance rates, the majority of underdeveloped countries continue to rely on direct taxes with lower compliance rates (Oloyele, 2020: 3).
The Nigerian tax system has undergone a number of improvements aimed at improving revenue collection and administration while minimizing enforcement costs. Recent improvements include the implementation of the TIN (Taxpayers Identification Number), which went into force in February 2018. The Automated Tax System (ATS), which allows individual taxpayers to track tax positions and issues, the E-Payment System (EPS), which improves payment procedures and reduces the incidence of tax touts, and the Enforcement Scheme (special purpose tax officers) have all contributed to an improvement in tax administration in the country.
In the face of crippling debt problems, as well as domestic and external financial imbalances, many developing countries have been forced to implement stabilization and adjustment policies that call for better and more efficient methods of mobilizing domestic financial resources in order to achieve financial stability and promote economic growth.
Taxation has rightfully been recognised as a key weapon in boosting domestic resource mobilization, and as a result, efforts to broaden the tax base and strengthen tax administration have increased. It is undeniable that taxing has been one of the most essential tools accessible to governments for mobilizing financial resources (Atta-Mills, 2016: Teidi, 2003 and Oloyede, 2020).
It goes without saying that the mere existence of well-defined tax regulations cannot guarantee the success of revenue collecting efforts. Tax administration must always be efficient and effective as a precondition for successful domestic resource mobilization. However, according to Surrey (quoted in Atta-Mills, 2016:1), it is becoming increasingly clear that tax administration requires significantly more attention if tax policy objectives are to be met. Much of tax policy is aimed at increasing revenues so that governments may carry out their economic planning. However, in Nigeria, successful administration of some existing taxes would produce a significant portion of the required additional revenue.
The Inter-American Centre for Tax Administrators (CIAT) defines "efficiency" as the level of performance of a tax administration's activity in terms of costs and productivity, whereas "effectiveness" relates to the level of tax payer compliance. Musgrave (cited in Attah-Mills, 2016). The following are some of the benefits of successful and efficient tax administration:
I It aids in the generation or mobilization of more revenue, allowing governments to achieve greater financial independence and supporting the pursuit of growth-oriented structural change.
(ii) It eliminates the need for increased tax rates or additional taxes, as well as the elimination or reduction of burdensome taxes without diminishing yield, and (iii) It facilitates the adoption of straightforward and easy-to-administer tax regulations, making noncompliance more difficult. Furthermore, the existence of an efficient tax administration improves the ability of such governments to effectively enforce taxes with potentially large revenue yields.
An efficient tax administration in the country can also aid in the development of methods to successfully tax the informal and agricultural sectors of the economy, which have remained largely untaxed despite their inherent potential to provide a reasonable portion of the government's required revenues. However, one distinguishing feature of the country is its low tax burden. While the average tax effort level in poor countries is projected to be around 18 percent of GDP, the average for industrialized countries is around 24 percent (Atta-Mills, 2016).
As a result, the government's tax efforts must be increased. The government's low tax effort, which reflects weak tax administrations, has resulted in: I governments being forced to adopt taxes that are easy to administer even if their revenue yields are low, thereby avoiding more sophisticated taxes whose implementation requires high levels of administration sophistication.
(ii) Reduction in the number of tax options available to governments, making it difficult for them to conduct a comprehensive review of their tax laws in order to make them simple, clear, equitable, and neutral.
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