Clasificación de los Vicios de los Actos Administrativos

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income from low and middle-income taxpayers than they take from the wealthy.¹⁴⁵ Excise taxes on cigarettes, gasoline and alcohol are also quite regressive, and property taxes are generally somewhat regressive.

So the question that readily springs up is what is the best tax system in a Self Assessment Regime like Nigeria? This question has no straightforward answer because some believe that a proportional or ‗flat‘ tax structure is fair. They argue that if everyone pays the same share of income in taxes, then everyone is treated equitably.¹⁴⁶ But this view ignores the fact that taking the same share of income from the middle or low income earners as from a rich taxpayer has vastly different consequences for each. Low-income earners must spend most (or all) of their income just to achieve the most basic level of comfort. Even the middle income earners spend most of what they earn to sustain only a modest standard of living. A tax on these taxpayers can cut directly on their ability to make ends meet. In contrast, the same tax will hardly affect the life style of the wealthiest families at all.

Progressive taxes are therefore the fairest taxes. Personal income taxes are the only major tax that can easily be designed to be progressive. Low income taxpayers can be exempted entirely as already suggested earlier when discussing progressive taxes and tax rates can be regulated with higher tax rates applying to higher income levels, so that the middle income and the rich income earners pay taxes fairly related to what they can afford.

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regards to the effects of these two types of taxes on economic growth and flow of foreign direct investment in a country.

Taxes as already discussed can be classified as direct taxes and indirect taxes. Direct and indirect taxation have different impacts on the consumer, they have advantages and disadvantages at the same time. The terms direct and indirect taxation have been explained on the basis of tax incidence which measures the effects of tax policies on economic welfare in a society¹⁴⁷ and it is further described as a concept about who ultimately bears the economic burden of any imposed tax. With direct taxes, the tax burden is borne by the individual the tax is imposed on, whereas the burden of indirect taxes can be shifted by the tax liable individual or entity to another person or entity i.e. consumer of tax imposed goods and services.¹⁴⁸

According to Atkinson,¹⁴⁹ the essential aspect of indirect taxes is that the tax can be adjusted to the personal characteristics (i.e. ability to pay principle) of the individual or entity upon whom the tax is imposed and indirect taxes are levied on transactions irrespective of specific circumstances or characteristics of individuals, entities or households upon whom the tax liability is proposed or who ultimately bears the economic burden or the tax.

Atkinson‘s differentiation of the two types of taxes comes close to how countries categorize their tax structure. Today‘s income tax is a form of direct taxation, which is to say the government levies the tax directly on individuals and businesses.

Advantages of Direct Taxes

147L J Kothkoff & LH Summers, Tax Incidence Handbook of Public Economics (Holland: North Holland, 1987) P. 1043.

148D Fullerton & G E Metcalf, ‗Tax Incidence‘ (2002) NBER Working Paper Series, Working Paper No. 8829.

149A B Atkinson, ‗Optimal Taxation and the Direct Versus Indirect Tax Controversy‘ (1977) Canadian Journal of Economics, 10, 590.

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a) Equitable: Direct taxes such as income tax, taxes on property, Capital Gains Tax are equitable because they are based on the principle of progression. Higher income are taxed more heavily and lower incomes slightly. The larger the income, the higher the rate of taxes. Direct taxes are taxed according to the ability to pay by the taxpayers and the ability to pay is interpreted as the money income of the taxpayers which means any person having a flow of income is expected to pay tax.¹⁵⁰ Taxes at high rate are paid by the richer section of the society and lower rates are paid by the poorer section of society.

b) Certainty: Direct taxes satisfy the condition of certainty which involves the rate of taxes, such as personal income tax in Nigeria which is publicized. In other words, the taxpayer is certain as to how much he is expected to pay, and similarly the State is certain as to how much it has to receive income from direct taxes.

There is also certainty about the time of payment and manner of payment.

Therefore, taxpayers can plan their own budget and other economic activities in advance.¹⁵¹

c) Reduce Inequalities: Direct taxes are progressive in nature,¹⁵² and rich people are subjected to higher rates of taxation, while poor people are exempted from direct tax obligations. Rates of taxes increase as the levels of income of persons rise. As they fall heavily on the rich, they take away a large part of their income by way of income and property taxes and the revenue collected is used for providing social amenities like food, clothing and housing facilities to the poor people. The real income of the poor rises and that of the rich falls. Therefore, direct taxes help to reduce inequalities in incomes and wealth.

