BUSINESS MANAGEMENT: EMPHASIS ON TAX PRACTICE

BY

AUSTIN UCHE NWEZE, PhD (Nig), FCA, FCTI, JP…

Former Head,

Department of Accountancy,

ENUGU STATE UNIVERSITY OF SCIENCE and TECHNOLOGY

&

Visiting Professor of Accounting

MADONNA UNIVERSITY, OKIJA

Being a Paper Presented at the Three-Day Pre-Induction Training Programme for the Would-

be Associate Members of the Chartered Institute of Taxation of Nigeria (CITN)

AT

Lagos Airport Hotel, Ikeja, Lagos, Nigeria

On

May 21, 2013

BUSINESS MANAGEMENT: EMPHASIS ON TAX PRACTICE Austin Uche Nweze, PhD(Nig), FCTI

Introduction

To enhance the flow of thought, it’s necessary we provide both the dictionary and

the technical meanings of the terms in this our title.

The Merriam-Webster’s Dictionary and Thesaurus of the Encyclopedia Britannica,

Student and Home Edition, provides the under-mentioned ten definitions of the

term business thus:

Busi·ness \'biz-nəs, -nəz, Southern also 'bid-\ n, often attrib, [ME bisynesse, fr. bisy

busy + -nesse -ness] (14c)

1 archaic: purposeful activity: busyness

2 a : role function ‹how the human mind went about its ~ of learning —H. A.

Overstreet›

b : an immediate task or objective : mission ‹what is your ~ here› c : a particular

field of endeavor ‹the best in the ~›

3 a : a usu. commercial or mercantile activity engaged in as a means of livelihood :

trade line ‹in the restaurant ~›

b : a commercial or sometimes an industrial enterprise ; also: such enterprises ‹the

~ district›

c : dealings or transactions esp. of an economic nature : patronage ‹took their ~

elsewhere›

4 : affair matter ‹the whole ~ got out of hand› ‹~ as usual›

5 : creation concoction

6 : movement or action (as lighting a cigarette) by an actor intended esp. to

establish atmosphere, reveal character, or explain a situation called also stage

business 7 a : personal concern ‹none of your ~› b : right ‹you have no ~ speaking to me

that way›

8 a : serious activity requiring time and effort and usu. the avoidance of

distractions ‹got down to ~› b : maximum effort

9 a : a damaging assault b : rebuke tongue-lashing c : double cross

10 : a bowel movement — used esp. of pets

syn BUSINESS COMMERCE TRADE INDUSTRY TRAFFIC mean activity concerned with

the supplying and distribution of commodities. BUSINESS may be an inclusive term

but specifically designates the activities of those engaged in the purchase or sale of

commodities or in related financial transactions. COMMERCE and TRADE imply the

exchange and transportation of commodities. INDUSTRY applies to the producing of

commodities, esp. by manufacturing or processing, usu. on a large scale. TRAFFIC

applies to the operation and functioning of public carriers of goods and persons.

syn see in addition work

From the above definitions and from other sources, we can define business as any

profit-oriented lawful activity which is directed at satisfying the needs of

various stakeholders, including the owners, employees, government and the

general public.

Also, according to the Merriam-Webster’s Dictionary and Thesaurus of the

Encyclopedia Britannica, Student and Home Edition, the term management has the

following meanings:

Man·age·ment \'ma-nij-mənt\ n (1598)

1 : the act or art of managing : the conducting or supervising of something (as a

business)

2 : judicious use of means to accomplish an end

3 : the collective body of those who manage or direct an enterprise

— man·age·men·tal \"ma-nij-'men-təl\ adj

Technically, we see management as the science of applying Planning,

Organising, Commanding, Co-ordinating and Controlling on the factors of

production to achieve the desired goals of an enterprise or people.

The afore-mentioned Dictionary also provided the definitions of tax thus:

1Tax \'taks\ vt [ME, to estimate, assess, tax, fr. AF taxer, fr. ML taxare, fr. L, to

feel, estimate, censure, freq. of tangere to touch — more at tangent] (14c)

1 : to assess or determine judicially the amount of (costs in a court action)

2 : to levy a tax on

3 obs: to enter (a name) in a list ‹there went out a decree…that all the world should

be ~ed —Lk 2:1(AV)›

4 : charge accuse ‹~ed him with neglect of duty› ; also: censure

5 : to make onerous and rigorous demands on ‹the job ~ed her strength›

— tax·able \'tak-sə-bəl\ adj

— tax·er n

2Tax n, often attrib, (14c)

1 a : a charge usu. of money imposed by authority on persons or property for

public purposes

b : a sum levied on members of an organization to defray expenses

2 : a heavy demand

Given the importance of tax and its central nature in our discussion, we consider it

very appropriate to do a brief literature review in order to bring out the meanings

of the term tax.

Brief Literature Review on Tax:

From the lecture series of the National Open University of Nigeria (NOUN) and in

a plain language, the Oxford English Dictionary (1973) has defined tax as ‘a

compulsory contribution to the support of government levied on persons’ property,

income, commodities, transactions, etc, now at a fixed rate proportionate to the

amount on which the contributions is levied’. However, to further simplify this

definition, the Oxford Advanced Learner’s Dictionary (2006) defined tax as

‘money that you have to pay to the government so that it can pay for public

services.’ It further concluded that ‘people pay tax according to their income and

businesses pay tax according to their profits. Tax is also often paid on goods and

services.’

Another definition supplied by Investwords.com refers to tax as ‘a fee charged by a

government on a product, income or activity.’

The word tax was further judicially defined in the Australian case of Mathews v

Chicory Marketing Board (1938) 60 CLR 263 as ‘a compulsory exaction of money

by a public authority for public purpose or raising money for the purpose of

government by means of contributions from individual persons.’

Take note that there is no legislative definition for tax. That is, there is no

definition of tax in all our laws relating to tax. Thus, we shall only rely on the

available definitions.

