BUSINESS MANAGEMENT: EMPHASIS ON TAX PRACTICE
BY
AUSTIN UCHE NWEZE, PhD (Nig), FCA, FCTI, JP…
Former Head,
Department of Accountancy,
ENUGU STATE UNIVERSITY OF SCIENCE and TECHNOLOGY
&
Visiting Professor of Accounting
MADONNA UNIVERSITY, OKIJA
Being a Paper Presented at the Three-Day Pre-Induction Training Programme for the Wouldbe Associate Members of the Chartered Institute of Taxation of Nigeria (CITN)
AT
Lagos Airport Hotel, Ikeja, Lagos, Nigeria
On
May 21, 2013
BUSINESS MANAGEMENT: EMPHASIS ON TAX PRACTICE
 Austin Uche Nweze, PhD(Nig), FCTI
Introduction
To enhance the flow of thought, it’s necessary we provide both the dictionary and
the technical meanings of the terms in this our title.
The Merriam-Webster’s Dictionary and Thesaurus of the Encyclopedia Britannica,
Student and Home Edition, provides the under-mentioned ten definitions of the
term business thus:
Busi·ness \'biz-nəs, -nəz, Southern also 'bid-\ n, often attrib, [ME bisynesse, fr. bisy
busy + -nesse -ness] (14c)
1 archaic: purposeful activity: busyness
2 a : role function ‹how the human mind went about its ~ of learning —H. A.
Overstreet›
b : an immediate task or objective : mission ‹what is your ~ here› c : a particular
field of endeavor ‹the best in the ~›
3 a : a usu. commercial or mercantile activity engaged in as a means of livelihood :
trade line ‹in the restaurant ~›
b : a commercial or sometimes an industrial enterprise ; also: such enterprises ‹the
~ district›
c : dealings or transactions esp. of an economic nature : patronage ‹took their ~
elsewhere›
4 : affair matter ‹the whole ~ got out of hand› ‹~ as usual›
5 : creation concoction
6 : movement or action (as lighting a cigarette) by an actor intended esp. to
establish atmosphere, reveal character, or explain a situation called also stage
business
7 a : personal concern ‹none of your ~› b : right ‹you have no ~ speaking to me
that way›
8 a : serious activity requiring time and effort and usu. the avoidance of
distractions ‹got down to ~› b : maximum effort
9 a : a damaging assault b : rebuke tongue-lashing c : double cross
10 : a bowel movement — used esp. of pets
syn BUSINESS COMMERCE TRADE INDUSTRY TRAFFIC mean activity concerned with
the supplying and distribution of commodities. BUSINESS may be an inclusive term
but specifically designates the activities of those engaged in the purchase or sale of
commodities or in related financial transactions. COMMERCE and TRADE imply the
exchange and transportation of commodities. INDUSTRY applies to the producing of
commodities, esp. by manufacturing or processing, usu. on a large scale. TRAFFIC
applies to the operation and functioning of public carriers of goods and persons.
syn see in addition work
From the above definitions and from other sources, we can define business as any
profit-oriented lawful activity which is directed at satisfying the needs of
various stakeholders, including the owners, employees, government and the
general public.
Also, according to the Merriam-Webster’s Dictionary and Thesaurus of the
Encyclopedia Britannica, Student and Home Edition, the term management has the
following meanings:
Man·age·ment \'ma-nij-mənt\ n (1598)
1 : the act or art of managing : the conducting or supervising of something (as a
business)
2 : judicious use of means to accomplish an end
3 : the collective body of those who manage or direct an enterprise
— man·age·men·tal \"ma-nij-'men-təl\ adj
Technically, we see management as the science of applying Planning,
Organising, Commanding, Co-ordinating and Controlling on the factors of
production to achieve the desired goals of an enterprise or people.
The afore-mentioned Dictionary also provided the definitions of tax thus:
1Tax \'taks\ vt [ME, to estimate, assess, tax, fr. AF taxer, fr. ML taxare, fr. L, to
feel, estimate, censure, freq. of tangere to touch — more at tangent] (14c)
1 : to assess or determine judicially the amount of (costs in a court action)
2 : to levy a tax on
3 obs: to enter (a name) in a list ‹there went out a decree…that all the world should
be ~ed —Lk 2:1(AV)›
4 : charge accuse ‹~ed him with neglect of duty› ; also: censure
5 : to make onerous and rigorous demands on ‹the job ~ed her strength›
— tax·able \'tak-sə-bəl\ adj
— tax·er n
2Tax n, often attrib, (14c)
1 a : a charge usu. of money imposed by authority on persons or property for
public purposes
b : a sum levied on members of an organization to defray expenses
2 : a heavy demand
Given the importance of tax and its central nature in our discussion, we consider it
very appropriate to do a brief literature review in order to bring out the meanings
of the term tax.
Brief Literature Review on Tax:
From the lecture series of the National Open University of Nigeria (NOUN) and in
a plain language, the Oxford English Dictionary (1973) has defined tax as ‘a
compulsory contribution to the support of government levied on persons’ property,
income, commodities, transactions, etc, now at a fixed rate proportionate to the
amount on which the contributions is levied’. However, to further simplify this
definition, the Oxford Advanced Learner’s Dictionary (2006) defined tax as
‘money that you have to pay to the government so that it can pay for public
services.’ It further concluded that ‘people pay tax according to their income and
businesses pay tax according to their profits. Tax is also often paid on goods and
services.’
Another definition supplied by Investwords.com refers to tax as ‘a fee charged by a
government on a product, income or activity.’
The word tax was further judicially defined in the Australian case of Mathews v
Chicory Marketing Board (1938) 60 CLR 263 as ‘a compulsory exaction of money
by a public authority for public purpose or raising money for the purpose of
government by means of contributions from individual persons.’
Take note that there is no legislative definition for tax. That is, there is no
definition of tax in all our laws relating to tax. Thus, we shall only rely on the
available definitions.
