The American and Nigerian Tax System – Similarities and Disparities

The role of Tax is instrumental to the development of any country.  As most countries, the United States of America is also deeply involved in the taxation system. Taxes paid in America vary depending on the type. Today, we discuss the similarities and disparities between the taxes in Nigeria and United States of America.

Taxation in Nigeria can be traced to the era of colonization around 1861, although at that time taxation was not generalised and fully established amongst states. The tax administration in Nigeria has been following the pattern similar to that of Britain since we were colonized by them. In 1903, the Stamp duties proclamation was introduced.  In 1961, the Federal Board of Inland Revenue Service (FBIR) was established by the Companies and Income Tax Acct No. 22. In 2007, The Federal Inland Revenue Service (FIRS) was established to replace the Federal Board of Inland Revenue Service and is the main body authorized to control and administer different taxes.

In 1787, the United States Constitution authorized the federal government to collect taxes. Tariffs were the major tax collection throughout 1800’s. The first federal income tax was adopted as part of the Revenue Act of 1861. There are several tax administrators in the U.S but the main tax body is the Internal Revenue Service (IRS) which is in charge of the collection and administration of federal taxes in U.S. It was established in 1862

The United States of America with a population of 329 million has a tax to GDP ratio of 27.1%. This can largely be attributed to the relatively high tax compliance in the U.S. Nigeria with a population of 201 million has a low tax to GDP ratio of 6.1% which is also attributed to a relatively low tax compliance.

U.S.A has separate taxes for several government levels which are the federal, state and local government which is like that of Nigeria which applies to all the tiers of government. In Nigeria, taxes to the federal government are paid to the Federal Inland Revenue Service (FIRS), the state taxes are paid to the States Boards of Internal Revenue, while those payable to the local governments are paid to the various councils.  The taxes payable to the federal, state and local government in Nigeria are 9,11 and 20 consecutively. 

Withholding Tax

In both Nigeria and the U.S.A, W.H.T is paid as an advance payment of income tax. The rates vary based on self-assessment performed.

Customs and Tariffs

Tariffs are imposed on certain goods imported into both the U.S and Nigeria. In Nigeria, the Nigerian Customs Service oversees customs while in U.S the Customs and Border Protection is in charge.

Audits

Tax returns filed in both U.S.A and Nigeria are subject to auditing processes by the relevant tax authorities. Adjustments could be made based on dissatisfaction with the audits of taxes of the individuals/companies involved.

Value Added Tax (V.A.T)

The V.A.T rate in Nigeria is a standard rate of 5% while in U.S the rate varies between 0 and 7.25% depending on the state.

Personal Income Tax (P.I.T)

The P.I.T rate varies based on the income in both U.S.A and Nigeria. In Nigeria P.I.T is between 7 and 21% while in U.S.A, the rates vary.

Companies Income Tax (CIT)

In both U.S.A and Nigeria, C.I.T is imposed on companies. In Nigeria the C.I.T rate is 30% of the total profit of the company while in U.S.A the rate is 25.7%.

Penalties

In both U.S.A and Nigeria, penalties are accrued due to failure to pay taxes or late filing of taxes. The rates vary for different taxes involved.

Non-compliance of Tax in Nigeria could be attributed to the lack of trust of citizens in the government, lack of education of the how the taxation system works, and the difficulties involved in the payment of Tax. While the Tax system in Nigeria has been improving over the years especially with the infusion of technology to ease tax payment, more efforts are required especially with the government encouraging taxpayers and with the development of infrastructure across the nation.

In 2018, it is estimated the United States of America obtained a whopping $3.33 trillion in Tax revenue while Nigeria generated N5.3 trillion, the highest so far in the history of revenue collection in Nigeria.

1 Comment

  1. Hi
    I have been following Taxaide’s articles for a while and have found them to be educating. However, i have some questions:
    1. You mentioned that the PIT rate in the US varies. I would like to know why this is so.
    2. I noticed the huge gap in the amount generated from tax in the two countries analyzed above. What is the role of technology in achieving this figures in the US? What are the technology available currently in Nigeria that is driving the tax industry?

    Best regards,

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