You should also note that the definition supplied in the Oxford Dictionary has been

criticized as inadequate by various writers. According to Chris White H. in his

book, Revenue Law: Principles and Practice, the definition is inadequate because

it has limited its view as to the purpose of tax. He further stated that its description

of tax base was irrelevant and it places unnecessary emphasis on proportional

taxation as opposed to progressive taxation.

Another writer, Abdulrazaq, M. T. (1993), however tried to rectify this anomaly by

adding a criterion to the incomplete definition by adding that ‘taxes are imposed

under the authority of the legislature that they are levied by a public purpose.’

However, despite the various definitions, you should note that a proper tax within

the above definitions must be one backed by legislation and must be a deduction

that gives to treasury of the authorities concerned with revenue generally. Also the

compulsory nature of tax should also be noted.

Tax should not however be confused with other forms of compulsory contribution

which bear semblance with it. The criterion of the compulsory nature of tax

becomes clearer when distinguishing a tax from a charge for a government service.

Firstly, if a payment is a charge for a government service, some service must be

provided directly to the individual. For example, there is difference between

paying a bridge toll and paying a tax to be used for the defence of one’s country.

Secondly, the charge must be related to the service given, and not varied according

to the person’s ability to pay or to some other criterion such as the value of his

property.

We would therefore recommend the definition supplied in Aiyar’s Concise Law

Dictionary (2009) as the most apt and encompassing definition. Thus:

Tax was defined as ‘a compulsory exaction of money by a public authority for

public purposes enforceable by law and is not payment for services rendered.’

Finally on the definitions, the Merriam-Webster’s Dictionary and Thesaurus of the

Encyclopedia Britannica, Student and Home Edition, defines practice thus:

1Prac·tice also prac·tise \'prak-təs\ vb, prac·ticedalso prac·tised prac·tic·ingalso

prac·tis·ing [ME practisen, fr. MF practiser, fr. ML practizare, alter. of

practicare, fr. practica practice, n., fr. LL practice, fr. Gk praktikē, fr. fem. of

praktikos] vt(14c)

1 a : carry out apply ‹~ what you preach›

b : to do or perform often, customarily, or habitually ‹~ politeness› c : to be

professionally engaged in ‹~ medicine›

2 a : to perform or work at repeatedly so as to become proficient ‹~ the act› b : to

train by repeated exercises ‹~ pupils in penmanship›

3 obs: plot vi

1 : to do repeated exercises for proficiency

2 : to pursue a profession actively

3 archaic: intrigue

4 : to do something customarily

5 : to take advantage of someone ‹he practised on their credulity with huge success

—Times Lit. Supp.› — prac·tic·er n

2Practice also practise n (15c)

1 a : actual performance or application ‹ready to carry out in ~ what they

advocated in principle› b : a repeated or customary action ‹had this irritating ~›

c : the usual way of doing something ‹local ~s›

d : the form, manner, and order of conducting legal suits and prosecutions

2 a : systematic exercise for proficiency ‹~ makes perfect›

b : the condition of being proficient through systematic exercise ‹get in ~›

3 a : the continuous exercise of a profession

b : a professional business ; esp: one constituting an incorporeal property habit

In this our discussion, we shall see practice as science of applying one’s

professional and technical knowledge to render specialized and skilled

services to a certain clientele base.

2.0 Elements of Business Management

To be able to manage a business successfully, one must necessarily appreciate

certain fundamental elements in business. These elements include:

2.1 Essential Characteristics of Business:

The fundamental characteristics of business are wealth creation, price, transaction

and profits.

2.2 Objectives of Business:

According to Akpala (1990: 53), business objectives can be classified into

economic and social. Whereas economic objectives are spelt out in terms of sales

volume, share of the market, naira profit margin, returns on capital and other

pertinent factors, social objectives concern the goals of an organization with

respect to its organizational responsibilities to the enterprises’ employees,

shareholders, customers, governments and the general public.

To Onuoha (1991:79), specific objectives of any business organization include:

(a) To produce and distribute goods and services effectively and efficiently in

order to ensure that the needs and desires of its customers are satisfied.

(b) To achieve the production and distribution objectives at a profit.

(c) To increase its market share.

(d) To protect the health and well-being of its employees through the provision

of a conducive working environment and a good condition of service in the

form of good wages, salaries, generous fringe benefits and job security.

(e) To be a good corporate citizen through the maintenance of cordial

relationship with its neighbours, competitors, customers and the community

in which it operates.

(f) To achieve sound growth and survival.

2.3 Classification of Business:

According to Enudu (2004:7), the extent and nature of business activities are

almost as diverse and comprehensive as the totality of the social and economic

interest of man. As a result, many authors and scholars, have attempted to classify

business in various ways. These include: By the level of activity (primary,

secondary and tertiary businesses); By legal structure (incorporated and

unincorporated); By sector (Private and public sector businesses); and By the kind

of Activity engaged in (Commercial, Industrial and Service-oriented activities)

However, for the purpose of this discourse, we shall adopt the last classification,

that is, by the kind of Activity engaged in (Commercial, Industrial and Service-

oriented activities).

Broadly speaking, whereas Commercial and Industrial activities essentially have to

do with tangibles, Service-oriented Industry has to do with intangibles.

Commerce: Buying and Selling. They could be mainly retailers and wholesalers.

Others include: jobbers, brokers, distributors and manufacturers’ representatives.

Industry: Production of goods and services. Industry is generally, divided into

three, namely, extractive, manufacturing and construction industries.

Service-oriented: They include, Recreational Services (hoteliers, actors and

actresses….); Personal Services (Laundry, Beauty shops, photographic studios etc)

Consultancy Services (Management Consultancy, Financial, Investment, MIS,

Marketing, Risk Management, Land Use and Development, Engineering

Consultancy, Legal Consultancy…..)

