This paper attempt to explore AN EVALUATION OF PERSONAL INCOME TAX IN NIGERIA TAX SYSTEM. The attention of the government has been drawn to the growing and need to provide adequate securities and social amenities for their well being. All these expenditure will be met through adequate revenue generated internally by the state government.

This project therefore assess the personal income tax on the tax collection system in Nigeria with a particular reference to Ekiti state Board of Internal revenue with a view to determine the ability and weakness of the on revenue generation and how to improve on it land eliminate the tax evasion no avoidance in the state.

Using questionnaire method of collecting data, the research tries to examine the revenue generated in Ekiti state from 2006 to 2012 and also used time series to forecast what the state is going to generate in the next four (4) years 1.e 2013, 2014, 2015, 2016 if adequate control is put in place.

The problem face during the research work are finance, time and the collection of statement revenue generated into the research work so that correct deduction were made.

Therefore, the study recommendations that, the need to improve internally generated revenue to eliminate the problem of adequate revenue to meet the expenditure on the state government. Also suggestion were made in way to realize the forecast revenue for 2006 to 2016. all these aimed at improving revenue planned and enhance effective collection and remittance of the collected.


Title Page





Table Contents


1.0     Introduction

1.1     Background of the Study

  • Statement of the Problems 2

1.3     Objectives of the Study

1.4     The Significance of the Study

1.5      Statement of Research Questions/Hypotheses

1.6     Research Methodology

  • Scope and Limitations of the Study

1.8     Definition of Terms

1.9     Organisation of the Study

End of Chapter References


2.0     Literature Review

2.1     Background of the Nigerian Tax System

2.2     The Concept of Personal Income Tax (PIT)

2.3     The State Board of Internal Revenue (SBIR)

2.3.1  Composition of the State Board of Internal Revenue (SBIR)

2.3.2  Assessment of Personal Income Tax

2.4     Meaning of Income

2.4.1  Exemption from Personal Income Tax

2.5     Tax Clearance Certificate

2.5.1  Information to be Disclosed in a Tax Clearance Certificat

2.5.2. The Operation of Pay As You Earn (PAYE) System

2.5.3  End of Year Returns by the Employer

2.6     Computation of Taxation of Employees

2.6.1  Treatment of Employment Receipts

2.6.2  Basic Salary

2.6.3  Housing Allowance

2.6.4  Transport Allowance

2.6.5  Meal Subsidy or Allowance

2.6.6  Utility Allowance

2.6.7  Entertainment Allowance

2.6.8  Leave Grant

2.6.9  Minimum Tax for an Individual on a Low Income

2.7     Taxation of a Sole Trader

2.7.1  Allowance and Disallowance Expenses

2.7.2  Treatment of Capital Allowances

2.7.3  Benefits of Personal Income Tax

2.8     Withholding Tax

2.9     The State Board of Internal Revenue Service Area,

Tax Office. Ado – Ekiti in Ekiti State

2.9.1  Account Section

2.9.2  Salaries and Wages Section.

2.9.3  Tax Clearances Certificate Section

2.9.4  Withholding Tax Section

2.9.5  Pay As You Earn PAYE Section

End of Chapter References




3.0     Research Methodology

3.1     Research Focus

3.2     Research Instruments.

3.3     Restatement of Research Question/Hypothesis

3.4    Description of the Population and Sample of the Study.

3.5     Sources of Data Collection

3.7     Method of Data Analysis and Description of

Tools of Analysis.

End of Chapter References


4.0     Data Analysis, Interpretation and Discussion of Findings

4.1     Interpretation of Items

4.2     Analysis of Data

4.3     Analysis of the Table

End of Chapter References





5.0    Summary, Conclusion, Recommendation and

Suggestions for Further Studies

5.1     Summary

5.2     Conclusion

5.3     Recommendations

  • Suggestions For Further Studies


Appendix A






The ideas of the tax and taxation have been known to man from the time of creation. Some people refer to tax a aids Denageld, Carucate, Scutage, Owo-ode e.t.c since the time for creation, tax has been a major part of our daily life.

The study of tax is not an easy one to tell in any part of the world. Tax has hardly been a friend of any tax payer. It was tax that led to the story of Israel crossing the red sea. The same tax brought about the division of the house of Israel when Rehoboam become king over Israel an threatened to increase their yoke. According to him “my father made your yoke heavy and I will add to your yoke. My father also chastised you with whips, but I will chastise you with scorpions”.

