THE DEVELOPMENTAL IMPACT OF RURAL BANKING IN NIGERIA (A CASE STUDY OF UNITED BANK FOR AFRICA PLC)
There has been in existence various tax policies before enactment of the direct tax ordinance by Fredrick Lugard in 1946. However, the deficiency of the ordinance was dealt within 1950 through the introduction of basis principles of taxing income of individual other than Limited Liability Company. The original purpose of taxation was to raise money to finance public expenditure since 1940 it has also became accepted that “taxation is one of the instrument used by government of the day on managing the economy” assessment of taxes on an individual in Nigeria purposely to achieve the set of objectives. It is also required to ascertain the effective and efficient execution of tax machinery set up by the Nigeria government to administer takes in Nigeria, these are Federal Board of Internal$ Revenue (F.B.I.R) and State Board of Internal Revenue (S.B.I.R). Proper personal income administration avoidance which is very common and rampant in Nigeria. Personal income tax is charged on all income which accrues to people residing in Nigeria. It is also levied on all income arising within Nigeria no matter where the tax payer resides or his / her nationality. The Oyo State Board of Internal Operates under both the Personal Income Tax Law of 1962 as amended by Personal Tax Law (Amendment) Edict 1962 (Edit Number (1) of 1977 and other federal tax law. 1.1 BACKGROUND OF THE STUDY The background of taxation as a whole dated back as far a biblical days when the European Colonized were in government of Nigeria. The payment of the tax was made by money based on flat rate per head, later other forms of revenue like stamp duty, capital gain tax and betting business commission were also introduced business commission were also introduced and embraced by our people. The decrees and acts that are in we as follows Finance (Miscellaneous taxation provision) No 2 decrees 1997. The Federal military government hereby decrees are as follows: The personal income tax decrees 1993 The company’s income tax of 1999. The petroleum profit act of 1959. The value added tax decree 1993. 1.2 STATEMENT OF THE PROBLEM In the previous year, the government machinery in tax administration encounters a lot of problems. The problem of personal income tax nowadays is the sources of income. People have been engaging in avoidance and evasion of tax from time to time since the Board Inland Revenue Imposed taxation. However, the major problem confronting tax, administration in Nigeria particularly the Internal Revenue Board of Oyo state is highlighted below: Inability to provide adequate and appropriate guidelines and interpretation of legislation to the tax payer. Problem faced by the tax collectors in order to know the exact amount of individual income from each source of income. Inadequate orientation of the tax payer about the importance and usefulness of tax especially for people in rural area. Problem of tax avoidance and evasion, which is yet t0 be cured by the state Internal Revenue Board. 1.3 RESEARCH HYPOTHESIS For the purpose of this research work, the researcher attempted to find out the validity of the following hypothesis Ho (NULL HYPOTHESIS) the high rate does not bring about the tendency to evade or avoid tax in Nigeria particularly in Oyo State. Hi (ALTERNATIVE HYPOTHESIS). The high tax rate brought about the tendency to evade avoids tax in Oyo State. 1.4 PURPOSE OF THE STUDY The aim of this project is to know the procedure, problem and prospect of personal tax administration in Nigeria and also to know whether the high rate of tax bring about evasion avoidance tax. 1.5 SCOPE OF STUDY The scope of this study deals with the areas of the study project i.e the area they will cover. The scope of this study is strictly restricted to personal income tax administration on Oyo State under PAY – AS – YOU EARN SYSTEM (PAYE) and directly assessed income of self employed individuals. The exercise will cover a period of four years 1999 to 2002 so as to highlight the rend for better analysis of data that will be obtained. So that reasonable conclusion could b e drawn from it. 1.6 LIMITATION OF STUDY The most prominent constraint is the high level of illiteracy among tax payers. It has in one way on the other contributed to the wrong computation of tax. Another factor is the total ignorance of tax payer in keeping proper accounting records. Adequate accounting records of business man and other self employed people is not kept for the tax authority to examine. There is also difficulty in study due to dishonesty by staff and this increase corruption in tax system. In conclusion, having consigns out with in the available time limit and on the basis of available data. It’s worth nothing that the quality of this research work was not reduced as a result of these barriers but rather the resource available was effectively and efficiently used. 1.7 SIGNIFICANCE OF THE STUDY This research work will make an analytical review on personal income tax administration in Nigeria. The operation of the PLTA law and the procedure, problem and prospect of the research work. It is intended to show the effectiveness of the tax collectors and effect of avoidance and evasion on revenue collection from the tax payer and highlight the purpose of taxation. 