150N. Flynn and T. Allen, Public Policy And Management: Revenue Study Guide (London: University of London, 2012) P. 43.

151 O U Bassey op cit, P. 15.

152 Ibid.

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d) Elasticity: Elasticity in direct taxes implies that more revenue is collected by the government by simply raising the rates of taxation. In other words, revenue of government may be increased by increasing the taxable incomes of the people.

Therefore, the income of the government from direct taxes may increase with the increase in the incomes of the people.

e) Civic Consciousness: Direct taxes helps to bring the civic consciousness of the taxpayers in alert since direct taxes are certain, the taxpayers feel the pinch of such payment and are alert and take keen interest in the method of public expenditure on whether the revenue raised is properly utilized or not. In other words, people try to be vigilant about how much tax revenue is being raised by the government and to what use it is being put. Taxpayers become conscious of their rights and obligations. In a democratic country like Nigeria, this civil consciousness will check the wastage in the public expenditure.¹⁵³

f) Adverse effects of direct taxes can be avoided: one of the merits of direct taxes is that their rates can be modified in time to avoid their adverse effects on willingness and ability to work, save and invest. In other words, reasonable rates of income tax and property tax may avoid adverse effects of direct taxes on taxpayers. Exemptions and concessions may also avoid their adverse effects on production.¹⁵⁴

2.6.1 Disadvantages of Direct Taxes

Direct taxes are not free from disadvantages, they are criticized in the following grounds:-

a) Possibility of Evasion: A direct tax is said to be a tax on honesty, but it can be evaded through fraudulent practices. As stated above, direct taxes are certain and

153 ES Esmaeel, ‗The Impact of Direct-Indirect Taxation on Consumer‘ (2013) IOSRJEN, 12.

154 Ibid.

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taxpayers know the rate of tax they have to pay.¹⁵⁵ Therefore, awareness of tax liability tempts the taxpayer to evade tax. It is a fact that the people in the higher income groups do not reveal their full income and would not hesitate to fill up false returns concealing a considerable part of their income.¹⁵⁶ This is most especially in a SAR where taxpayers are expected to voluntarily assess and pay their tax liabilities themselves.

b) Inconvenience: Direct taxes are inconvenient in nature because taxpayer has to submit the statement of his total income along with the source of income from which it is derived. Moreover, most direct taxes are paid in lump sum which causes inconvenience to the taxpayers.¹⁵⁷

c) Unpopular: Direct taxes are unpopular because they are required to be paid in one lump sum which is inconvenient to the taxpayer. Direct taxes are generally not shifted; therefore, they are painful to the taxpayer. Hence such taxes are unpopular and are generally opposed by the taxpayers as they have to be borne by the taxpayers themselves.¹⁵⁸

d) Arbitrary: Direct taxes are found to be arbitrary because there is no logical or scientific principle to determine the degree of progression in taxation. Rates of income tax and other direct taxes are determined according to the whims of taxation authorities i.e. if no self assessment is done by the taxpayer. They are likely to underestimate the taxable capacity of the people.¹⁵⁹

e) Disincentive to work and to invest: In a progressive system or taxation where a high income is taxed at a higher rate than a lower income, people may be discouraged from working harder since they know that the more they earn, the

155 Ibid.

156 Ibid.

157 Ibid.

158 O U Bassey op cit, P. 15.

159 ES Esmaeel op cit.

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larger the proportion of their income that will be taken by the government through taxation. Again, where a high rate of tax is imposed on a firm‘s profits, entrepreneurs may be discouraged from establishing businesses in a country. This could lead to capital flight to other places where taxes are minimal (tax haven).

Secondly, a high income tax will leave the firm with fewer profits to plough back into the business.¹⁶⁰

2.6.2 Advantages of Indirect Taxes

Some of the advantages of indirect taxes are as follows:-

a) Convenient: Indirect taxes are paid when goods and services on which it is imposed are bought (example Pay-As-You-Buy). This means it is paid in installments depending on the value of each transaction unlike a direct tax which is usually paid in lump sum. Taxpayers do not feel much pain when paying an indirect tax as when paying a direct tax.¹⁶¹ They are convenient to both the tax-payer and the government which can collect the tax at the ports or at the factory.

b) Broad-based: Indirect taxes can be spread over a wide range. Very heavy direct taxes at just one point may produce harmful effects on social and economic life.

As indirect taxes can be spread widely, they are more beneficial and suitable.