Research and Development Service: This could include research into materials

and product development, software information system, specialized machines,

system development…).

Tax Practice comes under the Service-oriented Activity

2.4 Motives for Going into Business

The following are the major motives why people go into business: Profit, Social

approval, Personal Satisfaction, Livelihood, Power, Protection, Independence,

Service to the Community and to Employees.

2.5 The Major Functions of a Manager:

According to Enudu (2004), what is today known as the managerial functions were

the result of the writings of Henri Fayol who stated that the activities performed in

most industrial ventures are grouped into six, namely, Technical (Production,

Manufacturing, …) Commercial (Buying, Selling and Exchange…), Financial

(Sourcing and Applications capital…), Security (Security of lives and Property),

Accounting (Financial Records and Management Information) and Managerial

activities (Planning, Organising, Commanding, Co-ordinating and Controlling).

We shall now focus on the managerial activities in a Business.

2.60 Managerial Activities in Business:

The very first step in managing a business is planning. Yes, in every facet of life,

planning is fundamentally important. This is because “if you fail to plan, then you

have planned to fail”

According to United Nations Conference on Trade and Development (2002), a

business plan is a comprehensive, written description of the business of an

enterprise. It is a detailed report on a company's products or services, production

techniques, markets and clients, marketing strategy, human resources,

organization, requirements in respect of infrastructure and supplies, financing

requirements, and sources and uses of funds.

The business plan describes the past and present status of a business, but its main

purpose is to present the future of an enterprise. It is normally updated annually

and looks ahead for a period of usually three to five years, depending on the type

of business and the kind of entity.

It is a crucial element in any application for funding, whether to a venture capital

organization or any other investment or lending source. Therefore, it should be

complete, sincere, factual, well structured and reader-friendly.

2.61 Why a business plan?

There are many important reasons for drawing up a business plan. Some of the

most significant are the following:

• Getting an integrated view of your business.

• Mutual understanding within the management team.

• Determining financial needs and applying for funds.

• Approval from board of directors/shareholders.

• Recruiting.

• Deriving objectives for employees.

• Informing employees.

• Informing lenders.

• Informing partners.

For a new business, the starting point of our planning process is the preparation of

feasibility studies.

2.62 Feasibility Studies

Except when one is acquiring an existing business (which requires a different set of

appraisal techniques), one must necessarily carrying out some feasibility studies

before starting a new business. Broadly speaking, feasibility studies focus on two

major areas, namely, feasibility and viability tests. Whereas, feasibility tests for

technical workability or practicability, viability tests for accounting profits. These

studies are crucial for every new business venture, so that we look before we

leap. Armed with our studies, we now go into other aspects of planning.

2.63 Other Aspects of Business Planning:

Other aspects of planning essentially involve looking into the future to visualize

and determine future actions that will lead to the realization of the desired

objectives. This will include developing vision and mission statements (Examples:

University of Nigeria, “To Restore the Dignity of Man”; Gulder, “The

Ultimate”; Satzenbrau, “The Final Word”; Heineken, “Chairman”; Santana,

“Nothing More to Add” Nicon Nuga, “To spoil you a Little” Even, in my school

days as an undergraduate of the University of Nigeria, we used play inter-hostel

games. My hostel had its own slogan, “it’s either we win or they lose” And of

course, in a zero-sum game, the obvious interpretation is that we must win.

Propelled by such precise but powerful statements, planning processes are

consummated by providing answers to the following questions, amongst others:

Who? What? When? Where? How? Who refers to the individual; what refers to the

task; when refers to the time the task has to be accomplished; where refers to the

location where the task has to be accomplished and how provides answers as to the

processes that must necessarily be undertaken for the task to be done.

2.64 What are the steps in the planning process?

Relying on Mcfarland ((1979) and Onuoha (1993), quoted in Enudu (2004), we

can state the planning process as follows:

(i) The identification of the present inadequacies that desire change.

(ii) Making some assumptions or premises about the future.

(iii) Collection and analysis of data relating to the issue at hand.

(iv) Development of alternative plans based on the analysis of the data

collected.

(v) Making choices among the alternative plans.

(vi) Implementing the chosen plans

(vii) Evaluating/Monitoring of the plan and giving of feedback.

Also, according to United Nations Conference on Trade and Development (2002),

a business plan should not be something you prepare once, then put on a shelf and

forget. Dynamic planning should be an integral part of managing your business.

Most successful ventures prepare a three-to-five year business plan every year.

This involves updating last year’s business plan by comparing the planned figures

and goals with results achieved and taking into account changes, new information,

experiences and new ideas. The steps involved in the business planning process are

the following:

(i). Assessing the situation

(ii). Developing a mission

(iii). Getting ready

(iv). Setting goals

(v). Working out the business plan

(vi). Setting employee objectives

(vii). Monitoring the process

2.65 Format and organization of a business plan

Before discussing the content (substance) of a business plan, it is important to

consider some basic issues regarding its format and presentation. If the plan has to

look professional and to be a useful tool, then there are a number of points that

require special attention, as discussed below.

• The cover. The purpose of a cover page is to tell readers what they are about to

read and how to reach the author. The cover of the document is often the first

impression of a business that any interested parties or investors get. Your cover

page is also a way to make your business plan noticed. Financiers receive

numerous business plans every week, but something as simple as a cover page on

good-quality paper may attract their attention (and thus ensure that they give

higher priority to the business plan). Your cover should bear the words "Business

Plan" and should include:

� The legal name of the business;

� The entity's logo. (If you have spent time and effort on a company logo, slogan

or other identifying graphic or text, the cover page is the place to put it. If you have

not considered these basic marketing tools, you are advised to do so. Building an

identity is vital if you want people to recognize and remember your business.);

� The date of preparation or modification of the document, and the period it

covers.

� The address;

� The telephone number;

� The fax number;

� The e-mail address and website (Internet address) if applicable;

� Other contact information, if any.