During the various reigns of the Egyptians Pharaohs tax collectors were known as SCRIBES. the earliest known taxes in Rome were custom duties on imports and exports called PORTORIA . Augustus Ceaser laws considered by many to be the most brilliant tax strategist of the Roman Empire, During his reign as “first Citizen” the publications (then tax collectors) were virtually eliminated as the tax collectors for the central government. Citizens where given the responsibilities for collecting taxes on behalf of the government. Recently, a very popular government establishment here at Ado- Ekiti was visited on personal income tax monitoring exercise where I was told to my bewilderment that sum personal income tax i.e withholding tax, tenement rate had not been deducted by the establishment from payment made to corporate bodies for the numerous contracts executed by the later. Hence the desire to embark on this research titled “an Evaluation of personal income tax in Nigeria system” which aimed at exploiting/ discussing the various ways at improving the personal income tax in Nigeria system.

This is a tax levied on employment income and any other income received by individuals. Individuals here being those in paid employment and those in self-employment, i.e. Those engaged in trade, business, profession or vocation like doctors, accountants, lawyers etc. The assessment and collection of this tax in Nigeria is regulated by the personal Income Tax Act No. 104 LFN, 1993. It is this law that gives the necessary procedures and administrative power to impose and collect taxes from persons, individuals, partnership, executors, trustees family or

communities corporation sole or body of individuals.

The role of personal income tax in Nigeria is incomplete without the due  consideration of the role played by the local government or native administrations as they were called. Personal income tax as it is now known in Nigeria, was first administered and collected by the Native Administrations in the name of Direct Taxation. Under the Direct Taxation Ordinance of 1940, the assessment and collection of taxes was the primary responsibility of Native Administration throughout Nigeria. In 1954, Nigeria became a federation of three regions: North ,East, and West, by the Macpherson constitution there was regional jurisdiction over the taxation of personal incomes of Africans. The Eastern Region passed the Finance Law No.1 of 1956, the Western Region followed suit by passing it own Income Tax Law in 1957, the Northern Region on it own passed the Northern Nigerian Personal Income Tax Ordinance still remained in force in Lagos.

The root of the present laws on personal income tax in Nigeria, can be traced to the Fiscal Commission set up in 1957 which consisted or sir Jeremy Raisman as the chairman and Professor R.C Tress as member. The recommendation of the commission as accepted by the Government relating to income tax formed the basis of section 70 of the Nigerian (constitution) order in council of 1960. Since then, a lot of changes took place in the Nigerian tax Legislations; prominent of these changes was the enactment of the Petroleum Profit Tax Act of 1959, Stamp

Duties Act of 1959, Income Tax Management Act of 1961 and the Companies Income Tax Act of 1959.

In summary, before 1975, there are two principal acts under which personal income tax is administered, these are: The Income Tax Management Act of1961 and the Personal Tax Law of each state. In the same year, the Federal Government promulgated Uniform Taxation Decree of 1975 unifying personal tax rates and allowances of each state. In 1979, the federal government constituted a ten-member task force on tax administration, the task force was mandated to: suggest ways and means of making the administration of tax system more effective and efficient, and to also examine the sources of tax revenue and the structure of tax administration in Nigeria.

The outcome of the task force greatly influenced Companies Income Tax Decree of 1979 and Personal Income Tax Act provisions. A comprehensive review also took place in 1993 leading to the Personal Income Tax Decree of 1993

Personal Income Tax is collected by the various state governments through the  state Board of Internal Revenue (SBIR) form individuals’ resident in the tax territory. Taxes from certain categories of individual’s members of the Armed Forces, the Nigerian police, FCT residents, External Affairs Officials and non-resident individuals are collected by the Federal Board of Internal Revenue (FBIR).

Therefore, personal income tax is a compulsory level imposed by state government on individual with in the state and local government level for the various legitimate function of the state.


The Nigerian tax administration faces serious complex and multidimensional problems. As Ola (2001) summarize Revenues realized from income tax is low because of the low level of literacy, poor relationship between tax payers and income tax authorities, and the inadequate number, or complete absence or trained and qualified accountants on the staff of the tax authorities unqualified staff do not know how to get information made available to them.

According to Ariyo (2001), the problems are the deficient tax administration and collection system, complex legislation of the Nigerian causes by the lack of value received in return for taxation money. The general perception that the rich do not pay taxes in Nigeria has further worsened the situation. The military government’s practice of using the budgetary process to amend several tax laws concurrently through a single omnibus decree created confusion.