You should also note that the definition supplied in the Oxford Dictionary has been
criticized as inadequate by various writers. According to Chris White H. in his
book, Revenue Law: Principles and Practice, the definition is inadequate because
it has limited its view as to the purpose of tax. He further stated that its description
of tax base was irrelevant and it places unnecessary emphasis on proportional
taxation as opposed to progressive taxation.
Another writer, Abdulrazaq, M. T. (1993), however tried to rectify this anomaly by
adding a criterion to the incomplete definition by adding that ‘taxes are imposed
under the authority of the legislature that they are levied by a public purpose.’
However, despite the various definitions, you should note that a proper tax within
the above definitions must be one backed by legislation and must be a deduction
that gives to treasury of the authorities concerned with revenue generally. Also the
compulsory nature of tax should also be noted.
Tax should not however be confused with other forms of compulsory contribution
which bear semblance with it. The criterion of the compulsory nature of tax
becomes clearer when distinguishing a tax from a charge for a government service.
Firstly, if a payment is a charge for a government service, some service must be
provided directly to the individual. For example, there is difference between
paying a bridge toll and paying a tax to be used for the defence of one’s country.
Secondly, the charge must be related to the service given, and not varied according
to the person’s ability to pay or to some other criterion such as the value of his
property.
We would therefore recommend the definition supplied in Aiyar’s Concise Law
Dictionary (2009) as the most apt and encompassing definition. Thus:
Tax was defined as ‘a compulsory exaction of money by a public authority for
public purposes enforceable by law and is not payment for services rendered.’
Finally on the definitions, the Merriam-Webster’s Dictionary and Thesaurus of the
Encyclopedia Britannica, Student and Home Edition, defines practice thus:
1Prac·tice also prac·tise \'prak-təs\ vb, prac·ticedalso prac·tised prac·tic·ingalso
prac·tis·ing [ME practisen, fr. MF practiser, fr. ML practizare, alter. of
practicare, fr. practica practice, n., fr. LL practice, fr. Gk praktikē, fr. fem. of
praktikos] vt(14c)
1 a : carry out apply ‹~ what you preach›
b : to do or perform often, customarily, or habitually ‹~ politeness› c : to be
professionally engaged in ‹~ medicine›
2 a : to perform or work at repeatedly so as to become proficient ‹~ the act› b : to
train by repeated exercises ‹~ pupils in penmanship›
3 obs: plot vi
1 : to do repeated exercises for proficiency
2 : to pursue a profession actively
3 archaic: intrigue
4 : to do something customarily
5 : to take advantage of someone ‹he practised on their credulity with huge success
—Times Lit. Supp.› — prac·tic·er n
2Practice also practise n (15c)
1 a : actual performance or application ‹ready to carry out in ~ what they
advocated in principle› b : a repeated or customary action ‹had this irritating ~›
c : the usual way of doing something ‹local ~s›
d : the form, manner, and order of conducting legal suits and prosecutions
2 a : systematic exercise for proficiency ‹~ makes perfect›
b : the condition of being proficient through systematic exercise ‹get in ~›
3 a : the continuous exercise of a profession
b : a professional business ; esp: one constituting an incorporeal property habit
In this our discussion, we shall see practice as science of applying one’s
professional and technical knowledge to render specialized and skilled
services to a certain clientele base.
2.0 Elements of Business Management
To be able to manage a business successfully, one must necessarily appreciate
certain fundamental elements in business. These elements include:
2.1 Essential Characteristics of Business:
The fundamental characteristics of business are wealth creation, price, transaction
and profits.
2.2 Objectives of Business:
According to Akpala (1990: 53), business objectives can be classified into
economic and social. Whereas economic objectives are spelt out in terms of sales
volume, share of the market, naira profit margin, returns on capital and other
pertinent factors, social objectives concern the goals of an organization with
respect to its organizational responsibilities to the enterprises’ employees,
shareholders, customers, governments and the general public.
To Onuoha (1991:79), specific objectives of any business organization include:
(a) To produce and distribute goods and services effectively and efficiently in
order to ensure that the needs and desires of its customers are satisfied.
(b) To achieve the production and distribution objectives at a profit.
(c) To increase its market share.
(d) To protect the health and well-being of its employees through the provision
of a conducive working environment and a good condition of service in the
form of good wages, salaries, generous fringe benefits and job security.
(e) To be a good corporate citizen through the maintenance of cordial
relationship with its neighbours, competitors, customers and the community
in which it operates.
(f) To achieve sound growth and survival.
2.3 Classification of Business:
According to Enudu (2004:7), the extent and nature of business activities are
almost as diverse and comprehensive as the totality of the social and economic
interest of man. As a result, many authors and scholars, have attempted to classify
business in various ways. These include: By the level of activity (primary,
secondary and tertiary businesses); By legal structure (incorporated and
unincorporated); By sector (Private and public sector businesses); and By the kind
of Activity engaged in (Commercial, Industrial and Service-oriented activities)
However, for the purpose of this discourse, we shall adopt the last classification,
that is, by the kind of Activity engaged in (Commercial, Industrial and Serviceoriented activities).
Broadly speaking, whereas Commercial and Industrial activities essentially have to
do with tangibles, Service-oriented Industry has to do with intangibles.
Commerce: Buying and Selling. They could be mainly retailers and wholesalers.
Others include: jobbers, brokers, distributors and manufacturers’ representatives.
Industry: Production of goods and services. Industry is generally, divided into
three, namely, extractive, manufacturing and construction industries.
Service-oriented: They include, Recreational Services (hoteliers, actors and
actresses….); Personal Services (Laundry, Beauty shops, photographic studios etc)
Consultancy Services (Management Consultancy, Financial, Investment, MIS,
Marketing, Risk Management, Land Use and Development, Engineering
Consultancy, Legal Consultancy…..)
Research and Development Service: This could include research into materials
and product development, software information system, specialized machines,
system development…).