� Optional: a notice advising the reader that the plan is confidential. If you have

prepared multiple copies of your business plan, you might also put a copy number

on the cover page to ensure control of distribution.

The cover should be attractive and look professional. The fonts used should be

easily readable, and colour contrasts should be pleasant to the eye. Any nice

graphic or photograph could make it look even more appealing.

• Table of contents. Your table of contents provides readers with a quick and easy

way to find individual sections in the plan. Be sure to list headings for major

sections as well as for important subsections. If your table of contents is more than

one page long, reconsider the length of the entries, the length of your plan and the

number of documents you have attached.

• Paper. Print the plan on good-quality paper. Print on one side of the paper only.

• Contact person. Be sure to include identifying information for the business and to

name the person who should be contacted regarding the plan.

• Fonts. Use a typeface that is easy to read and a font size that is large enough to

prevent eye strain. This may require tables with financial projections to be spread

over several pages in order to maintain legibility.

• Margins. Maintain reasonably wide margins. These are useful to readers for

noting their questions and comments.

• Terms and acronyms. If your business uses specialized terminology or acronyms,

use them sparingly and be sure that you define any terms that someone outside

your area of expertise would not know.

• Page numbers. Number the pages, and be sure that these numbers are correct in

the table of contents.

• Size of document. Keep the plan short and concise. Limit the inclusion of

extraneous material. You can always provide additional detail in an appendix, if

required.

• Samples. Include in the appendix samples of advertisements, marketing material

and any other information that aids the presentation of your plan.

• Editing. Be certain to edit the document carefully. Spelling mistakes and

grammatical errors do not make a good impression. Modern word-processing

software provides effective spelling and grammar checking tools - use them. It is

worthwhile having one or two persons to read and check the text and figures again.

• Binding. Bind the document so that it lies flat when opened.

• Overall quality of presentation. Do not go overboard on expensive binders,

binding, embossing etc. According the form of the plan more importance than its

substance can raise doubts among those reading it. But not let it look cheap or

sloppy.

Permit me, at this point, to observe that budgeting and planning are not synonyms.

For a plan to become a budget, two other ingredients must necessarily be there.

The ingredients are: The plan must be quantitative in nature and it must be

denominated in monetary terms. Therefore, a budget is a plan, but a plan is not a

budget. We can draw similar inferences in Mathematics, namely, a Square is a

Rhombus but a Rhombus is not a Square and a Rectangle is a Parallelogram

but a Parallelogram is not a Rectangle. Even in our profession, every Auditor is

an Accountant but every Accountant is not an Auditor.

Finally, to say the least, planning is an indispensable tool in modern business

management!

2.7 Organization:

Organization basically revolves around structuring, staffing and establishment of

relationships between the various components of the entity, aimed at using people

to achieve the desired goals.

Here, we also talk about delegation of authority, centralization and

decentralization.

2.8 Directing/Commanding:

As a managerial function, directing is all about issuing of orders and creation of

enabling environment for disciple and rule of law. Communication, which is a

two-way process of exchanging facts, thoughts, opinions and emotions is an

essential instrument of directing.

2.9: Controlling/Evaluation:

Planning and control are said to be the opposite sides of the same coin. While one

is the head the other is the tail. This means that they are inseparable. At the

evaluation stage, a comparison is made to check whether the set goals were

realized or not. In Management Accounting parlance, at this stage, we carry out

Variance Analysis, that is, comparing the actual with the planned.

3.0 Tax Planning, Practice and Administration:

The general principles of an Ideal Tax

A writer, Adam Smith who, in his book, The Wealth of Nations, described the

ingredients as ‘cannons of taxation’, and Kath Nightingale (2001) in Theory and

Practice of Taxation stated that a good tax must possess the following:

(a). Simplicity: A good tax system must be straightforward, simple and coherent.

The concept and principles of the tax must be understood by majority of the

citizens and also must be simple to operate. There must also be consistency in

administration of the tax among the different strata of government.

(b). Equity: An ideal tax must be administered on the principles of equity. There

are two types of equitable principles in the taxing system – horizontal equity and

vertical equity. What we mean by horizontal equity is that those in equal

circumstances should pay an equal amount of tax. And when we say vertical

equity, it means that those in unequal circumstances should pay different amount

of tax. The importance of this criterion is to install confidence in the tax payer who

will be more willing to pay their taxes if they believe that the system is fair and

equal.

©. Ability to pay: By this, we mean that the tax must not be unbearable for the tax

payers. It must be within their financial capability.

(d). Administrative Efficiency: The administrative costs should not be higher than

the revenue yielded. Also the tax must take into account certain factors such as, the

effects on economic incentives, and whether it is compatible with desirable

international economic relations.

(e). Certainty: The scope of the tax should be clear. This criteria also means the

certainty that the tax can and will be enforced, because a tax that is easily evaded

usually causes resentment and often a decline in tax payer morality. Also the tax

which every person is bound to pay ought to be certain and not arbitrary.

(f). Flexibility and Stability: The tax system should be flexible especially in a

federal and democratic country such as Nigeria where there are always changes in

government.

(g). Neutrality: A tax must be neutral thus it must avoid distortions of the market.

For instance, a selective tax, such as the sales tax, is not neutral, because it

encourages the consumer to spend his money on another item rather than a taxable

one.

3.1 Persons subject to Tax

Tax is not imposed upon nothing. The entity to be taxed and the source(s) of the

income to be taxed must be identifiable. However, it is necessary to state here that

the person upon whom tax assessed and from whom tax is collected is known as

‘assessable person’.

The assessable person is the person whether artificial or real who resides in any

part of the country in a particular year of assessment with express exemption of

religious, charitable, trade union, labour organizations and government boards,

states and corporation. There are personalities relevant to the process of levying

and collection of tax. The taxable persons therefore include:

i. Individuals,

ii. Sole proprietors,

iii. Partnerships,

iv. Companies,

v. Communities and families,

vi. Trustees and executors.