Indirect taxes are levied on a wide range of goods and services. Many of the people and organizations (e.g. children, students, unemployed, religious organization etc) which are usually exempted from income tax are required to pay indirect taxes in as much as they buy the goods and services on which they

160 J Stiglitz, ‗The Effects of Income, Wealth and Capital Gains Taxation on Risk-taking‘ (1969) Quarterly Journal

of Economics, 24.

161 Ibid.

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imposed. As a result the amount of revenue raised by the government through indirect taxes is very substantial.¹⁶²

c) Non-evadable: Because indirect taxes are hidden in the prices of goods and services, the consumer cannot evade payment of indirect taxes as long as he buys the goods and services on which they are imposed. The degree of voluntary compliance is high. They can be evaded only when the taxed article is not consumed and this may not always be possible.¹⁶³

d) Re-allocation of Resources: As previously stated, indirect taxes can be imposed to reduce the consumption of harmful or non-essential commodities. This will promote savings and the money saved can be invested in a more productive ventures.¹⁶⁴ By being imposed on harmful products, they can check consumption of harmful commodities. That is why tobacco, wine and other intoxicants are taxed.

e) Equitable: Indirect taxes can be made more equitable by imposing a higher rate of tax on goods and services consumed mostly by the rich (i.e. luxuries) and a lower rate of tax on goods and services consumed mainly by the precarious (that is, basic needs or necessities) or total exemption of such goods and services.¹⁶⁵ 2.6.4 Disadvantages of Indirect Taxes

Indirect taxes have some disadvantages too, which are as follows:-

a) Inequitable: An important argument against indirect taxes is that they tend to be regressive since each individual pays the same rate on their purchases, the poor pay a larger portion of their incomes in indirect taxes (in comparison with direct

162 O U Bassey op cit , P. 16.

163Economic Discussion, www.economicsdiscussion.net/taxes/advantages-and-disadvantages-of-indirect-taxes/1944 accessed on 15^th October, 2014.

164 Ibid.

165 Ibid.

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taxes which tends to be progressive and are seen as more equitable).¹⁶⁶ Therefore, indirect taxes hit the poor harder than the rich. Indirect taxes violate the principle of ability to pay and are, therefore, unfair to the poor. The adverse effects of the indirect taxes can be corrected by imposing a higher rate of indirect taxes on luxury items consumed mostly by the rich and a low rate on necessaries of life consumed mostly by the poor or complete exemption of necessaries from indirect taxes.

b) Inflation: Indirect taxes are added to the prices of goods and services so they end up increasing the price of goods and services.¹⁶⁷ In other words, they cause the price of an article to rise by more than the tax. A fraction of the money unit cannot be calculated, so every middleman tends to charge more than the tax. The process is cumulative.

c) Uneconomical: There are many intermediaries involved in the collection of indirect taxes for the government. The cost of collection is quite heavy. Every source of production has to be guarded. Large administration staff is required to administer such taxes. This turns out to be a costly affair. Indirect taxes fail to satisfy the principle of economy. The government has to set up elaborate machinery to administer indirect taxes.¹⁶⁸

d) Possibility of tax evasion: There is a possibility of evasion of indirect taxes.

Some taxes are easily evaded. For example, smugglers of goods into or out of the country do not pay customs duties on such goods. Despite government spending of huge sums of money to maintain custom officials, police etc to check

166Economic Discussion, www.economicsdiscussion.net/taxes/advantages-and-disadvantages-of-indirect-taxes/1944 accessed on 15^th October, 2014.

167 Ibid.

168 Ibid.

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smuggling, some of these law enforcement agents aid and abet smuggling.¹⁶⁹ In the case of VAT, many businesses have not registered for VAT collection. Nigeria is the largest country in Africa and many small scale businesses are scattered all over the country. The tax authorities do not have the means to ensure that all these taxable persons are registered and account for VAT.

e) Uncertain: Another disadvantage with indirect tax is the fact that it can be very difficult for tax authorities to project exactly how much they are going to get from tax proceeds since the amount of money that is generated from indirect tax largely depends on the strength of demand for the taxed commodities.¹⁷⁰ And of course as we might all know, it can be quite difficult to determine the strength of demand for certain commodities. Imposition of taxes or raising the rate of tax on certain goods may cause demand for such goods to drop to zero if the demand is perfectly elastic. Furthermore, revenue from indirect taxes may fall drastically during a period of depression.¹⁷¹