A Comprehensive Tax History of Nigeria

2. The Constitutional Context for Taxation

33 CHAPTER TWO THE CONSTITUTIONALCONTEXT FORTAXATION Background This chapter traces the constitutional development of Nigeria since the 1914 amalgamation. It explains how different constitutional arrangements in Nigeria have provided the enabling framework for taxation and how government taxing powers have evolved through different political and constitutional epochs. This analysis provides further insight on the impact the various constitutional arrangements have had in defining the nature of relations among the different tiers of government especially in the area of fiscal matters. Conceptual Issues It is important to explain what taxation means in order that the term tax may not be confused with other forms of exactions such as fees, penalties and fines. Soyode and Kajola define tax as ‘a compulsory exaction of money by a public authority for public purpose’ and taxation as ‘a system of raising money for the purposes of government by means of contributions from individual person or corporate body’.1 A judicial definition of tax was given in Mathews v. Chicory Marketing Board (v)2 - a High Court of Australia case that considered section 90 of the Australian Constitution, which prohibits States from levying excise (taxes) - as ‘a compulsory exaction of money by a public authority for public purposes’. Summing up definitions of tax as offered by various other sources, Ayua concludes that: The most important thing is a pecuniary burden laid upon individuals or persons or property to support the government and is a payment exacted by legislative authority3 (emphasis supplied). The exaction of tax by government is not tied to any particular benefit to the taxpayer. It is this feature, according to Soyode and Kajola, which distinguishes a tax from other forms of exactions such as fees, penalties and fines.4 A fee is an amount paid in return for a specific and measurable service. An example of a fee paid to government includes payment for a certificate of occupancy. Fines and penalties are exactions by way of punishment for A Comprehensive Tax History of Nigeria 34 infringement of state laws or regulations. Thus while fees are charged to defray the cost of a service rendered, fines and penalties are punitive measures imposed against a law breaker. Although payment of tax is not necessarily tied to the conferment of any specific benefit to the taxpayer, it is implicitly recognised by taxpayer and tax collector that the judicious use of tax revenue by the government for the public good is the quid pro quo for taxing the citizens. Indeed, it has been observed that transparency, accountability and good governance are critical factors in ensuring voluntary tax compliance.5 A tax may be direct or indirect. It is direct where it is levied on the person who it is intended, should pay the tax. This is usually the case in the taxation of incomes. E.g companies’ income tax and personal income tax are direct taxes. It is indirect if the levy is imposed on one person who pays with the expectation to pass the burden unto third parties. Custom duties and value added tax are examples of indirect taxes because the levy imposed by government is factored into the price of the item upon which they are levied and passed unto the consumer. Apart from direct and indirect taxes, Ayua6 further classifies tax types into proportional, progressive and regressive taxes. A tax is proportional when the proportion paid by each taxpayer bears the same ratio to the amount to be raised as the value of his property bears to the total taxable income. It is based on a constant proportion of income and therefore, neutral. A progressive tax is a graduated system that applies higher rates as income increases. A regressive tax is a structure that applies lesser rates as the value of the property increases. Historically, the sole objective of taxation was to raise revenue for government. Kings or emperors levied their subjects to generate revenues to provide for the defense of the kingdom and also for the general welfare of the empire. In modern times, generating revenues for government is still an important objective of taxation but it is no longer the sole objective. Taxes are used by modern governments to generate revenue but in addition, to also fund governance, ensure resource redistribution, streamline consumption of certain goods, reduce inflation, generate employment and stimulate growth in the economy.7 Taxation has therefore, become a veritable tool of fiscal and economic policy. According to Fashola, the philosophy underpinning taxation is that the expenses of government...