The taxes of all of these persons except the company are chargeable under the

PITA while the taxes chargeable to a company are assessed under the CITA.

3.2 Determination of Residence as a Basis for Taxation

After we have identified the persons liable to pay tax, another issue that is very

germane to the proper administration of tax is that of residence of the tax payers.

This is because the determination of the residence of the tax payers will resolve the

relevant tax authority that will collect the tax. Resolving the issue of residency also

affect the scope and type of deductions and relief that may be allowed to a

particular tax payer. For example, the amount that would be deducted as PAYE for

a person resident in Lagos would be different from the amount to be deducted from

the income of a person resident in Dutse.

Generally, residence means living in a particular locality and it may be possible

that a person has two places of residence. Residence therefore connotes the idea of

remaining and settling in a place for a fairly long period. It is for this reason that

residence is used to determine liability to personal income tax.

The Personal Income Tax Act considered the question of where a person is deemed

to be resident in a particular year of assessment along the following lines:

a. Individuals in Employment on 1st January of a particular year

A place of residence is defined under paragraph 1 of the First Schedule to the PITA

in relation to an individual to mean ‘a place available for his domestic use in

Nigeria on a relevant day, and does not include any hotel, rest house or other

places at which he is temporarily lodging unless no more permanent place is

available for his use on that day.’

However, where an individual has two or more places of residence, his tax would

be administered by the tax authority within his principal place of residence. And

the phrase ‘principal place of residence’ in relation to an individual with two or

more places of residence on a relevant day not being both within a State means:

i. for an individual who is a pensioner, with no other source of income, his

principal place of residence is that particular place or those places that he usually

resides.

ii. for an individual who earns his income from paid jobs in Nigeria (that is not

pensioner), his principal place of residence is that place or those places which on a

relevant day is nearest to his usual place of work

iii. for an individual who has a source or sources of unearned income in Nigeria,

his principal place of residence is that place or those places in which he usually

resides.

b. Individuals taking up Employment within the Year

A person taking up an employment or trade during a particular year of assessment

is deemed to be resident for that year in place where he has a place of residence or

principal place of residence if he resides in resides in two or more places in an

assessment year.

c. Persons on Leave from Employment at 1st January

An individual who is on leave from a Nigerian employment on the first day of

January in a year of assessment shall be deemed to be resident for that year by

reference to his place or principal place of residence immediately before his Leave

begins.

d. An Indvidual who is in a Foreign Employment on 1st January

An individual who holds a foreign employment on the first day of January of the

year of assessment, the duties of which are performed in Nigeria (apart from

temporary visits of the employee to Nigeria), is deemed to be resident in that year

in the territory in which the main or principal office is situated on that day.

e. Armed Forces Personnel

A member of the Armed Forces (employed in combatant capacity) is deemed to be

resident in the Federal Capital Territory for tax purposes in the year of assessment.

f. Trustees

The tax to be paid on the estates managed by trustees on a year of assessment

would be payable to the tax authority in charge of the place where the Trustee has

a place or place of business (registered office) in the assessment year.

g. Executors

The tax to be paid with respect to the estates managed by an executor would

collected by the tax authority in charge of the place where the deceased was last

resident.

h. Itinerant Worker

In the case of an itinerant worker, tax may be imposed for any year by any state, in

which the itinerant worker is found mostly during the year.

i. Communities

Community income is taxed by the tax authority of the State where the members of

the community are usually resident. That is, the State in which the community is

found during the year of assessment.

j. Corporation Sole, Partnership or Body of Individuals

A corporation sole, partnership or body of individuals other than a family or

community shall be deemed to be resident for a year of assessment in the State in

which its principal office in Nigeria is situated on the first day of January in that

year. But the corporation sole, partnership or body of individuals has no office in

Nigeria on that day, its place of residence shall be the State in which any part or

the whole of its income liable to tax in Nigeria arises for that year.

3.4 Liability to tax and tax administration

Section overview

3.41 Individuals

An individual may be liable to the following taxes:

employment and income from a business which he operates as a sole trader or as a

member of a partnership

ts owned by him as

investments or used in his sole trade or partnership

consumer of goods or services

An individual is taxed annually on his income and gains arising in a tax year.

Definition

Tax year: 1 January to December 31, in one calendar year.

The tax year running from January 1 to December 31, 2013 is called the 2013 tax

year.

3.42Partnerships

A partnership is a group of persons carrying on a business together with a view to

making a profit.

Each partner is liable to tax on his share of income and gains of the partnership in a

tax year, but not for tax on the shares of income and gains of the other partners.

The partners are jointly and severally liable for the following taxes:

and employee contributions are collected under the PAYE system)

consumer of goods or services

'Joint and several' liability means that these taxes can be recovered from all or any

of the partners

3.43 Companies

A company is a legal person formed by incorporation under the Companies Acts. It

is legally separate from its owners (shareholders) and its managers (directors).

A company is liable for the following taxes:

d gains

and employee contributions collected under the PAYE system)

upplier of goods and services or as the final

consumer of goods or services

The rate of corporation tax is determined by reference to the financial year.

Definition

Financial year: 1 January to 31 December in one calendar year.

The financial year running from Jan 1 to Dec 31, 2013 is called Financial Year

(FY) 2012.

4.0 Relevant Tax Laws

Before we identify the relevant laws that govern tax administration, it should be

noted that in order to promote uniformity, the Nigerian constitution vested the

legislative power for income tax, whether individuals or corporate, on the federal

government. It only delegates the administration of the various taxes to the tiers of

government. Thus the major taxes in terms of revenue, economic and equity

significance are enacted under Federal Laws.

