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1.0 Introduction
1.1 Background to the study
The political, economic and social development of any country depends on the amount of
revenue generated for the provision of infrastructure in that given country. According to
AZUBIKE (2009), tax is a major player in every society of the world. The Nigerian tax system is
lopsided and dominated by oil revenue. According to Statistics from the Central Bank of Nigeria
(2000), oil and gas exports accounted for more than 98 percent of export earnings and about 83
percent of federal government revenue, as well as generating more than 40 percent of its GDP. It
also provides 95 percent foreign exchange earnings. Therefore, a highly lucrative means of
generating the amount of revenue needed for providing the necessary infrastructure for our
country through tax is no doubt through a well-structured tax system.
According to the Presidential Committee on National tax policy (2008), the central objective of
the Nigerian tax system is to contribute to the well-being of all Nigerians directly through
improved policy formulation and indirectly though appropriate utilization of tax revenue
generated for the benefit of the people. Over the years our tax system has not been able to reach
these perceived objectives as a result of some setbacks and challenges some of which include
lack of stewardship amongst tax payers, multiplicity of taxes, complex tax payment system and
tax offsetting, lack of technological exposure, tax evasion, corruption, government instability
which instigates noncompliance with relevant tax laws, poor information base and record
keeping etc.
Technology is influencing our lives and continues to change the way we do things from the
simple day to day activities to the complex and less routine task. The impact of technology can
be felt in every area of our lives such as education, entertainment, communication, commerce
including taxation. Information Technology (IT) is a very crucial component of tax
administration reform as it enables tax administrators to better gather and analyze information, to
proactively manage workload and resources, to foster a co-operative engagement with taxpayers
and to standardize the treatment of tax payers and thus facilitate the uniform application of the
law (USAID leadership in public financial management). The use of IT to aid tax administration
is the initiative that gave birth to the now popular E-tax system today
The integration of information technology in tax administration in the form of E-tax known as
electronic taxation has proved to be a master tool in combatting the challenges of any tax system
as it provides information, education and support to tax payers and facilitates compliance and
administration. It basically involves the automation of core tax processes. The E-tax systems are
often thought of solely as IT support to taxpayer services. It should be clear, however, that E-tax
systems do more than provide information, education, and assistance to taxpayers due to its
unique components such as electronic registration and filling, automatic updates of taxpayer
information etc. It also guarantees reduced cost of administering taxes. According to the World
Bank and PwC Paying Taxes Report 2013, sixty six economies had fully implemented electronic
filing and payment of taxes as at 2010.Also, twenty of them adopted the system in the past seven
The Federal Inland Revenue board and state board of internal revenue as well as local
government revenue committees are saddled with the responsibility of administering taxes at the
federal, state and local levels respectively. The Nigerian government through these public boards
has made efforts to restructure the tax system in a well-structured and coordinated manner. One
of this is the implementation of an electronic tax system called the ‗integrated tax administration
system‘ which if implemented properly would enhance compliance and eliminate the problem of
tax information and statistics. With this new reform, the government aims at capturing more
companies and individuals in the tax net so as to increase revenue derived from taxes as well as
stabilize the economy.
The E-tax system is however expected to promote efficiency, accountability, compliance and
also curb leakages in the Nigerian tax system. The system will go a long way in lightening the
work load of the tax payers and reducing operational cost .E-tax if adopted well have an overall
positive impact on the tax system.
1.2. Statement of the Problem
The Nigerian tax system which is made up of tax policy, laws and administration has faced so
many challenges over the years which have brought about inefficiency and increased
administrative cost. The amount of revenue to be derived from taxation in every nation is
completely dependent on the tax system put in place. This probably influenced the decision of
the Federal Government of Nigeria (FGN), which in 1991 set up a Study Group on the Review of
the Nigerian Tax System and Administration so as to optimize revenue from various tax sources.
In a FIRS press release, it was reported that approximately 12 billion naira traditionally vanishes
into the pocket of individuals not to mention the problems of complexity of payment,
unavailability of tax statistics and information, and also poor technological exposure on the part
of both tax payers and tax authorities.
The introduction of E-tax has done more good than harm since its adoption into the tax system.
The system as practiced by other countries such as Malaysia, Slovenia, Germany, America and
so many others has helped reduce time to comply with the 3 main taxes(profit, labor and
consumption) as well as provided reliable and accurate tax statistics. The Joint Tax Board, the
Federal Inland Revenue Service and some State Internal Revenue Service have or are in the
process of implementing electronic tax systems. Whilst the initiative is commendable it is
important to note that there are expected challenges facing the adoption of this system that could
put a strain on the already flawed tax system.