Tax Practice comes under the Service-oriented Activity
2.4 Motives for Going into Business
The following are the major motives why people go into business: Profit, Social
approval, Personal Satisfaction, Livelihood, Power, Protection, Independence,
Service to the Community and to Employees.
2.5 The Major Functions of a Manager:
According to Enudu (2004), what is today known as the managerial functions were
the result of the writings of Henri Fayol who stated that the activities performed in
most industrial ventures are grouped into six, namely, Technical (Production,
Manufacturing, …) Commercial (Buying, Selling and Exchange…), Financial
(Sourcing and Applications capital…), Security (Security of lives and Property),
Accounting (Financial Records and Management Information) and Managerial
activities (Planning, Organising, Commanding, Co-ordinating and Controlling).
We shall now focus on the managerial activities in a Business.
2.60 Managerial Activities in Business:
The very first step in managing a business is planning. Yes, in every facet of life,
planning is fundamentally important. This is because “if you fail to plan, then you
have planned to fail”
According to United Nations Conference on Trade and Development (2002), a
business plan is a comprehensive, written description of the business of an
enterprise. It is a detailed report on a company's products or services, production
techniques, markets and clients, marketing strategy, human resources,
organization, requirements in respect of infrastructure and supplies, financing
requirements, and sources and uses of funds.
The business plan describes the past and present status of a business, but its main
purpose is to present the future of an enterprise. It is normally updated annually
and looks ahead for a period of usually three to five years, depending on the type
of business and the kind of entity.
It is a crucial element in any application for funding, whether to a venture capital
organization or any other investment or lending source. Therefore, it should be
complete, sincere, factual, well structured and reader-friendly.
2.61 Why a business plan?
There are many important reasons for drawing up a business plan. Some of the
most significant are the following:
• Getting an integrated view of your business.
• Mutual understanding within the management team.
• Determining financial needs and applying for funds.
• Approval from board of directors/shareholders.
• Recruiting.
• Deriving objectives for employees.
• Informing employees.
• Informing lenders.
• Informing partners.
For a new business, the starting point of our planning process is the preparation of
feasibility studies.
2.62 Feasibility Studies
Except when one is acquiring an existing business (which requires a different set of
appraisal techniques), one must necessarily carrying out some feasibility studies
before starting a new business. Broadly speaking, feasibility studies focus on two
major areas, namely, feasibility and viability tests. Whereas, feasibility tests for
technical workability or practicability, viability tests for accounting profits. These
studies are crucial for every new business venture, so that we look before we
leap. Armed with our studies, we now go into other aspects of planning.
2.63 Other Aspects of Business Planning:
Other aspects of planning essentially involve looking into the future to visualize
and determine future actions that will lead to the realization of the desired
objectives. This will include developing vision and mission statements (Examples:
University of Nigeria, “To Restore the Dignity of Man”; Gulder, “The
Ultimate”; Satzenbrau, “The Final Word”; Heineken, “Chairman”; Santana,
“Nothing More to Add” Nicon Nuga, “To spoil you a Little” Even, in my school
days as an undergraduate of the University of Nigeria, we used play inter-hostel
games. My hostel had its own slogan, “it’s either we win or they lose” And of
course, in a zero-sum game, the obvious interpretation is that we must win.
Propelled by such precise but powerful statements, planning processes are
consummated by providing answers to the following questions, amongst others:
Who? What? When? Where? How? Who refers to the individual; what refers to the
task; when refers to the time the task has to be accomplished; where refers to the
location where the task has to be accomplished and how provides answers as to the
processes that must necessarily be undertaken for the task to be done.
2.64 What are the steps in the planning process?
Relying on Mcfarland ((1979) and Onuoha (1993), quoted in Enudu (2004), we
can state the planning process as follows:
(i)
The identification of the present inadequacies that desire change.
(ii) Making some assumptions or premises about the future.
(iii) Collection and analysis of data relating to the issue at hand.
(iv)
Development of alternative plans based on the analysis of the data
collected.
(v) Making choices among the alternative plans.
(vi) Implementing the chosen plans
(vii) Evaluating/Monitoring of the plan and giving of feedback.
Also, according to United Nations Conference on Trade and Development (2002),
a business plan should not be something you prepare once, then put on a shelf and
forget. Dynamic planning should be an integral part of managing your business.
Most successful ventures prepare a three-to-five year business plan every year.
This involves updating last year’s business plan by comparing the planned figures
and goals with results achieved and taking into account changes, new information,
experiences and new ideas. The steps involved in the business planning process are
the following:
(i). Assessing the situation
(ii). Developing a mission
(iii). Getting ready
(iv). Setting goals
(v). Working out the business plan
(vi). Setting employee objectives
(vii). Monitoring the process
2.65 Format and organization of a business plan
Before discussing the content (substance) of a business plan, it is important to
consider some basic issues regarding its format and presentation. If the plan has to
look professional and to be a useful tool, then there are a number of points that
require special attention, as discussed below.
• The cover. The purpose of a cover page is to tell readers what they are about to
read and how to reach the author. The cover of the document is often the first
impression of a business that any interested parties or investors get. Your cover
page is also a way to make your business plan noticed. Financiers receive
numerous business plans every week, but something as simple as a cover page on
good-quality paper may attract their attention (and thus ensure that they give
higher priority to the business plan). Your cover should bear the words "Business
Plan" and should include:
� The legal name of the business;
� The entity's logo. (If you have spent time and effort on a company logo, slogan
or other identifying graphic or text, the cover page is the place to put it. If you have
not considered these basic marketing tools, you are advised to do so. Building an
identity is vital if you want people to recognize and remember your business.);
� The date of preparation or modification of the document, and the period it
covers.
� The address;
� The telephone number;
� The fax number;
� The e-mail address and website (Internet address) if applicable;
� Other contact information, if any.