The Nigeria tax system is beset by a myriad of problems, some of which highlighted below.

  1. The political economy of revenue allocation in Nigeria does not privatized tax efforts; it is instead anchored on such factors as equality of status (40%) population (30%), landmass and terrain (10%, social development needs (10% and internal revenue efforts (10%. The approach, discourage a proactive revenue drive, particularly for internally generated revenue, makes all government tier heavily reliant on unstable oil revenues which are affected by the volatile of the international oil markets (Philips 2003).
  2. A major problem facing the country is the multiplicity of taxes individual and corporate bodies complain about the ripples effects associated with the duplication of tax (Ariyo 2001. Ola 2001, Odusola 1 2002, 2003, study group in tax reform 2003).
  • Tax administration and individual agencies suffer from limitation in manpower, money, tools and machinery to meet the ever increasing challenges and difficulties. In fact the negative latitude of most tax collectors towards tax payers can link to paucity poor remuneration and motivation. Philips (1997) considers the paucity old administration capacity as a major impediment to the government in its attempts to raise revenue in Nigeria. As at march 2993, the federal inland revenue services (FIRS) had 9,643 staff members through out the country, of these a mere 12.6% or 964 employees were tax professionals officers.






The following specific objectives were pursued by the study:

  1. To clear some ambiguities of the operational interpretation of

unfamiliar terms.

  1. To update what others have said on this topic
  • To educate and equip others with the knowledge of personal

income tax.

  1. To find ways on how the revenue collection of the state can be

improved upon to enable it tackles its numerous programmes.

  1. Finally, to also address the loopholes in the personal income tax

policies and implementation.




This research study titled “an evaluation of personal income tax in Nigeria tax system” will no doubt be significant for a new tax policy formation land directions. It will be found meaningful to the academic communities in the pursuit and furtherance of tax education among the students. The tax practitioners, the tax payers, all the agents of deduction of tax at sources, the designated banks, government, ministries and establishments would find this study very helpful and significant.

Finally, the general public may have access to this research study would find it as an enriching asset for the purpose of enlightenment and education.


In the light of the foreign the following research question were established.

  1. Why is people in the developing nation believe tax to be a mans

of exploitation.

  1. Is there any relationship between in effect the tax system/

structure and low revenue to provide adequate essential survives by the government?

  • What has been responsible for tax available and tax evasion?
  1. What is the effect of not remittance of pay as you earn (PAYE)

deducted from the salary of employee to tax authority?

  1. Did the revenue deducted at source (PAYE) increase the total

revenue and discourage tax avoidance and evasion?

  1. What will be the effect of wrong classification of activities and

wrong rate on revenue collected for government?


That full cooperation is required on the apart of the SBIR and tax payers for the expected successful operation of the personal income tax to be achieved.

Ho:     Personal income tax will not be accomplished without the full

cooperation of all participants

Hi:     Personal income tax could be accomplished without the full

cooperation of tax payers and SBIR.




That the use of which personal income tax proceeds is put, affects the attitude of the tax payer towards its remittance and payment.

Ho;        the injudicious uses of personal income tax would not affect the tax payers commitment to filling returns and making payment.

Hi:     the injudicious use of personal income tax proceeds has a positive impact on the attitude of tax payers towards its remittance and payment.


Data will be collected from both primary and secondary source such as through distribution of questionnaire, personal observation and review of past and recent taxation manuals accounting journals, notebooks, textbooks and some other past similar research work.

The simple random sampling techniques will be adopted to select the various data collected which gives each data equal changes of being selected. Data selected through the sampling technique will be analyzed through the use of percentage and chi square.



This research work which centre on “an evaluation of personal income tax in Nigeria tax system” will only discuss entirely on personal income tax related issues such as pay as you earn 9PAYE). Directs? (Self assessment), withholding tax (individual only), capital gain tax (individual only) e.t.c. the discussion on income tax which this study has its there may not have been found exhaustive.

The research work is limited to Ekiti state Board of internal revenue Ado- Ekiti. Time factors, economic and political situations during the period of the research were major factor that limits the research to the area of coverage.

Finance is another limitation which impeded the initial smooth take off of the project.


In the course of writing this project and of the practice of taxation, one is tend to come across a number of relevant terminologies with which we may not be familiar.. the following are therefore to provide some simple explanation of such terms.

ACCOUNTING PERIOD: This is a period of twelve month ending on any day preceding the year of assessment (YOA).

