A Comprehensive Tax History of Nigeria

6. Instruments of Tax Policy

CHAPTER SIX INSTRUMENTS OFTAX POLICY Background Nigerian tax policy up to 2010 was a varied mix of legislation, judicial pronouncements, budget speeches, committee reports and international treaties. The National Tax Policy- an outcome of the 2002 Study Group of the Nigerian tax system- was approved by the Federal Executive Council in 2010. The National Tax Policy, which is discussed in detail in the latter part of this chapter, provides the objectives to be achieved and the principles to be adhered to at all times in the Nigerian tax system. While this has provided a roadmap for better operation of the system, it still does not detract from the impact other measures such as judicial pronouncements and international treaties had; and continue to have on the overall system. The focus of this chapter is to highlight how prior to, and apart from the National Tax Policy, various policy tools have contributed to the development of the Nigerian tax system over time. As evident in the volume of the preceding chapter, legislation has been more pervasive than any other policy tool throughout Nigeria’s colonial and post colonial history. During the colonial era, legislations were passed as Ordinances and after independence, federal legislation were designated Acts while legislations passed by states were referred to as ‘laws’; a practice that has endured up to date. The military introduced the nomenclature of decrees and edicts for legislation issued by the federal military government and the state military administrators respectively. It was also the military that introduced the use of Finance (Miscellaneous Taxation Provisions) decrees whereby different tax enactments were amended/ repealed by the instrumentality of a single, omnibus decree. The nature of these decrees were such that distinct taxes such as companies’ income tax, personal income tax, capital gains tax, petroleum profits tax and such other taxes that were deemed necessary, were amended by a single legislation.1 301 A Comprehensive Tax History of Nigeria 302 Apart from imposition of tax, legislation has been used as a tool to enhance the administration of tax. For example, in 1966, the federal military government issued the Income Tax (Authorised Communications) Decree.2 The decree is deemed as an Act of the National Assembly and forms part of current Nigerian statutes, having been retained as Cap I5, Laws of the Federation of Nigeria 2004. Essentially, the Act empowers the President to request the Inspector General of Police or other police officer above the rank of Chief Superintendent of Police, to inspect and if necessary remove any books, records or documents in the possession of the Federal Inland Revenue Service or any other tax authority for the purposes of any investigation. The President’s direction to the Inspector General shall be in the format contained in Form 1 to the Schedule to the Act while the Inspector General’s direction to the concerned tax authority shall be in the format contained in Form 2 to the Schedule. The Schedule containing the forms was introduced by the Income Tax (Authorised Communications) (Amendment) Decree 1966.3 The Income Tax (Authorised Communications) Decree 1966 was meant to be an exception to section 14 (1) of the Companies Income Tax Act 1961; and continues to be an exception to other income tax laws conferring an oath of secrecy on tax administrators. The purpose of the law is to empower the President, in appropriate cases, and in the public interest, to circumvent the oath of secrecy by which tax officials are ordinarily bound. Legislation has also been used to grant relief to individual and corporate taxpayers as economic circumstances dictate. Some of these legislations include the Income Tax (Rents) Act 1963 which was passed for the purpose of ‘granting of relief from income tax on payments by way of rent received in respect of certain dwelling houses; and for purposes connected therewith’.4 While the Income Tax (Rents) Act 1963 was aimed at providing relief on certain advance payments made by way of rent; the Industrial Development (Income Tax Relief) Decree 19715 is intended to provide tax relief to companies that qualify as ‘pioneer industries’ or whose products qualify as ‘pioneer products’. The criteria for qualification is contained in section 1 (1) of the decree.6 According to the section, where the President is satisfied that: a. any industry is not being carried on in Nigeria on a scale suitable to the economic requirements of Nigeria or at all, or there are favourable prospects of further development in Nigeria of any industry; or...