1.8 DEFINITION OF TERMS Direct Tax: – Is the tax that is leveled on income of individual and business firms which is actually paid by person on whom it is legally imposed. Indirect Tax: – Is the tax levied indirect on people as they are levied on goods and services. Stamp Duties in Nigeria: – Stamp duties are takes on instrument or every written document. Fixed Duties: – This is one of the duties which do not vary the consideration for the document. Unearned Income:- Is the opposite of the earned income and they are income not derived as a result of an individual direct effort of includes investment income such as dividends rent premium. Tax Evasion: – Is when a tax payer will fully or intentionally failed to report a source of taxation income or seeks to reduce his tax authority. Tax Avoidance: – It is any endeavor on the part of the tax payer to reduce his tax liability by taking specifics advantages of the provision of the law. Executor: – It includes any person administration the estate of a diseased person. Personal Relief and Allowances: – These are the reduction allowance to individual for a year of assessment. Place of Residence: – Is a place available for individual domestic use in Nigeria on a relevant day Tax: – Is a compulsory levy imposed on eligible citizen corporate bodies as well as goods and services to enable the government to finance its activities. Taxation: – Is the tax paid into government purse from the income derived from business, trade, employment, petroleum, and profit etc. Tax Policy: – This is line of action adopted by government in respect of taxation. It should be noted that taxation is one of the major fixed policy instruments used in regulation the economy booting, investment, resulting, inflation etc. Tax Administration: – This is concerned with interpretation and application of tax laws. Tax Rate: – Is the amount of tax payable per unit of tax base. Tax Base: – Is the object on which tax are levied.
Banking service when introduced in our rural areas will bring development or specifically economic development to the doorstep of every citizen in this country since between 70 – 80 percent of Nigerians lives in the rural area.
Every Nigeria want to go to the urban area because of availability of infrastructural amenities like electricity, good roads, pipe borne water, civilized market operation, job opportunities and so on. If these social amenities continue to exist in urban areas, life in rural areas will still remain underdeveloped. Money they say is the blood that nourishes or gives life to any prosperous economy of a nation. For money to accomplish its aims in an economy, it needs to be properly managed and controlled in the banking sector.
Agriculture is the second major sources that generate revenue to the Nigeria government after oil industry. The sector of the economy right from time has been neglected. The rural areas have not felt any positive impact on the development plan but only recorded a decline in agricultural productivity, which shows that the rural areas have been neglected at the expense of the urban areas.
The banking industries one of every nations sectors that has a controlling impact on the economy particularly in terms of monetary policy, this is why federal government has continuously encouraged banks to expend their services and facilities not only to the urban cities but also rural areas.
1.1 AIMS AND OBJECTIVES
This research work is aimed at investigating the impact the rural banking services, commercial banks have on the productivity of small and medium agricultural farmers and the entire economic activities of the rural areas. This project work also aimed at acquainting ourselves with the benefit of rural banking services in terms of mobilizing and organizing present farmers into efficient and active co-operative groups, small and medium scale farmers and integrated rural communities.
The objective of this research is to evaluate how effective credit allocation among productive activities the rural areas have been realized.
Finally, the aim of the project work is to suggest policy measures to government in improving rural banking so as to have the desired development impact on the rural areas in Nigeria.