� Optional: a notice advising the reader that the plan is confidential. If you have
prepared multiple copies of your business plan, you might also put a copy number
on the cover page to ensure control of distribution.
The cover should be attractive and look professional. The fonts used should be
easily readable, and colour contrasts should be pleasant to the eye. Any nice
graphic or photograph could make it look even more appealing.
• Table of contents. Your table of contents provides readers with a quick and easy
way to find individual sections in the plan. Be sure to list headings for major
sections as well as for important subsections. If your table of contents is more than
one page long, reconsider the length of the entries, the length of your plan and the
number of documents you have attached.
• Paper. Print the plan on good-quality paper. Print on one side of the paper only.
• Contact person. Be sure to include identifying information for the business and to
name the person who should be contacted regarding the plan.
• Fonts. Use a typeface that is easy to read and a font size that is large enough to
prevent eye strain. This may require tables with financial projections to be spread
over several pages in order to maintain legibility.
• Margins. Maintain reasonably wide margins. These are useful to readers for
noting their questions and comments.
• Terms and acronyms. If your business uses specialized terminology or acronyms,
use them sparingly and be sure that you define any terms that someone outside
your area of expertise would not know.
• Page numbers. Number the pages, and be sure that these numbers are correct in
the table of contents.
• Size of document. Keep the plan short and concise. Limit the inclusion of
extraneous material. You can always provide additional detail in an appendix, if
required.
• Samples. Include in the appendix samples of advertisements, marketing material
and any other information that aids the presentation of your plan.
• Editing. Be certain to edit the document carefully. Spelling mistakes and
grammatical errors do not make a good impression. Modern word-processing
software provides effective spelling and grammar checking tools - use them. It is
worthwhile having one or two persons to read and check the text and figures again.
• Binding. Bind the document so that it lies flat when opened.
• Overall quality of presentation. Do not go overboard on expensive binders,
binding, embossing etc. According the form of the plan more importance than its
substance can raise doubts among those reading it. But not let it look cheap or
sloppy.
Permit me, at this point, to observe that budgeting and planning are not synonyms.
For a plan to become a budget, two other ingredients must necessarily be there.
The ingredients are: The plan must be quantitative in nature and it must be
denominated in monetary terms. Therefore, a budget is a plan, but a plan is not a
budget. We can draw similar inferences in Mathematics, namely, a Square is a
Rhombus but a Rhombus is not a Square and a Rectangle is a Parallelogram
but a Parallelogram is not a Rectangle. Even in our profession, every Auditor is
an Accountant but every Accountant is not an Auditor.
Finally, to say the least, planning is an indispensable tool in modern business
management!
2.7 Organization:
Organization basically revolves around structuring, staffing and establishment of
relationships between the various components of the entity, aimed at using people
to achieve the desired goals.
Here, we also talk about delegation of authority, centralization and
decentralization.
2.8 Directing/Commanding:
As a managerial function, directing is all about issuing of orders and creation of
enabling environment for disciple and rule of law. Communication, which is a
two-way process of exchanging facts, thoughts, opinions and emotions is an
essential instrument of directing.
2.9: Controlling/Evaluation:
Planning and control are said to be the opposite sides of the same coin. While one
is the head the other is the tail. This means that they are inseparable. At the
evaluation stage, a comparison is made to check whether the set goals were
realized or not. In Management Accounting parlance, at this stage, we carry out
Variance Analysis, that is, comparing the actual with the planned.
3.0 Tax Planning, Practice and Administration:
The general principles of an Ideal Tax
A writer, Adam Smith who, in his book, The Wealth of Nations, described the
ingredients as ‘cannons of taxation’, and Kath Nightingale (2001) in Theory and
Practice of Taxation stated that a good tax must possess the following:
(a). Simplicity: A good tax system must be straightforward, simple and coherent.
The concept and principles of the tax must be understood by majority of the
citizens and also must be simple to operate. There must also be consistency in
administration of the tax among the different strata of government.
(b). Equity: An ideal tax must be administered on the principles of equity. There
are two types of equitable principles in the taxing system – horizontal equity and
vertical equity. What we mean by horizontal equity is that those in equal
circumstances should pay an equal amount of tax. And when we say vertical
equity, it means that those in unequal circumstances should pay different amount
of tax. The importance of this criterion is to install confidence in the tax payer who
will be more willing to pay their taxes if they believe that the system is fair and
equal.
©. Ability to pay: By this, we mean that the tax must not be unbearable for the tax
payers. It must be within their financial capability.
(d). Administrative Efficiency: The administrative costs should not be higher than
the revenue yielded. Also the tax must take into account certain factors such as, the
effects on economic incentives, and whether it is compatible with desirable
international economic relations.
(e). Certainty: The scope of the tax should be clear. This criteria also means the
certainty that the tax can and will be enforced, because a tax that is easily evaded
usually causes resentment and often a decline in tax payer morality. Also the tax
which every person is bound to pay ought to be certain and not arbitrary.
(f). Flexibility and Stability: The tax system should be flexible especially in a
federal and democratic country such as Nigeria where there are always changes in
government.
(g). Neutrality: A tax must be neutral thus it must avoid distortions of the market.
For instance, a selective tax, such as the sales tax, is not neutral, because it
encourages the consumer to spend his money on another item rather than a taxable
one.
3.1 Persons subject to Tax
Tax is not imposed upon nothing. The entity to be taxed and the source(s) of the
income to be taxed must be identifiable. However, it is necessary to state here that
the person upon whom tax assessed and from whom tax is collected is known as
‘assessable person’.
The assessable person is the person whether artificial or real who resides in any
part of the country in a particular year of assessment with express exemption of
religious, charitable, trade union, labour organizations and government boards,
states and corporation. There are personalities relevant to the process of levying
and collection of tax. The taxable persons therefore include:
i. Individuals,
ii. Sole proprietors,
iii. Partnerships,
iv. Companies,
v. Communities and families,
vi. Trustees and executors.