Such tax laws presently operating include:

a. Personal Income Tax (Amendment) Act 2011

b. Companies Income Tax Act, Cap C21, LFN 2004.

c. Value Added Tax Act, Cap V1, LFN 2004.

d. Stamp Duties Act, Cap S8, LFN 2004.

e. Petroleum Profit Tax Act, Cap P13, LFN 2004.

f. Capital Gains Tax Act, Cap C1, LFN 2004.

h. Taxes and Levies (Approved List of Collection) Act, Cap T2, LFN 2004.

i. Customs, Excise Tariff, etc. (Consolidation) Act (as amended)

j. Education Tax Act (as amended)

k. Capital Transfer Tax Act

l. Federal Inland Revenue Service Act

Each of these laws relates to tax administration and form the basis for the

regulation of taxes in Nigeria. While some of them deal with individual tax

payers, others are concerned with companies and corporate institutions.

There are some that deal specifically with the goods and services purchased

while few others establish the authorities that are concerned with tax.

Whether a country is planning major reforms or not the need to improve Tax

Administration is ever present with pressing demands from Governments to

improve performance to increase revenues (as a percentage of GDP). How can we

expect compliance levels to improve if we continue to manage in the same way?

Change is necessary.

5.10 Tax Planning:

Tax planning is done at various levels, namely, Strategic, Design or Tactical and

Delivery or Operational Levels.

Strategic level

Understanding and developing a taxpayer compliance strategy

- Proper legal Framework

– Efficient organizational and staffing arrangements

– A system of self assessment

– Streamlined collection systems and procedures

– Service orientated approach

– Risk based audit and other verification programs

Extensive use of IT

- Modern and effective human resource practices

- Effective models for institutional change

- An environment of integrity and good governance

Design or Tactical Level

Translating a taxpayer compliance strategy into a design for delivery

Delivery or Operational Level

Developing core processes and practice to manage the compliance risk of a wide

range of taxpayers

5.2 Tax Administration:

Relevant Tax Authorities

After we have known and identified the relevant tax laws, what we need to know

now is to identify the relevant tax authorities that are in the position to collect the

tax on behalf of government. These are the revenue boards constituted by the

government with mandate to assess and collect tax. According to the provision of

section 100 of Personal Income Tax Act (PITA) (as amended by the Finance

(Miscellaneous Taxation Provisions) Act 1998), ‘tax authorities’ means Federal

Board of Inland Revenue (now Federal Inland Revenue Service), the State Board

of Internal Revenue or the Local Government Revenue Committee. For better

understanding, some of the relevant tax authorities are discussed hereunder:

5.21. Federal Inland Revenue Service (FIRS)

The FIRS was established by virtue of section 1 of the Federal Inland Revenue

Service (Establishment, etc.) Act of 2007 (hereafter referred to as the Act). This

body took over from the erstwhile Federal Board of Inland Revenue (established

under section 1 of the Companies Income Tax Act (CITA) 1990), which was

dissolved by section 62 of the Act.

The FIRS is the federal government’s operational agency in charge of assessing

and collecting relevant taxes for the Federal Government.

The function of the FIRS as provided in section 8 of the Act, include, among

others:

a. to collect, recover and pay to the designated account, any tax recognized b the

Act or any other law or enactment.

b. to assess persons including companies, enterprises and individuals chargeable

with tax

c. to assess, collect and enforce payment of taxes as may be due to the government

or any of its officials

d. to collaborate with relevant ministries and agencies, for the review of the tax

regimes and promote the application of tax revenue for the stimulation of

economic activities and development

e. to make, from time to time, a determination of the extent of financial loss and

such other losses by government arising from tax evasion and fraud and such other

losses (or revenue forgone) arising from tax waivers and other related matters.

The FIRS also has a board, whose power is to provide general policy guidelines

relating to the functions of the service, among other related matters (section 7).

There is also a Technical Committee of the board which considers all tax matters

that require professional expertise and make recommendations to the Board.

5.22. State Board of Internal Revenue (SBIR)

The SBIR is the relevant tax authority charged with assessing and collecting taxes

that are due to the state government. The SBIR was established under section 85A

of the Personal Income Tax Act (PITA) 1993. The SBIR has an operational arm

known as State Internal Revenue Services or State Services. The SBIR is

responsible for:

a. ensuring the effectiveness and optimum collection of all taxes and penalties due

to the state government under the relevant laws.

b. doing all such things as may be deemed necessary and expedient for the

assessment and collection of the tax and shall account for all amounts so collected

in a manner to be prescribed by the Commissioner for Finance of the relevant state.

c. Making recommendations where appropriate to the Joint Tax Board on tax

policy, tax reform, tax legislation, tax treaties and exemptions as may be beginning

from time to time.

d. generally controlling the management of the State Services on matters of policy

subject to the provisions of the law setting up the State Service.

5.23. Local Government Revenue Committee

The Local Government Revenue Committee was also established under the PITA,

section 85D (1). The function of the Revenue Committee includes assessment and

collection of all taxes, fines and rates under its jurisdiction and shall account for all

amounts so collected in a manner to be prescribed by the Chairman of the Local

Government.

5.24. Other tax authorities

Apart from the above mentioned, there are other tax authorities created by the law.

These include among others:

a. Joint Tax Board (created under section 85(1) of PITA 1993)

b. Joint State Revenue Committee (section 85F PITA 1993 as amended by Finance

(Miscellaneous Taxation Provisions) Act 1998

Understanding taxpayers’ compliance behavior leading to better management of

compliance risks, leading to increased voluntary compliance, leading to increased

revenue collected at lower costs of collection, leading to a more effective Tax

Administration. Tax Administration involves effective use of Stakeholders’

resources, namely, Governance and Accountabilities of Tax Administrations, to

collect tax at minimum costs.

Tax Administrators have to find ways to enhance voluntary compliance.