1.2 STATEMENT OF RESEARCH PROBLEMS:
The commercial bank is a profit making organization. There is a great fear in establishing in rural areas where it cannot maximize profit. Rural banking has been seen as indispensable if the nation is to develop its rural areas. The development of one rural area may not be a reality if services of commercial banks are not at the reach of our rural dwellers.
The problem therefore is how to resolve the profit motive of the rural commercial banks and the essential services being rendered to the rural dwellers. This project work is designed to measure to what extent the rural commercial banks have been able to involve the rural dwellers in the economic activities in terms of awareness and
1.3 SIGNIFICANCE OF STUDY:
Nigeria is a developing country with more than 70 percent of her population living in the rural areas. These rural dwellers are faced with lot of hardship in terms of basic infrastructures. The rural dwellers are mostly farmers, definitely require loans, to reduce the hardship involved in acquiring input as well as cultivating their farms, therefore, the services of banking becomes very essential.
This study is essentially significant in that it is directed towards evaluating the effect the growth of rural banking activities has on the rural inhabitants which is a criteria aimed by measuring economic standard. It is also significant in the sense that it shows to what extend the rural banking programme in Nigeria has been successful.
Conventional economics and experience suggest that by supplying food, labour and invisible surplus, the rural areas help to generate urban income and employment. They also help to stabilize if not reduce production cost for industries and cost of existences of commercial banks in the rural areas will speed up investment.
1.4 SCOPE OF STUDY:
This study is limited to Enugu State, a state comprising of eighteen (18) local government area each having one or more rural bank(s). For ease of information we would restrict to Awgu, Nkanu East dwellers. This project work is designed to measure to what extent the rural commercial banks have been able to involve the rural dwellers in the economic activities in terms of awareness and influence on their style of living through banking activities and how successful the banks are measuring up with their major aim of existence. The government has accepted banking persuasive rather than forcing banks to establish branches in the rural areas.
Most villages are without electricity and pipe borne water and the banks spend much more that customers deposit to provide these amenities for workers.
A major problem is that the rural dwellers don’t patronize the bank industries. Most of the rural dwellers are farmers. They go to the farm before the bank starts its business and return only after they have closed to customers. Hence the bank finds it difficult to make profit.
The rural banks encounter lot of problems cultivating banking habit in the rural dwellers. Rural dwellers live in mutual suspicion with strangers, for that rural branches workers are affected.
The rural banks also encounter problems of granting loans to rural dwellers and small scale businessmen in the rural areas. Because they are not too aware about why bank lend them loan, they use this loan for marrying wives, thus means of repayment becomes a problem.
Although United Bank for Africa (UBA) has been chosen as a case study, other banks like Union Bank of Nigeria (UBN), first Bank of Nigeria, All States Trust Bank, Citizens Bank etc, can find this study beneficial to hem since they are all operating the same economic environment.
The study focuses attention to the impact of rural banking in the development of rural areas.
1.5 LIMITATION OF SCOPE:
In the process of carrying out the research focuses on the development of rural banking in Nigeria with United Bank for Africa (Rural Branches) as case study concrete efforts were been made to arrive at a logical conclusion. However, the work was subject to certain limitations.
Financial constraint is another limitation to this works which is as a result of high cost of transportation fare to the various bank branches together data, cost of material to carry this work to conclusive standard was equally important.
Respondents turned out to be co-operating by completing the questionnaires, which took lot of time and energy to convince them.
1.6 STATEMENT OF RESEARCH HYPOTHESIS:
The following hypothesis has been formulated to which the study will attempt providing answers.
Ho: The United Bank of Africa UBA makes use of techniques/methods in determination of its return in rural banking.
H1: Apart from the rural farmers, the United Bank of Africa does not source fund from other activities of the rural banking.
Ho2: The United Bank of Africa make adequate benefit from the accumulated investments of urban banking.
Ho3: The United Bank of Africa does not derive any benefit from the accumulated investments of rural banking.