E-tax when if administered properly can be the solution to the irregular tax system in operation
in Nigeria. Hence the aim of this study is to evaluate the benefits of e-tax and proffer it as a
solution to the Nigerian tax system.
1.3 Research Objectives
The aim of this study is to analyze and evaluate the draw backs facing the legal tax system
prevailing in our country and combat these challenges with a well-structured electronic tax
system. The goals of this research work are as follows;
 To identify and understand the weaknesses of the traditional tax system in Nigeria
 To evaluate and analyze E-tax, its origin and benefits over the years and proffer it as a
solution to the traditional tax system
 To highlight the challenges and risks of adopting an electronic tax system in the country
 To suggest ways to overcome these challenges so as to achieve positive changes in the
traditional tax system which will lead to overall increased returns and tax efficiency.
1.4 Research Questions
 What are the events that led to the questioning of the prevailing tax system in Nigeria?
 What are the challenges that have been identified and traced to the traditional tax system on
account of the events above?
 What is E-tax all about and to what extent has it benefited other economies on its adoption?
 What are the expected challenges of E-tax in its bid to eliminate the challenges observed in
the traditional tax system in Nigeria?
 How can we overcome these challenges and create a good E-tax system that will improve
the effectiveness and efficiency of the traditional tax system in Nigeria?
1.5 Research Hypothesis
The hypothesis on which this study is based is stated in the null and alternative form as follows;
i. H0; There are no problems with the traditional system of taxation in Nigeria
H1; there are problems with the traditional system of taxation in Nigeria
ii. H0; The adoption of E-tax will not provide significant solution to the identified
problems with the traditional system of taxation in Nigeria
H1; the adoption of E-tax will provide significant solution to the identified problem
with the traditional system of taxation in Nigeria
iii. H0; There are no expected challenges and risks in the adoption of a good E-tax
H1; There are expected challenges and risks in the adoption of a good E-tax system
iv. H0; Strategic efforts are not required by the FIRS in overcoming these challenges for
the smooth adoption and sustenance of a good E-tax system
H1; Strategic efforts are required by the FIRS in overcoming these challenges for the
smooth adoption and sustenance of a good E-tax system
This research will a useful guide in the appraisal of the traditional tax system in Nigeria as
related to the electronic system of taxation and therefore will be beneficial to the various existing
tax authorities in Nigeria, policy making government officials at all level as well as tax payers
and the general public. The work may also serve as knowledgeable information to other
economies regarding evolution and changes in tax system, Also researchers who wish to undergo
research work in this area will be interested in this research project.
The research will be centered on the Nigerian tax system, its strengths and weaknesses as well as
the benefits and solutions an E-tax system could offer. It would contain a detailed analysis of
how to adopt and maintain a good E-tax system as a means of improving on the traditional tax
system as well as encouraging tax compliance amongst tax payers.
The research is centered on the Nigerian economy therefore it is limited to tax system in Nigeria.
Several limiting factors such as a limited sample size, difficulty in attaining data from corporate
bodies as well as unfriendly tax authority policies were encountered during the research process.
However the process was completed. Also unawareness as regards the research topic was a
hindrance to the researcher especially in obtaining data.
This study is made up of five chapters. Chapter one gives the general introduction to the study.
Chapter two deals with literature review of related works on the benefits of adopting E-tax. It
also explains the theoretical framework of the study and definition of terms. Chapter three
expresses the research methodology. Chapter four is use to present and analyze quantitatively the
effects of adopting E- tax system, also in this chapter the result are interpreted. Chapter five
gives the summary, conclusions and recommendation of the study
The familiarization by users of this study with the following terms will facilitate understanding
of the concept and body of the research work
TAXATION this refers to a compulsory levy imposed on a subject or upon his/her property by
the government to provide security, social amenities and other amenities for the well-being of the
TAX SYSTEM: this refers to a system which consists of the laws, policies and administration of
taxes put in place for effective tax assessment and collection
TRADITIONAL TAX SYSTEM: This refers to the legal system of assessing and collecting
taxes manually without the use of Information communication technology
E-TAX: This can be defined as the information technology that allows for the automation of core
tax processes.
TAX AUTHORITY: They are the bodies charged with the administration of taxes in Nigeria
REVENUE: This can be defined as the funds generated by government to meet their proposed
expenditure and strategic targets for a given year.
FIRS: Acronym for Federal Inland Revenue Service. This is one of the federal ministries,
departments and agencies charged with the responsibility of assessing, collecting, and accounting
for the various taxes to the federal government


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