6.0 Structures that best support a functional operational Model Strong headquarters base:

– Preparing national plans

– Regular monitoring and reporting

– Design and maintain standardized policies and processes

– Provide advice and guidance to the field operation units

The Administrator should try to establish why some people comply and some

others do not. They should note that different factors influence BISEP, namely:

– business

– industry

– sociological

– economic

– psychological

In addition to the above, we also have environmental influences, namely:

• Political influences

• Economic influences

• Technological influences

• Social influences

• Demographic changes

• International influences

Finally, the Tax Administrators should recognize the interests and roles of the

various Stakeholders, namely:

• Government

• Taxpayers

• Business and industry

• Intermediaries

• The Community

• NGO’s

• Others?

7.0 Tax Practice:

Let’s recall that earlier, we identified service-oriented business. Tax Practice is a

good example of this type of business. Tax practice involves applying our

knowledge as Tax Experts to translate the above themes to achieve high levels of

voluntary compliance (high revenues at a lower cost) through the effective

management of compliance risks thereby maximising collections with the

resources available to a Tax Administrations and being accountable –

reporting business results (Key Results Areas) to achieve the confidence of key

stakeholders

7.1 Role of (Key Result Areas) KRA’s

On the basis that “what gets measured, gets done” KRA’s are instrumental in

focusing our

Tax Administration activities that we have identified as important towards

achieving our strategy.

Enable your tax administration to translate the strategic intent (themes) to an

operational

Reality Focus all of your tax administration i.e. business as usual and new

initiatives on what you have identified as important to achieve and what you will

be measured against.

Forms the basis of your business (action) plan to identify what is to be done, who

will do it and

when it is to be done by. Can expand out 3-5 years to include larger projects

As tax practitioners, we must note that most countries have function based

operating models:

•Taxpayer registration

•Taxpayer services and education

•Taxpayer returns processing and payments

•Taxpayer audit and investigations

•Taxpayer collections

•Taxpayer operations policy

Also, as tax practitioners, we must identify the support roles that facilitate the core

roles of a Tax Administration to function: These support roles include:

Finance and planning

–Funding based on staff numbers

–Fully funded Tax Administrations

Human resource capabilities

–Recruitment and retention

–Remuneration and conditions of work

– Industrial relations

– Training and development

– Health and Safety

– Matching staff to business needs

– Managing change

– Maintaining integrity - code of conduct

– Managing conflict of interest

7.2 Technical and Legal Services

•Developing technical rulings and interpretations

•Representing Tax Administrations in litigation and adjudication cases

•Risk management – quality review of critical processes

•Staff training and mentoring

•Contributing to tax policy development

Organizational Communications

• Influence community compliance behaviour

•Manage risks to the “image” of the Tax Administration

Internal Audit

• Provide management assurance

– Carry out effectiveness evaluations on key internal processes

– Conduct systems audits

– Undertake financial audit

– Undertake internal investigations where warranted

• Manage risk of internal fraud and corruption

• Internal investigations

8.0 The Place of Information Technology on Tax Practice:

In this era of ICT (Information and Communications Technology), the Tax

Practitioner must necessarily be computer literate. This is because of the amazing

benefits associated with ICT. To say the least, computers are now indispensable!

The beautiful role of IT in tax practice was summarized by Amaresh (2000), thus:

Like in all fields of human activity, with the advent of microcomputers and

vast communication networks to connect them, a radical transformation is

taking place in the world of taxpayers and tax gatherers. With enormous

capacities for managing and processing data now available at affordable

costs, tax administrators around the world are gearing themselves for a new

era in which computers will take over most of their functions, enabling them

to perform the tasks of implementing the tax laws and providing services to

their clients at levels of efficiency unthinkable earlier.

8.1 Information Technology can be applied in the following areas of tax

practice:

• Taxpayer registration database

• Bulk processing of payments and returns

• Taxpayer assessment and payment recording systems

• Macro processing of data

• Delivery of multiple e-services to taxpayers

• Multiple telephony services to taxpayers

• Backup of taxpayer data in case of disaster

• Human Resources and Financial management systems

As Tax Practitioners, we should not only be familiar with all reliefs and allowances

as provided for in Section 34: The Sixth Schedule to the Principal Act (2011), but

we should also be able to apply computer software, known as EXCEL to develop

formulae for handling Back Duty assessment, amongst others.

In our overall best interest, the Schedule as per the 2011 Act is presented below:

1. A consolidated relief allowance shall be granted on income at a flat of

N200,000 plus 20 per cent of gross income.

2. Tax Exempt: The following deductions are tax exempt-

(a) National Housing Fund Contributions

(b) National Health Insurance Scheme

(c) Life Assurance Premium

(d) National Pension Scheme

(e) Gratuities.

3. After the relief allowance and exemptions had been granted in, accordance

with paragraphs 1 and 2 of this Schedule, the balance of income shall be

taxed as specified in the following tax table:

Tax Income Rates

Graduated Tax rates with consolidated allowance of N200,000 + 20 per cent of

Gross Income, subject to a minimum tax of 1 per cent of Gross Income, whichever

is higher. 1 First N300,000 At 07 per cent

2 Next N300,000 At 11 per cent

3 Next N500,000 At 15 per cent

4 Next N500,000 At 19 per cent

5 Next N1,600,000 At 21 per cent

6 Above N3,200,000 At 24 per cent

8.2 Information Technology and Payment Guidelines

Finally, as Tax Practitioners, we must have a sound knowledge of Information

Technology and Payment Guidelines. This is because of the associated risk of

loss of audit trail.

The Basic Principles of Electronic Payment

Electronic Payment (e-payment, for short), is a payment process carried out

electronically, that is, a payment initiated, processed and received electronically.

The major components of e-payment system are: (i) Money transfer applications,

(ii) Network infrastructures and (iii) Rules and procedures.

The major actors of e-payment are: (i) The Payer (ii) The Payee (iii) The Bank and

(iv) The Trusted third party

Types of e-Payment:

The following types of electronic payments are most common today.

