Nigeria operates a federal system of government under which system each tier of government has its legislative competence or functions conferred on it as the case may be. It is significant to note that Federalism in Nigeria dates back to 1954 when the country which had hitherto been administered as a Unitary state was restructured into three quasi-self-governing and administered regions.
It is equally noteworthy that shortly before and since the independence of Nigeria in 1960, all the constitutions that have been enacted have taken the pattern of federalism[1]. Section 2 of the 1999 constitution provides:
“Nigeria shall be a federation consisting of states and a federal capital territory[2]’’ However, there is no doubt that Nigerian federalism is anomalous in practice.
It is important to note that the purpose of this article is not to appraise the entire constituents of Nigerian federalism but only the aspect of it that affects the Uniform Personal Income Tax System. It is expedient to note that one of the most constant sources of inter-governmental wrangles, which any federal system is likely to confront is the distribution of financial resources among the various levels of government. The important concern in this regard is to ensure that the different tiers of government have adequate financial resources for the effective discharge of their essential political and constitutional responsibilities It is pertinent to note that since the inception of democracy in the country, the tension has been heightened on the centralized arrangement of the financial and fiscal jurisdiction of the federal government bequeathed by long years of military rule at the expense of the financial sovereignty of the federating states.
It is instructive to note that under the 1999 constitution, there exist two separate legislative lists. One enumerates the exclusive central powers of the federal government and the other enumerates the concurrent powers of the federal and the state governments, leaving the state governments with exclusive authority over unspecified residual fields.
Personal Income Tax is a significant tax that has at all times been the problem item of Nigeria’s revenue structure since the adoption of federalism in 1954. However, to reduce this attendant problem, the Federal Government is vested with the exclusive power under item 59 of the Second Schedule to the Constitution of the Federal Republic of Nigeria 1999 (as amended) to legislate on the personal income tax with a view to harmonizing the rates of taxes, reliefs, and allowances. As straightforward as this arrangement seems, it has excited mixed feelings from a cross-section of professionals[3].
Moreover, it is the belief that once the subject matter of taxation has been allocated to one tier of government, the proceeds therefrom usually belong exclusively to the authority levying the tax. Is this, however, a water-tight arrangement, considering the fact that the 1999 constitution vests the power to impose and or collect a particular tax in one level of government while the proceeds therefrom are to be disbursed to other levels of government or shared among different tiers of government? There is therefore the need to examine which of these two arrangements will augur well for the Nigerian Federation.