The taxes of all of these persons except the company are chargeable under the
PITA while the taxes chargeable to a company are assessed under the CITA.
3.2 Determination of Residence as a Basis for Taxation
After we have identified the persons liable to pay tax, another issue that is very
germane to the proper administration of tax is that of residence of the tax payers.
This is because the determination of the residence of the tax payers will resolve the
relevant tax authority that will collect the tax. Resolving the issue of residency also
affect the scope and type of deductions and relief that may be allowed to a
particular tax payer. For example, the amount that would be deducted as PAYE for
a person resident in Lagos would be different from the amount to be deducted from
the income of a person resident in Dutse.
Generally, residence means living in a particular locality and it may be possible
that a person has two places of residence. Residence therefore connotes the idea of
remaining and settling in a place for a fairly long period. It is for this reason that
residence is used to determine liability to personal income tax.
The Personal Income Tax Act considered the question of where a person is deemed
to be resident in a particular year of assessment along the following lines:
a. Individuals in Employment on 1st January of a particular year
A place of residence is defined under paragraph 1 of the First Schedule to the PITA
in relation to an individual to mean ‘a place available for his domestic use in
Nigeria on a relevant day, and does not include any hotel, rest house or other
places at which he is temporarily lodging unless no more permanent place is
available for his use on that day.’
However, where an individual has two or more places of residence, his tax would
be administered by the tax authority within his principal place of residence. And
the phrase ‘principal place of residence’ in relation to an individual with two or
more places of residence on a relevant day not being both within a State means:
i. for an individual who is a pensioner, with no other source of income, his
principal place of residence is that particular place or those places that he usually
resides.
ii. for an individual who earns his income from paid jobs in Nigeria (that is not
pensioner), his principal place of residence is that place or those places which on a
relevant day is nearest to his usual place of work
iii. for an individual who has a source or sources of unearned income in Nigeria,
his principal place of residence is that place or those places in which he usually
resides.
b. Individuals taking up Employment within the Year
A person taking up an employment or trade during a particular year of assessment
is deemed to be resident for that year in place where he has a place of residence or
principal place of residence if he resides in resides in two or more places in an
assessment year.
c. Persons on Leave from Employment at 1st January
An individual who is on leave from a Nigerian employment on the first day of
January in a year of assessment shall be deemed to be resident for that year by
reference to his place or principal place of residence immediately before his Leave
begins.
d. An Indvidual who is in a Foreign Employment on 1st January
An individual who holds a foreign employment on the first day of January of the
year of assessment, the duties of which are performed in Nigeria (apart from
temporary visits of the employee to Nigeria), is deemed to be resident in that year
in the territory in which the main or principal office is situated on that day.
e. Armed Forces Personnel
A member of the Armed Forces (employed in combatant capacity) is deemed to be
resident in the Federal Capital Territory for tax purposes in the year of assessment.
f. Trustees
The tax to be paid on the estates managed by trustees on a year of assessment
would be payable to the tax authority in charge of the place where the Trustee has
a place or place of business (registered office) in the assessment year.
g. Executors
The tax to be paid with respect to the estates managed by an executor would
collected by the tax authority in charge of the place where the deceased was last
resident.
h. Itinerant Worker
In the case of an itinerant worker, tax may be imposed for any year by any state, in
which the itinerant worker is found mostly during the year.
i. Communities
Community income is taxed by the tax authority of the State where the members of
the community are usually resident. That is, the State in which the community is
found during the year of assessment.
j. Corporation Sole, Partnership or Body of Individuals
A corporation sole, partnership or body of individuals other than a family or
community shall be deemed to be resident for a year of assessment in the State in
which its principal office in Nigeria is situated on the first day of January in that
year. But the corporation sole, partnership or body of individuals has no office in
Nigeria on that day, its place of residence shall be the State in which any part or
the whole of its income liable to tax in Nigeria arises for that year.
3.4 Liability to tax and tax administration
Section overview
3.41 Individuals
An individual may be liable to the following taxes:
employment and income from a business which he operates as a sole trader or as a
member of a partnership
ts owned by him as
investments or used in his sole trade or partnership
consumer of goods or services
An individual is taxed annually on his income and gains arising in a tax year.
Definition
Tax year: 1 January to December 31, in one calendar year.
The tax year running from January 1 to December 31, 2013 is called the 2013 tax
year.
3.42Partnerships
A partnership is a group of persons carrying on a business together with a view to
making a profit.
Each partner is liable to tax on his share of income and gains of the partnership in a
tax year, but not for tax on the shares of income and gains of the other partners.
The partners are jointly and severally liable for the following taxes:
and employee contributions are collected under the PAYE system)
consumer of goods or services
'Joint and several' liability means that these taxes can be recovered from all or any
of the partners
3.43 Companies
A company is a legal person formed by incorporation under the Companies Acts. It
is legally separate from its owners (shareholders) and its managers (directors).
A company is liable for the following taxes:
d gains
and employee contributions collected under the PAYE system)
upplier of goods and services or as the final
consumer of goods or services
The rate of corporation tax is determined by reference to the financial year.
Definition
Financial year: 1 January to 31 December in one calendar year.
The financial year running from Jan 1 to Dec 31, 2013 is called Financial Year
(FY) 2012.
4.0 Relevant Tax Laws
Before we identify the relevant laws that govern tax administration, it should be
noted that in order to promote uniformity, the Nigerian constitution vested the
legislative power for income tax, whether individuals or corporate, on the federal
government. It only delegates the administration of the various taxes to the tiers of
government. Thus the major taxes in terms of revenue, economic and equity
significance
are
enacted
under
Federal
Laws.