1.7 DEFINITION OF TERMS:
According to the Nigerian Banking Act, 1969 (as amended Bank amendment act 1979), a bank is described as the business of receiving money from outside source as deposits irrespective of the payment of interest and the granting of money, loan and acceptance of credited or the purchase of bills and cheques or the purchase and sale of securities for account of those or the incurring of the obligation to acquirer claims irrespective of loan prior to their maturity or the assumption of guarantees and other warranties for others or the commissioner may on the recommendation of the central bank by order publish the federal gazette designed as banking business.
According to Webster’s New Word Dictionary, it refers to that not being characterized with citizen or urban life. That is usually associated with farming and agriculture. The rural area has the features of low level of literacy, poor health facilities, and inadequate family planning, low technology and inadequate infrastructures. In addition, a prominent phenomenon in rural areas is that the people who live there have as integrated culture and social system as their way of life. Development is carried out as group efforts in a community. In Nigeria, majority of people who live in rural areas earn their main income from agriculture.
A rural bank can be described as a brand of existing bank established in the rural area to provide banking services for rural population. These services could be in the form of motivation, rural saving, credit allocation among productive activities of the rural population and linkage of money market in the rural areas with the capital market in the urban centers, in other words, the adequate efficient and equitable allocation of resources amongst different sectors of the rural economy.
The scope of the activities and operations of a rural bank is similar to that of commercial bank establishing it but limited due to a verity of reasons. The primary role expected of a rural bank should be the finance of identified rural development projects of short and medium terms duration. But given constraints in finding and the need to have it becomes obvious that it will be desirable and viable that projects of the following categories should be financed by any rural banks.
RURAL BANKING PROGRAMME:
This is a programme embarked upon by the Nigeria government in 1977 with the aim of extending banking habit to the rural area by mobilizing rural savings, assisting government in implementing monetary and other development policies. The programme is also aimed at making productive an activity receive adequate attention by way of allocating credits. The implementation of the programme is the moments in 1977-1980; 1980-1983 (later extended to 1985) and 1985-1989).
Development should be perceived as a multidimensional process involving the re-organisation and orientation of entire economic and social system. In addition, to improve income and output, it typically involves radical changes in population, attitude customer and belief.
Finally, although development is usually defined in the national context its wide spread realization, modification of the international, economic and social order.
This term has generated a lot of controversies over the years. Some economics see it as political and structural change while others are of the opinion that it relates the progress in the basic human needs over time. Another school of thought defines it as growth accomplished by changes i.e. change in structure of the economic in the country’s social structure and its political structure.
Others have tended to make basic human needs approach, an approach which defined economic development in terms of progress toward reducing the incidence of poverty, unemployment and income inequalities and for those whose living standards have not been rising. This approach also seeks ways and means of improving their conditions,
The monetary policy of a nation is a fact of its broad economic policies. It deals with the discretionary control of money supply by monetary authorities in order to achieve desired economic goals.
STANDARD OF LIVING:
This could be linked with the level of substance, as of a nation, society, class or person with reference to the adequacy of necessities in daily life as a result of varying per capita income; people equally vary in their standard of living. The per capita income in the United States of America for example cannot be compared to that of developing countries like Nigeria.
Consequently, the standard of living differs, and perhaps, the nature of facilities and economic activities present in urban areas make standard of living differ from the urban area and the rural dwellers.
In the simplest form, employment refers to the engaging, hiring or making use of the services of a person with the view of compensating him or her with wages. As a result of the economic recession in Nigeria employment problem has not been adequately tackled.
Whenever one engages in doing anything to create satisfaction that the person has engaged in marketing, be it production of goods or rendering services. The challenges that face marketing are that of generating ideas and avenues of satisfying consumers needs and want at a profit in a socially responsible manner. Marketing involves any interpersonal, inter-organizational relationship with the result of exchanging processes; it related the exchange of ideas, goods and services. Banking
This is the amount granted to individual companies, banks or any organization by commercial banks or any other financial institution for a specific period when the money may be paid back with interest. Banking
Engaging in the ration of economic value and quality involving manufacturing of goods and services.