Cash (Debit) Cards; Internet Money wire; Mobile Payments; Financial Service

Kiosks; Biometric Payments; e-Payments Networks;, Person-to-Person (P2P)

Payments, Payment Cards. Electronic Funds Transfer Models (EFT); Automated

Teller Machines (ATMs); Point-of-Sales (POS’s); Mobile Dispensers (MD’s);

Vending Machines (VM’s).

With all the IT put together, motivation is still very crucial in Tax Practice:

8.3 The Effect of Motivation on Tax Practice:

Motivation is the driving force by which humans achieve their goals. Motivation

is said to be intrinsic or extrinsic. According to various theories, motivation may be

rooted in a basic need to minimize physical pain and maximize pleasure, or it may

include specific needs such as eating and resting, or a desired object, goal, state of

being, ideal, or it may be attributed to less-apparent reasons such as altruism,

selfishness, morality, or avoiding mortality.

Intrinsic and extrinsic motivation:

Intrinsic motivation refers to motivation that is driven by an interest or enjoyment

in the task itself, and exists within the individual rather than relying on any

external pressure.

Extrinsic motivation comes from outside of the individual. Common extrinsic

motivations are rewards like money and grades, coercion and threat of punishment.

Competition is in general extrinsic because it encourages the performer to win and

beat others, not to enjoy the intrinsic rewards of the activity. A crowd cheering on

the individual and trophies are also extrinsic incentives.

Incentive theory

A reward, tangible or intangible, is presented after the occurrence of an action (i.e.

behavior) with the intent to cause the behavior to occur again. Motivation comes

from two sources: oneself, and other people. These two sources are called intrinsic

motivation and extrinsic motivation, respectively.

Need hierarchy theory

The content theory includes the hierarchy of needs from Maslow and the two-

factor theory from Herzberg. Abraham Maslow's theory is one of the most widely

discussed theories of motivation.

The American motivation psychologist Abraham H. Maslow developed the

Hierarchy of needs consistent of five hierarchic classes. It shows the complexity of

human requirements. So, the theory can be summarized as follows:

Human beings have wants and desires which influence their behavior. Only

unsatisfied needs influence behavior, satisfied needs do not.

Since needs are many, they are arranged in order of importance, from the basic

to the complex.

The person advances to the next level of needs only after the lower level need is

at least minimally satisfied.

The further the progress up the hierarchy, the more individuality, humanness and psychological health a person will show.

The needs, listed from basic (lowest-earliest) to most complex (highest-latest) are

as follows:

Physiology (hunger, thirst, sleep, etc.)

Safety/Security/Shelter/Health

Belongingness/Love/Friendship

Self-esteem/Recognition/Achievement Self actualization

Herzberg's two-factor theory

Frederick Herzberg's two-factor theory, a.k.a. intrinsic/extrinsic motivation,

concludes that certain factors in the workplace result in job satisfaction, but if

absent, they don't lead to dissatisfaction but no satisfaction. The factors that

motivate people can change over their lifetime, but "respect for me as a person" is

one of the top motivating factors at any stage of life.

He distinguished between:

Motivators; (e.g. challenging work, recognition, responsibility) which give

positive satisfaction, and

Hygiene factors; (e.g. status, job security, salary and fringe benefits) that do

not motivate if present, but, if absent, result in de-motivation.

The name Hygiene factors is used because, like hygiene, the presence will not

make you healthier, but absence can cause health deterioration.

The theory is sometimes called the "Motivator-Hygiene Theory" and/or "The Dual

Structure Theory."

Herzberg's theory has found application in such occupational fields as information

systems and in studies of user satisfaction (see Computer user satisfaction).

The control of motivation is only understood to a limited extent. There are many

different approaches of motivation training, but many of these are considered

pseudoscientific by critics. To understand how to control motivation it is first

necessary to understand why many people lack motivation.

Employee motivation

Workers in any organization need something to keep them working. Most times the

salary of the employee is enough to keep him or her working for an organization.

However, sometimes just working for salary is not enough for employees to stay at

an organization. An employee must be motivated to work for a company or

organization. If no motivation is present in an employee, then that employee’s

quality of work or all work in general will deteriorate.

According to the system of scientific management developed by Frederick

Winslow Taylor, a worker's motivation is solely determined by pay, and therefore

management need not consider psychological or social aspects of work. In essence,

scientific management bases human motivation wholly on extrinsic rewards and

discards the idea of intrinsic rewards.

In Essentials of Organizational Behavior, Robbins and Judge examine recognition

programs as motivators, and identify five principles that contribute to the success

of an employee incentive program:

Recognition of employees' individual differences, and clear identification of

behavior deemed worthy of recognition

Allowing employees to participate

Linking rewards to performance

Rewarding of nominators Visibility of the recognition process

Conclusion: In summary, this presentation dwelt on conceptual issues in Business

Management and Tax Practice, including the definitions of the key terms, types of

businesses, business plans, the management functions, tax planning, tax

administration, tax practice, the various tax authorities, the relevant tax laws, the

place of information and communications technology on tax practice, the impact of

electronic payment systems on tax practice and the effect of motivation on tax

administration, planning and practice, amongst others.

And so, based on our above discussions, one can infer that going into business as a

Tax Consultant or Tax Practitioner is a worthy venture. The basic skills you have

already acquired by passing the qualifying examinations of the Chartered Institute

of Taxation of Nigeria. Congratulations! Congratulations!! Congratulations!!!

All you need to do is to key into Izedonmi’s model of wealth creation, namely: 1 Employee only Model

2 Employee - Employee or n-employee Model

3 Employer only Model

4 Investor only Model

5 Employee - Employer Model

6 Employee - Investor Model

7 Employer - Employer, (n-employer Model)

8 Employer - Investor Model

9 Investor - Investor, (n-investor Model)

10 Employee - Employer-Investor Model

Thank You for listening and thanks be to God Almighty!

Austin U. Nweze, PhD (Nig), FCA, FCTI, JP

080 5033 4747 and 080 6339 4611

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