critical appraisal of the strategies and effectivness of pay as you earn in nigeria
Tax Law Design and Drafting (volume 2; International Monetary Fund: 1998; Victor Thuronyi, ed.)
Chapter 15, The Pay-As-You-Earn Tax on Wages
15
The Pay-As-You-Earn Tax on Wages
Koenraad van der Heeden
Although undeniably useful in immediately strengthening collections, ....withholding does not obviate the need to strengthen the tax administration itself.
—Richard M. Bird and Milka Casanegra de Jantscher
I.
Introduction
Although all withholding taxes aim to tax income when it is earned, only withholding on wages is commonly known as pay-as-you-earn (PAYE).1 This tax plays an important role in nearly all national tax systems.2
The PAYE is an important and easy-to-collect revenue item. Its claim on the resources of the tax administration is limited, particularly if return filing by employees is restricted to those who earn substantial other income or are entitled to significant special deductions, or both. A simple PAYE does not complicate the employer's wage administration. Compliance control can focus on employers only, rather than on individual employees. Nonconsolidation with other income is more acceptable when other income is also subject to withholding taxation.
A.
Revenue Importance of the PAYE
The PAYE is a high-yielding revenue collector in many countries. It generates a lion's share of the personal income tax and, in industrial countries, usually exceeds the revenue of the general sales tax or value-added tax (VAT) by an ample margin. This is illustrated in Table 1 by the list of countries with mature personal income and VAT systems in tax year 1991.
Note: The author would like to thank colleagues from the Tax Administration Division of the IMF’s Fiscal Affairs
Department, and Milka Casanegra de Jantscher, Emil Sunley, and Alan Tait for their comments on an earlier draft.
1
The basic mechanics of PAYE withholding are outlined in ch. 14, sec. XII, supra.
2
Notable exceptions are France, Switzerland (for
Chapter 15, The Pay-As-You-Earn Tax on Wages
15
The Pay-As-You-Earn Tax on Wages
Koenraad van der Heeden
Although undeniably useful in immediately strengthening collections, ....withholding does not obviate the need to strengthen the tax administration itself.
—Richard M. Bird and Milka Casanegra de Jantscher
I.
Introduction
Although all withholding taxes aim to tax income when it is earned, only withholding on wages is commonly known as pay-as-you-earn (PAYE).1 This tax plays an important role in nearly all national tax systems.2
The PAYE is an important and easy-to-collect revenue item. Its claim on the resources of the tax administration is limited, particularly if return filing by employees is restricted to those who earn substantial other income or are entitled to significant special deductions, or both. A simple PAYE does not complicate the employer's wage administration. Compliance control can focus on employers only, rather than on individual employees. Nonconsolidation with other income is more acceptable when other income is also subject to withholding taxation.
A.
Revenue Importance of the PAYE
The PAYE is a high-yielding revenue collector in many countries. It generates a lion's share of the personal income tax and, in industrial countries, usually exceeds the revenue of the general sales tax or value-added tax (VAT) by an ample margin. This is illustrated in Table 1 by the list of countries with mature personal income and VAT systems in tax year 1991.
Note: The author would like to thank colleagues from the Tax Administration Division of the IMF’s Fiscal Affairs
Department, and Milka Casanegra de Jantscher, Emil Sunley, and Alan Tait for their comments on an earlier draft.
1
The basic mechanics of PAYE withholding are outlined in ch. 14, sec. XII, supra.
2
Notable exceptions are France, Switzerland (for