ACTUAL YEAR BASIS: This is a period of twelve months commencing from January 1st to December 31st of the same year. (Formerly 1st of April to 31st march up to 1981)

BACK DUTY: This refers to revisiting of past records land tax issues of a tax payer by the relevant tax authority to examine the truth in the information that were earlier provided in the annual returns of tax computations..

BASIS PERIOD: This is an accounting period, a basis upon which take liability would be computed.

BEST OF JUDGEMENT: Best of judgment assessment (BOS) arises where a tax payer failed to file returns or is not even registered for tax purpose. The tax authority or inspector makes an assessment based on the uses of best of his judgments on the client

CHARGEBLE INCOME: This is the amount of the total income of an individual or corporate body for a year ascertained under the provisions of relevant decree or Act, after any income exempted has been excluded there from and the deductions allowed by the decrees Act have been made.

EARNED INCOME; This is relation to any individual is any income derived from any trade, business, profession vocation or employment exercised by him or a pension derived by him from any previous employment.

EMPLOYMENT: This is any work occupation or appointment to an office for which remuneration is paid.

PENSION: Every individual, corporation, sole or body of individual deemed to be resident in Nigeria and or outside Nigeria but how derives income or profits from Nigeria.

PLACE OF RESIDENCE: A place of residence, in relation to an individual means a place that is available for domestic use of the individual in Nigeria on the first day in a relevant tax year except an hotel, rest house or other place is available.

PRECEDING YEAR BASIS: Preceding year basis period (PYB) is an assessment in which the accounting period considered for basis period is the ending before the year of assessment.

PRINCIPAL PLACE OF RESIDENCE: in a case where an individual is resident is the place nearest to his place of work where he earns his income. Where pension is the only source of learned income them, his usual residence.

PROVISIONAL ASSESSMENT: This is a traditional assessment of an estimate based on the tax paid by the tax payer in the previous year.

RELEVANT DAY: This is January 1st in year of assessment.

Relevant tax authority: This mean, in relation to individual corporation sole or body of individual for a year of assessment, the tax authority of other territory in which the individual or corporate sole is deemed to be resident that year.

SELF ASSESSMENT: This is a situation where a tax payer is expected to complete a standard of self assessment form. This form contains all the information expected to be found on a normal notice of assessment.

TAX AUTHORITY: Tax authority means the person or body or persons responsible under a law of territory imposing tax an income of individuals for the administration of the law.

TERRITORY: This means the territory of the federal capital or of a state.

TOTAL INCOME: This is the aggregate sum of earned and unearned income of an individual for a year if assessment.

UNEARNED INCOME: This is any income other than earned income such as dividends, interest, rents annuities, premium e.t.c these are also called investment income.

Year of assessment: This is a period of twelve months which begins from January 1st ends December 31st of the same year. It is the same as government fiscal year.


This study will be divided into five chapters; chapter one comprises of the Introduction To The Study, Background to The Study, Statement of The Problems, Objectives of The Study, Significance of The Study, Research Questions/ Hypothesis,, Research Methodology, Scope and Limitation of the Study and Definition Of Term Organisation of the Study.

Chapter two deals on literature review, research into current literature, conceptual explanations, background history, theoretical framework of personal income tax and problems of personal income tax.

Chapter three comprises research methodology, research focuses, research instrument, restatement of research   questions/hypothesis, description of the population and sample of the study, sources of data collection and analysis and description of tools of analysis.

Chapter four is data analysis, interpretation and discussion of findings.

Chapter five deals with summary, with conclusions, recommendations and suggestions for further studies

This Project is is available for the below list of Nigerian State capitals.
Abia Umuahia, Adamawa Yola, Akwa Ibom Uyo, Anambra Awka, Bauchi Bauchi, Bayelsa Yenagoa, Benue Makurdi, Borno Maiduguri, Cross River Calabar, Delta Asaba, Ebonyi Abakaliki, Edo Benin. Ekiti Ado Ekiti, Enugu Enugu, Gombe Gombe, Imo Owerri, Jigawa Dutse, Kaduna Kaduna, Kano Kano, Katsina Katsina, Kebbi Birnin Kebbi, Kogi Lokoja, Kwara Ilorin, Lagos Ikeja, Nasarawa Lafia, Niger Minna, Ogun Abeokuta, Ondo Akure, Osun Oshogbo, Oyo Ibadan, Plateau Jos, Rivers Port Harcourt, Sokoto Sokoto, Taraba Jalingo, Yobe Damaturu, Zamfara Gusau, FCT Abuja.



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