Such tax laws presently operating include:
a. Personal Income Tax (Amendment) Act 2011
b. Companies Income Tax Act, Cap C21, LFN 2004.
c. Value Added Tax Act, Cap V1, LFN 2004.
d. Stamp Duties Act, Cap S8, LFN 2004.
e. Petroleum Profit Tax Act, Cap P13, LFN 2004.
f. Capital Gains Tax Act, Cap C1, LFN 2004.
h. Taxes and Levies (Approved List of Collection) Act, Cap T2, LFN 2004.
i. Customs, Excise Tariff, etc. (Consolidation) Act (as amended)
j. Education Tax Act (as amended)
k. Capital Transfer Tax Act
l. Federal Inland Revenue Service Act
Each of these laws relates to tax administration and form the basis for the
regulation of taxes in Nigeria. While some of them deal with individual tax
payers, others are concerned with companies and corporate institutions.
There are some that deal specifically with the goods and services purchased
while few others establish the authorities that are concerned with tax.
Whether a country is planning major reforms or not the need to improve Tax
Administration is ever present with pressing demands from Governments to
improve performance to increase revenues (as a percentage of GDP). How can we
expect compliance levels to improve if we continue to manage in the same way?
Change is necessary.
5.10 Tax Planning:
Tax planning is done at various levels, namely, Strategic, Design or Tactical and
Delivery or Operational Levels.
Strategic level
Understanding and developing a taxpayer compliance strategy
- Proper legal Framework
– Efficient organizational and staffing arrangements
– A system of self assessment
– Streamlined collection systems and procedures
– Service orientated approach
– Risk based audit and other verification programs
Extensive use of IT
- Modern and effective human resource practices
- Effective models for institutional change
- An environment of integrity and good governance
Design or Tactical Level
Translating a taxpayer compliance strategy into a design for delivery
Delivery or Operational Level
Developing core processes and practice to manage the compliance risk of a wide
range of taxpayers
5.2 Tax Administration:
Relevant Tax Authorities
After we have known and identified the relevant tax laws, what we need to know
now is to identify the relevant tax authorities that are in the position to collect the
tax on behalf of government. These are the revenue boards constituted by the
government with mandate to assess and collect tax. According to the provision of
section 100 of Personal Income Tax Act (PITA) (as amended by the Finance
(Miscellaneous Taxation Provisions) Act 1998), ‘tax authorities’ means Federal
Board of Inland Revenue (now Federal Inland Revenue Service), the State Board
of Internal Revenue or the Local Government Revenue Committee. For better
understanding, some of the relevant tax authorities are discussed hereunder:
5.21. Federal Inland Revenue Service (FIRS)
The FIRS was established by virtue of section 1 of the Federal Inland Revenue
Service (Establishment, etc.) Act of 2007 (hereafter referred to as the Act). This
body took over from the erstwhile Federal Board of Inland Revenue (established
under section 1 of the Companies Income Tax Act (CITA) 1990), which was
dissolved by section 62 of the Act.
The FIRS is the federal government’s operational agency in charge of assessing
and collecting relevant taxes for the Federal Government.
The function of the FIRS as provided in section 8 of the Act, include, among
others:
a. to collect, recover and pay to the designated account, any tax recognized b the
Act or any other law or enactment.
b. to assess persons including companies, enterprises and individuals chargeable
with tax
c. to assess, collect and enforce payment of taxes as may be due to the government
or any of its officials
d. to collaborate with relevant ministries and agencies, for the review of the tax
regimes and promote the application of tax revenue for the stimulation of
economic activities and development
e. to make, from time to time, a determination of the extent of financial loss and
such other losses by government arising from tax evasion and fraud and such other
losses (or revenue forgone) arising from tax waivers and other related matters.
The FIRS also has a board, whose power is to provide general policy guidelines
relating to the functions of the service, among other related matters (section 7).
There is also a Technical Committee of the board which considers all tax matters
that require professional expertise and make recommendations to the Board.
5.22. State Board of Internal Revenue (SBIR)
The SBIR is the relevant tax authority charged with assessing and collecting taxes
that are due to the state government. The SBIR was established under section 85A
of the Personal Income Tax Act (PITA) 1993. The SBIR has an operational arm
known as State Internal Revenue Services or State Services. The SBIR is
responsible for:
a. ensuring the effectiveness and optimum collection of all taxes and penalties due
to the state government under the relevant laws.
b. doing all such things as may be deemed necessary and expedient for the
assessment and collection of the tax and shall account for all amounts so collected
in a manner to be prescribed by the Commissioner for Finance of the relevant state.
c. Making recommendations where appropriate to the Joint Tax Board on tax
policy, tax reform, tax legislation, tax treaties and exemptions as may be beginning
from time to time.
d. generally controlling the management of the State Services on matters of policy
subject to the provisions of the law setting up the State Service.
5.23. Local Government Revenue Committee
The Local Government Revenue Committee was also established under the PITA,
section 85D (1). The function of the Revenue Committee includes assessment and
collection of all taxes, fines and rates under its jurisdiction and shall account for all
amounts so collected in a manner to be prescribed by the Chairman of the Local
Government.
5.24. Other tax authorities
Apart from the above mentioned, there are other tax authorities created by the law.
These include among others:
a. Joint Tax Board (created under section 85(1) of PITA 1993)
b. Joint State Revenue Committee (section 85F PITA 1993 as amended by Finance
(Miscellaneous Taxation Provisions) Act 1998
Understanding taxpayers’ compliance behavior leading to better management of
compliance risks, leading to increased voluntary compliance, leading to increased
revenue collected at lower costs of collection, leading to a more effective Tax
Administration. Tax Administration involves effective use of Stakeholders’
resources, namely, Governance and Accountabilities of Tax Administrations, to
collect tax at minimum costs.
Tax Administrators have to find ways to enhance voluntary compliance.
