CRITICAL ANALYSIS OF THE COMPLIANCE WITH TAXES BY PARTIES TO REAL PROPERTY TRANSACTIONS IN NIGERIA
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CRITICAL ANALYSIS OF THE COMPLIANCE WITH TAXES BY PARTIES TO REAL PROPERTY TRANSACTIONS IN NIGERIA
CHAPITRE ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Tax compliance has been an issue for Nigeria’s successive governments, including various levies on real estate property transactions. In Nigeria, numerous taxes apply to real estate or real property transactions. The popular public assumption that there are no real property or real estate taxes in Nigeria is incorrect.
In Nigeria, common taxes that apply to real estate transactions include corporate income tax, value added tax, capital gains tax, and stamp duty tax. Any income with the consequent profit earned by any person from such income, whether such a person is a company or an individual, is subject to taxation.
When a corporation earns income from a property transaction, the corporate tax rate in Nigeria is thirty percent (30%) of the corporation’s annual profit; and when an individual or a registered business enterprise or partnership earns income from a property transaction, the graduated tax rate is twenty-four percent (24%) for individuals earning N3,200,000 or more per year (Nwosu, 2004).
In addition to paying Companies Income Tax, incorporated corporations in Nigeria that make a profit from any commercial activity, including real estate or real property transactions, must contribute 2% of such profit to the Education Trust Fund. The Federal Inland Revenue Service collects this tax on behalf of the Education Trust Fund.
Revenue Service (abbreviated “FIRS”). All goods and services in Nigeria, including those used in the real estate industry, must be invoiced and subject to Value Added Tax (“VAT”) at the rate of 5% (5%) of the value of such real estate goods and services.
The Capital Gains Tax Act states that any time a Nigerian tax payer disposes of an asset, including a real estate asset, whether located in Nigeria or outside of Nigeria, and a gain is derived as a result of such disposal,
the resulting gain or profit is subject to a 10% (10%) Capital Gains Tax (“CGT”) less such allowable expenditures that were used to enhance, preserve, or defend the title to the asset.
Gains originating from the sale of one person’s major private residence for another person’s principal private residence, on the other hand, are exempt from the provisions of the Capital Gains Tax Act. Commercial motor vehicles and personal gifts with no monetary gain are also free from CGT.
The Stamp Duties Act requires that all written instruments be stamped, including occasions where property or interests in property are transferred or leased to any person.
Stamp duties are generally imposed at the rate of 75 kobo for every N200 of consideration in some real estate transactions such as mortgages, whereas conveyances or the transfer or sale of real property are taxed at the rate of 75 kobo for every N50. The Postage Stamp
The duty rate for lease and rental agreements is N200 for every N200 of the lease or rental agreement consideration.
Any unstamped written document is not admissible in any court process in Nigeria unless the stamp duty and the accompanying penalty for nonpayment of the stamp duty are paid. Failure to pay stamp duties on any written instrument that is not exempt from stamp duty carries fines and other penalties.
A real estate transaction is the process by which rights in a unit of property (or designated real estate) are transferred between two or more parties, such as the seller(s) and the buyer(s) in the case of conveyance. Because of the complexities of the property rights being transferred, the amount of money being traded, and government laws, it can frequently be rather complicated.
Conventions and criteria also fluctuate significantly between countries and smaller legal organisations. A tax is defined as a “compulsory levy imposed by a public authority for which nothing is directly received in return” (James and Nobes, 1992). In the words of Nightingale (2001), “a tax is compulsory contribution, imposed by government,
and while taxpayers may receive nothing identifiable in return for their contribution, they nevertheless have the benefit of living in a relatively educated, healthy and safe society” . She goes on to say that taxation is part of the cost of living in an organised society, and she lists six reasons for taxation: provision of public goods,
redistribution of income and wealth, promotion of social and economic welfare, economic stability, and harmonisation and regulation. Although compliance with these taxes by parties to real estate transactions in Nigeria has not been researched, general tax compliance in Nigeria is poor unless enforced.
According to Allingham and Sandmo’s (1972) traditional model of tax compliance, taxpayers decide how much income to report on their tax returns by solving a standard expected utility-maximization problem that weighs the tax savings from underreporting true income against the risk of audit and penalties for detected noncompliance. 1972 (Allingham and Sandmo).
As a result, a more suitable definition of compliance would include the level of willingness to comply with tax rules and administration that can be obtained without the imminent threat or application of enforcement activity.
Tax compliance can be compared to tax avoidance and evasion. In terms of legality, the two are traditionally distinguished, with avoidance referring to lawful steps to lower tax burden and evasion referring to criminal methods.
1.2 STATEMENT OF THE PROBLEM
Taxation has garnered a great deal of intellectual and theoretical attention in the literature. Taxation is one of the most contentious issues in both developing and wealthy countries. Low tax compliance is a major source of worry in many developing countries, particularly in Nigerian real estate transactions.
This has reduced the government’s ability to raise funds for development purposes (Torgler, 2003). This means that the bigger the money, the more likely the government will implement development plans to improve people’s living standards. The researcher is conducting a critical review of tax compliance by parties to real estate transactions in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The following are the study’s objectives:
1. To investigate tax compliance by parties to Nigerian real estate transactions.
2. To determine the elements that influence tax compliance in Nigeria.
3. Identifying methods to ensure tax compliance by parties to real estate transactions in Nigeria.
1.4 RESEARCH QUESTIONS
1. What is the level of tax compliance among real estate transaction participants in Nigeria?
2. What factors influence tax compliance in Nigeria?
3. What are the methods for ensuring tax compliance by participants to a real estate transaction in Nigeria?
1.6 SIGNIFICANCE OF THE STUDY
The following are the study’s implications:
1. The findings of this study will inform the general public, the government of Nigeria, and policymakers about the level of tax compliance by parties to real estate transactions in Nigeria, with the goal of finding a long-term solution to tax noncompliance issues.
2. This research will also serve as a resource base for other academics and researchers interested in conducting additional research in this sector in the future, and if implemented, will go so far as to provide new explanations for the topic.
1.7 SCOPE AND LIMITATIONS OF STUDY
This study will look at the critical analysis of tax compliance by parties to real estate transactions in Nigeria.
STUDY LIMITATIONS
1. Financial constraint- Inadequate funds tend to hamper the researcher’s efficiency in locating relevant materials, literature, or information, as well as in the data collection procedure (internet, questionnaire, and interview).
2. Time constraint- The researcher will conduct this investigation alongside other academic activities. As a result, the amount of time spent on research will be reduced.
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