Effective Tax Collection In A Digital Economy The Case Study Of Federal Inland Revenue Services, The Role Of FIRS
Around the world, businesses continue to evolve rapidly, with momentous advancement in the field of technology and the vital role it plays in day-to-day business operations. There is an unprecedented potential for emerging technologies to reshape how work is done, how businesses grow, and how markets and industries evolve (McKinsey & Company, 2013).
State capacity to mobilize fiscal resources is accredited as being important to development. Creation of fiscal capacity entails investment in state structure to properly monitor and administer tax collection. Recent literature has given more emphasis on the political motives of the state as an important determinant of investment in fiscal capacity (Besley & Persson, 2012). The incentive of political elites to invest in fiscal capacity was decline if the cost is very high and they expect fewer returns in the future (Acemoglu, 2005). However, technological innovation could provide a platform where the cost of investment in fiscal capacity can be reduced substantially and fiscal resources can be mobilized efficiently.
The digital age is rapidly transforming the relationship between tax authorities and taxpayers. Driven by a desire for more revenue, greater efficiency and improved compliance in an atmosphere of shrinking resources, tax authorities are increasingly relying on digital tax data gathering and analysis using digital platforms to facilitate real-time or near realtime collection and assessment of taxpayer data. This move toward tax “digitization” is allowing tax authorities to collect tax data in real time or near real time; they can then use the information to respond quickly and in more targeted ways to perceived compliance risks.
Digitization is, in some cases, allowing taxpayer information to be cross-referenced and shared among governments and agencies (Ernst & Young, 2016)
As countries move toward digitizing their tax administration, their efforts can often follow a similar pattern, aligning with different levels of digitization. Of course, the move to digitization is not necessarily linear, nor should higher levels of digitization be viewed as the ultimate goal of either taxpayers or tax authorities (Ernst & Young, 2016).
This study’s aim is to explore The effect of information communication technology on corporate tax collection system: case study on large tax payers in Abuja. The study was highlight the benefits and challenges associated with the application of information Technology in tax collection system in Nigeria.
1.2. Statement of the Problem
A well-functioning revenue system is a necessary condition for strong, sustained and inclusive economic development. However, the revenue systems in some developing countries have fundamental shortcomings. Revenue funds the public expenditure on physical, social and administrative infrastructure that enables businesses to start or expand. The revenue system is also a central element in supporting a strong citizen-state relationship that underpins effective, accountable and stable governments. Both of these elements contribute to stronger economic and employment growth outcomes. The countries that fail to capitalize on the benefits of rapid economic growth are missing a tremendous opportunity to improve the quality of life for their citizens (Carnahan, 2015).
Nigeria has a low level of fiscal capacity, like many developing countries. The tax revenue as a share of GDP was about 12% during the decade 2001-2011. As a result, big part of government spending during the decade 2001-2011 came from non-tax sources such as international aid and loans. Nigeria also relied heavily on taxes on international trade accounts for 40% of tax revenue, a very high ratio even by the standards of developing countries (Ali, 2017). .
Nigerian Revenues and Customs Authority’s tax collection system has been achieved significant progress since the introduction of different reforms. . Technology upgrading has been part of recent taxation reform programs with the aim of improving data management and analysis, lowering compliance costs, reducing the scope for corruption and improving monitoring of taxpayers. One such technology is the introduction of electronic sales registration machinery (ESRM) by the Nigerian Revenues and Customs Authority starting from 2008. Since the initiation of the reform, more than 50,000 tax-paying businesses have started using the machine with 84% of them operating in the capital city, Abuja. The Nigerian Revenues and Customs Authority recently announced that it is now preparing to scale-up the operation of the reform in other parts of the country, providing a unique opportunity to explore the impact of technological innovation on state capacity to collect taxes Ali (2017).
Previous research has widely focused on the impact of IT on economic outcomes. These studies have mostly focused on the effect of IT on private sector productivity (Brenham et al., 2002; Stiroh, 2002; Brynjolfsson and Hitt, 2000). Garicano& Heaton (2010). Two recent seminal exceptions are Lewis-Faupel et al. (2016) and Muralidharan et al. (2016), who studies the impact of IT use on public service delivery in the context of developing countries. Using evidence from Nigeria, Mohammed et al. (2014) studied the challenges of electronic tax register machine (ETRS) to Business and its impact in improving tax revenue. Mwanikiet al. (2014) have examined the impact of management information system on revenue collection in Kenya.
Despite the widespread adoption of IT in public service delivery, commonly known as ‘egovernance’, assessment of the impact remains relatively unexplored it is noteworthy that none of the studies discussed above covers the benefits and challenges of using ICT in the tax collection system. Thus, the current study assesses the effectiveness of tax collection in a digital economy in the case of large Tax payers in Abuja.
1.3. Research Questions
To achieve the study’s objective, the following specific research questions were proposed:
- What are the changes brought by the introduction of ICT to the tax collection systems?
- What is really the impact of ICT on tax collection system?
- What are the challenges of ICT application in the tax collection system?
1.4. The objective of the Study
1.4.1 General Objectives
The main objective of the study is to investigate the ieffectiveness of tax collection in a digital economy and its challenges in Abuja.
1.4.2 Specific Objectives
Specifically, study assumes the following objectives
- To investigate the changes brought by the introduction of ICT on tax collection systems in Abuja.
- To identify the impact of ICT on tax collection system;
- To assess the challenges of ICT application in the tax collection system
1.5. Scope and Limitations of the Study
This study was focuses at examining the impact of information technology (IT) on tax collection system in Nigeria in terms of availability, utilization and transitional impact. In assessing the impact of information technology on tax collection system, particularly corporate Income Tax (CIT), this study focuses only on large taxpayers in Nigeria, particularly in Abuja. This city was chosen because Abuja is a capital city where all federal government head offices are located, including the Federal Inland Revenue Service (FIRS). FIRS has a responsibility to administer the corporate Income Tax Act through collection and assessment of tax revenues, processing of returns and information, limiting tax evasion and providing services to taxpayers.
The limitation of this study lies on the subject matter itself. ICT is a broad subject. It covers both technical and non-technical aspects. The study has not addressed the technical issues of the system as constrained by lack of expertise by the researcher and time. However, even time and expertise could be there, the level of willingness from FIRS to open up itself for such assessment was very limited.
Moreover, the study was faced with a limiting factor from lack of willingness to provide full data (with the ‘pretext’ confidentiality’ requirement) as well as availability of up-to-date and comprehensive primary data on the study variable. Effort was made to fill these gaps by using methodological triangulation from secondary sources, as there was also usually tendency by the interviewees to direct you to such secondary sources for further information or data.
1.6. Significance of the study
The results of this study was be useful for stakeholders such as scholars, FIRS, companies, tax consultants and tax policymakers that are interested in encouraging the adoption of IT on tax collection system. It will as a guide to the government to plan its strategies and to improve the usage of IT on tax collection system.
This study was play a significant role in identifying the benefits and challenges brought by adoption of information technology on tax collection system to the government of Nigeria, the FIRS, companies and tax practitioners.
1.7. Organization of the Study
In Chapter two, the review is made on literature and related studies. Chapter three presents the research methodology used in carrying out the study. Chapter four is about the detail discussion and analysis based on results from data collected. Chapter five summarizes and concludes the findings of the study and forwards recommendations for FIRS and for future studies.
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