6.0 Structures that best support a functional operational Model
Strong headquarters base:
– Preparing national plans
– Regular monitoring and reporting
– Design and maintain standardized policies and processes
– Provide advice and guidance to the field operation units
The Administrator should try to establish why some people comply and some
others do not. They should note that different factors influence BISEP, namely:
– business
– industry
– sociological
– economic
– psychological
In addition to the above, we also have environmental influences, namely:
• Political influences
• Economic influences
• Technological influences
• Social influences
• Demographic changes
• International influences
Finally, the Tax Administrators should recognize the interests and roles of the
various Stakeholders, namely:
• Government
• Taxpayers
• Business and industry
• Intermediaries
• The Community
• NGO’s
• Others?
7.0 Tax Practice:
Let’s recall that earlier, we identified service-oriented business. Tax Practice is a
good example of this type of business. Tax practice involves applying our
knowledge as Tax Experts to translate the above themes to achieve high levels of
voluntary compliance (high revenues at a lower cost) through the effective
management of compliance risks thereby maximising collections with the
resources available to a Tax Administrations and being accountable –
reporting business results (Key Results Areas) to achieve the confidence of key
stakeholders
7.1 Role of (Key Result Areas) KRA’s
On the basis that “what gets measured, gets done” KRA’s are instrumental in
focusing our
Tax Administration activities that we have identified as important towards
achieving our strategy.
Enable your tax administration to translate the strategic intent (themes) to an
operational
Reality Focus all of your tax administration i.e. business as usual and new
initiatives on what you have identified as important to achieve and what you will
be measured against.
Forms the basis of your business (action) plan to identify what is to be done, who
will do it and
when it is to be done by. Can expand out 3-5 years to include larger projects
As tax practitioners, we must note that most countries have function based
operating models:
•Taxpayer registration
•Taxpayer services and education
•Taxpayer returns processing and payments
•Taxpayer audit and investigations
•Taxpayer collections
•Taxpayer operations policy
Also, as tax practitioners, we must identify the support roles that facilitate the core
roles of a Tax Administration to function: These support roles include:
Finance and planning
–Funding based on staff numbers
–Fully funded Tax Administrations
Human resource capabilities
–Recruitment and retention
–Remuneration and conditions of work
– Industrial relations
– Training and development
– Health and Safety
– Matching staff to business needs
– Managing change
– Maintaining integrity - code of conduct
– Managing conflict of interest
7.2 Technical and Legal Services
•Developing technical rulings and interpretations
•Representing Tax Administrations in litigation and adjudication cases
•Risk management – quality review of critical processes
•Staff training and mentoring
•Contributing to tax policy development
Organizational Communications
• Influence community compliance behaviour
•Manage risks to the “image” of the Tax Administration
Internal Audit
• Provide management assurance
– Carry out effectiveness evaluations on key internal processes
– Conduct systems audits
– Undertake financial audit
– Undertake internal investigations where warranted
• Manage risk of internal fraud and corruption
• Internal investigations
8.0 The Place of Information Technology on Tax Practice:
In this era of ICT (Information and Communications Technology), the Tax
Practitioner must necessarily be computer literate. This is because of the amazing
benefits associated with ICT. To say the least, computers are now indispensable!
The beautiful role of IT in tax practice was summarized by Amaresh (2000), thus:
Like in all fields of human activity, with the advent of microcomputers and
vast communication networks to connect them, a radical transformation is
taking place in the world of taxpayers and tax gatherers. With enormous
capacities for managing and processing data now available at affordable
costs, tax administrators around the world are gearing themselves for a new
era in which computers will take over most of their functions, enabling them
to perform the tasks of implementing the tax laws and providing services to
their clients at levels of efficiency unthinkable earlier.
8.1 Information Technology can be applied in the following areas of tax
practice:
• Taxpayer registration database
• Bulk processing of payments and returns
• Taxpayer assessment and payment recording systems
• Macro processing of data
• Delivery of multiple e-services to taxpayers
• Multiple telephony services to taxpayers
• Backup of taxpayer data in case of disaster
• Human Resources and Financial management systems
As Tax Practitioners, we should not only be familiar with all reliefs and allowances
as provided for in Section 34: The Sixth Schedule to the Principal Act (2011), but
we should also be able to apply computer software, known as EXCEL to develop
formulae for handling Back Duty assessment, amongst others.
In our overall best interest, the Schedule as per the 2011 Act is presented below:
1. A consolidated relief allowance shall be granted on income at a flat of
N200,000 plus 20 per cent of gross income.
2. Tax Exempt: The following deductions are tax exempt(a) National Housing Fund Contributions
(b) National Health Insurance Scheme
(c) Life Assurance Premium
(d) National Pension Scheme
(e) Gratuities.
3. After the relief allowance and exemptions had been granted in, accordance
with paragraphs 1 and 2 of this Schedule, the balance of income shall be
taxed as specified in the following tax table:
Tax Income Rates
Graduated Tax rates with consolidated allowance of N200,000 + 20 per cent of
Gross Income, subject to a minimum tax of 1 per cent of Gross Income, whichever
is higher.
1 First
N300,000
At 07 per cent
2 Next
N300,000 At 11 per cent
3 Next
N500,000 At 15 per cent
4 Next
N500,000 At 19 per cent
5 Next
N1,600,000 At 21 per cent
6 Above N3,200,000 At 24 per cent
8.2 Information Technology and Payment Guidelines
Finally, as Tax Practitioners, we must have a sound knowledge of Information
Technology and Payment Guidelines. This is because of the associated risk of
loss of audit trail.
The Basic Principles of Electronic Payment
Electronic Payment (e-payment, for short), is a payment process carried out
electronically, that is, a payment initiated, processed and received electronically.
The major components of e-payment system are: (i) Money transfer applications,
(ii) Network infrastructures and (iii) Rules and procedures.
The major actors of e-payment are: (i) The Payer (ii) The Payee (iii) The Bank and
(iv) The Trusted third party
Types
of
e-Payment:
The following types of electronic payments are most common today.
