January 29, 2022


Accounting + Finance Blog

The tax system in Nigeria: Meaning and explanations


The Nigerian tax system is based on past colonial masters. That is, Great Britain. Although, there are a lot of improvements to the Nigerian tax system. In recent times, the Nigerian tax system is made up of the tax administration, tax laws, and tax policy. Tax classifications also fall under the tax system.

In this article, we will focus on the meaning of the tax system and the principles of a good tax system. In a future article, we’ll contemplate on other areas of a tax system.

Meaning of tax system

A tax system is the total structure of a country’s taxation.

In addition, a tax system is the structure of taxation which comprises the tax law, tax policy, and tax administration.

Key explanations

A tax system is a structure. This is the hierarchy of taxation in the country. It begins with the government deciding on how intensive it wishes to collect taxes, then makes laws to ensure that taxes are collected from citizens through a body or agency it has created.

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The structure usually begins with the tax policy set up by the government. The policy is then backed by tax laws and an administrative body to ensure the collection of taxes.

A tax system includes a policy. Here the government makes a definite statement of what it intends to achieve from its current tax. Most tax policies accompany the annual budget of the country. The finance act of 2020 is an example of tax policy in Nigeria.

A tax system contains tax laws. Generally, a tax system is made up of tax Acts. In Nigeria, there are various tax laws guiding various types of taxable incomes in the country.

The list encompasses:

Personal Income Tax Act (PITA, 2004)

Company Income Tax Act (CITA, 2004)

Petroleum Profit Tax Act (PPTA, 2004)

Value Added Tax Act (VAT, 2004)

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Capital Gain Tax Act (CGTA, 2004)

Stamp Duty Act (SDA, 2004) and

Education Tax Act (ETA, 2004).

Also, the tax system includes the tax administration. The tax administration is the agency that collects tax on behalf of the government. Failure to pay tax may attract penalties which are enforceable by the agencies.

Nigeria tax administration has three levels

Federal Inland Revenue Service (FIRS)

State Internal Revenue Service (SIRS) and

Local Government Revenue Committee.

To conclude, the Nigerian tax system encompasses the tax administration, policies, and laws. However, a huge problem with the Nigerian tax system is the window for collecting these taxes as well as other vices. In the article that follows, we will consider the principles of a good tax system.