Cash (Debit) Cards; Internet Money wire; Mobile Payments; Financial Service
Kiosks; Biometric Payments; e-Payments Networks;, Person-to-Person (P2P)
Payments, Payment Cards. Electronic Funds Transfer Models (EFT); Automated
Teller Machines (ATMs); Point-of-Sales (POS’s); Mobile Dispensers (MD’s);
Vending Machines (VM’s).
With all the IT put together, motivation is still very crucial in Tax Practice:
8.3 The Effect of Motivation on Tax Practice:
Motivation is the driving force by which humans achieve their goals. Motivation
is said to be intrinsic or extrinsic. According to various theories, motivation may be
rooted in a basic need to minimize physical pain and maximize pleasure, or it may
include specific needs such as eating and resting, or a desired object, goal, state of
being, ideal, or it may be attributed to less-apparent reasons such as altruism,
selfishness, morality, or avoiding mortality.
Intrinsic and extrinsic motivation:
Intrinsic motivation refers to motivation that is driven by an interest or enjoyment
in the task itself, and exists within the individual rather than relying on any
external pressure.
Extrinsic motivation comes from outside of the individual. Common extrinsic
motivations are rewards like money and grades, coercion and threat of punishment.
Competition is in general extrinsic because it encourages the performer to win and
beat others, not to enjoy the intrinsic rewards of the activity. A crowd cheering on
the individual and trophies are also extrinsic incentives.
Incentive theory
A reward, tangible or intangible, is presented after the occurrence of an action (i.e.
behavior) with the intent to cause the behavior to occur again. Motivation comes
from two sources: oneself, and other people. These two sources are called intrinsic
motivation and extrinsic motivation, respectively.
Need hierarchy theory
The content theory includes the hierarchy of needs from Maslow and the twofactor theory from Herzberg. Abraham Maslow's theory is one of the most widely
discussed theories of motivation.
The American motivation psychologist Abraham H. Maslow developed the
Hierarchy of needs consistent of five hierarchic classes. It shows the complexity of
human requirements. So, the theory can be summarized as follows:




Human beings have wants and desires which influence their behavior. Only
unsatisfied needs influence behavior, satisfied needs do not.
Since needs are many, they are arranged in order of importance, from the basic
to the complex.
The person advances to the next level of needs only after the lower level need is
at least minimally satisfied.
The further the progress up the hierarchy, the more individuality, humanness
and psychological health a person will show.
The needs, listed from basic (lowest-earliest) to most complex (highest-latest) are
as follows:





Physiology (hunger, thirst, sleep, etc.)
Safety/Security/Shelter/Health
Belongingness/Love/Friendship
Self-esteem/Recognition/Achievement
Self actualization
Herzberg's two-factor theory
Frederick Herzberg's two-factor theory, a.k.a. intrinsic/extrinsic motivation,
concludes that certain factors in the workplace result in job satisfaction, but if
absent, they don't lead to dissatisfaction but no satisfaction. The factors that
motivate people can change over their lifetime, but "respect for me as a person" is
one of the top motivating factors at any stage of life.
He distinguished between:


Motivators; (e.g. challenging work, recognition, responsibility) which give
positive satisfaction, and
Hygiene factors; (e.g. status, job security, salary and fringe benefits) that do
not motivate if present, but, if absent, result in de-motivation.
The name Hygiene factors is used because, like hygiene, the presence will not
make you healthier, but absence can cause health deterioration.
The theory is sometimes called the "Motivator-Hygiene Theory" and/or "The Dual
Structure Theory."
Herzberg's theory has found application in such occupational fields as information
systems and in studies of user satisfaction (see Computer user satisfaction).
The control of motivation is only understood to a limited extent. There are many
different approaches of motivation training, but many of these are considered
pseudoscientific by critics. To understand how to control motivation it is first
necessary to understand why many people lack motivation.
Employee motivation
Workers in any organization need something to keep them working. Most times the
salary of the employee is enough to keep him or her working for an organization.
However, sometimes just working for salary is not enough for employees to stay at
an organization. An employee must be motivated to work for a company or
organization. If no motivation is present in an employee, then that employee’s
quality of work or all work in general will deteriorate.
According to the system of scientific management developed by Frederick
Winslow Taylor, a worker's motivation is solely determined by pay, and therefore
management need not consider psychological or social aspects of work. In essence,
scientific management bases human motivation wholly on extrinsic rewards and
discards the idea of intrinsic rewards.
In Essentials of Organizational Behavior, Robbins and Judge examine recognition
programs as motivators, and identify five principles that contribute to the success
of an employee incentive program:





Recognition of employees' individual differences, and clear identification of
behavior deemed worthy of recognition
Allowing employees to participate
Linking rewards to performance
Rewarding of nominators
Visibility of the recognition process
Conclusion: In summary, this presentation dwelt on conceptual issues in Business
Management and Tax Practice, including the definitions of the key terms, types of
businesses, business plans, the management functions, tax planning, tax
administration, tax practice, the various tax authorities, the relevant tax laws, the
place of information and communications technology on tax practice, the impact of
electronic payment systems on tax practice and the effect of motivation on tax
administration, planning and practice, amongst others.
And so, based on our above discussions, one can infer that going into business as a
Tax Consultant or Tax Practitioner is a worthy venture. The basic skills you have
already acquired by passing the qualifying examinations of the Chartered Institute
of Taxation of Nigeria. Congratulations! Congratulations!! Congratulations!!!
All you need to do is to key into Izedonmi’s model of wealth creation, namely:
1
2
3
4
5
6
7
8
9
10
Employee only Model
Employee - Employee or n-employee Model
Employer only Model
Investor only Model
Employee - Employer Model
Employee - Investor Model
Employer - Employer, (n-employer Model)
Employer - Investor Model
Investor - Investor, (n-investor Model)
Employee - Employer-Investor Model
Thank You for listening and thanks be to God Almighty!
Austin U. Nweze, PhD (Nig), FCA, FCTI, JP
080 5033 4747 and 080 6339 4611
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