Tax Reforms Revenue Generation in Nigeria
Chapter One
OBJECTIVE OF THE STUDY
- To determine the nature of tax reform in Nigeria
- To determine the effectiveness of tax reform policy towards revenue generation to government.
- To investigate the impact of value added tax on the growth of the economy of Nigeria.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
According to the report of the presidential committee on National Tax policy (2008), Tax policy formulation in Nigeria is the responsibility of the Federal inland Revenue Services (FIRS), Customs, Nigerian National Petroleum Corporation (NNPC), National Population Commission (NPC), and other agencies but under the guidance of the National Assembly i.e. the law making body in Nigeria (Presidential committee on National tax policy, 2008). Suffice it to say that if there must be any effective implementation of the Nigerian tax system or attainment of its goal, the use of the national tax policy document remain absolutely essential. According to the Presidential Committee on tax policy (2008), “Nigeria needs a tax policy which does not only describe the set of guiding rules and principles, but also provide a stable point of reference for all the stakeholders in the country and upon which they can be held accountable.
Taxation has been defined as a general concept for devices used by government to extract money or other valuables from members of the community and organization by use of law. It is a levy charged by government either central, state,or local government on income, property,commodities and services.
A major challenge facing Nigeria’s economy is the diversification of its revenue on crude oil earnings base. This diversification has become necessary with the realization that dependency on crude oil earning cannot sustain public expenditure. The economy faces the danger of being grounded if proactive efforts are not made towards sustaining the diversification of the revenue base. The USA and other major oil consuming nations have consistently reduced their demand for Nigerian oil over the last few years. This is not a good signal for our fiscal operations which are oil revenue driven (Oriakhi & Ahuru, 2014). The policy of taxation in Nigeria is directed towards achieving some specific objectives which include amongst others revenue generation and upholding economic growth. Recently the Nigerian government introduced the National Tax Policy (NTP). This is a policy geared towards shifting from direct to indirect taxation in Nigeria. The choice has elicited some serious debate in terms of economic benefits and limitations that characterized each (Umoru & Anyiwe, 2013).
However, tax has been mentioned in the works of Olukoshi (2005), Olabiyi (2005) but the ability of the tax to stimulate economic growth results from the deliberately designed regimes that encourage compliance by all who should pay. Harrison (2002) expoused that taxes as they are, will not achieved macro objective for the economic therefore requires a tax re-engineering and reforms approaches. Tax reform is simply the series of action taken by Nigeria’s government to promote the tax system. It is not novel as Nigeria has embarked on series of tax reforms. The several tax reforms were designed to broaden the tax base, reduce the tax burden on tax payers,restore the confidence of the tax payer on the tax system, and promote voluntary compliance on the part of the tax payer. On the whole, the ultimate goal of tax reform is the enhancement of public generation (Oriakhi & Ahuru, 2014). The essence of tax reforms in both developing and developed countries of the world is the reduction or eradication of fiscal deficits through appropriate restructuring of the tax system to attract higher revenue or to improve the revenue elasticity or buoyancy of the tax structure. Tax reform is therefore a deliberate design to increase revenue, improve efficiency, and promote equity (World Bank, 1991). Value added tax (VAT) is simply called the goods and services tax (GST), it is levied on the value added that results from each exchange. It is an indirect tax collected from someone other than the person who actually bears the cost of the tax. It was invented by a French economist, Maurice Leave in 1954 and was first introduced in France in April, 10, 1954. The focus of this paper was to review value added tax in view of the global drop in the price of oil and the fact that it is the third major contributor to the total revenue base of Nigeria.
CONCEPTUAL FRAMEWORK
Taxation is the life channel of every nation and the level of development of any nation most times depends on the amount of revenue generated through taxation. Taxation is therefore, one among other means of revenue generation of any government to meet the need of the both the government and citizens. According to Ifurueze & Ekezie (2014), tax is “a compulsory levy imposed on a subject or upon his property by the government to generate the needed revenue for the provision of basic amenities and create enabling condition or the economic wellbeing of the society”. To them, the enabling environment created by government encourages the establishment of new business, survival of existing business and infrastructures provided is a key determinant of political, economic and social well-structured tax system which provides government the needed fund for capital (infrastructure) and current (administrative) expenditure. A good tax system comprises of the tax law, tax policy and tax administration. The Nigerian tax system is a good portfolio comprising of direct and indirect tax, status which regulate the various types of tax and their administration by both the Federal and Local Governments. Azubuike (2009) believes that the Nigerian system is still far from efficiency as it’s lopsided, dominated by oil revenue and pose a formidable challenges to its usage as a macroeconomic regulating tool. Tax reform became imperative in Nigeria because of the nature of its tax structure, which according to Anyanwu (1997) was complex, inelastic, inefficient, inequitable and unfair. Moreover, the country depended on import and export duties, while there were no opportunities to generate revenue through consumption-based tax such asVAT. The dependency of the country on taxes relating to foreign trade activities had made the revenue base of the country to be very unstable. In addition, the Nigeria’s tax base was very narrow while the tax rate was very high. Tax reform is the process of changing the way taxes are collected or managed by the government (en.wikipedia.org/wiki/taxreform). Tax reforms have different goals: some seek to reduce the level of taxation of all people by the government, some seek to make the tax system more progressive or less progressive. Others seek to simplify the tax system and make the system more understandable or more accountable (Wikipedia). Value added tax (VAT) is a consumption tax payable on the goods and services consumed by any person, business organizations or individuals. VAT can also be defined as a tax on spending/consumption levied at every stage of transaction but eventually borne by the final consumer of such goods and services (Ugwa & Embuka, 2012). The concept of VAT in Nigeria can be traced to the Dr. Sylvester Ugoh led study group on indirect taxation in November, 1991. Thereafter, a committee was setup under the chairmanship of Mr. Emmanuel Ijewere to conduct extensive research and make recommendations. VAT was-finally introduced in Nigeria in 1993 by the VAT Act No. 102 of 1993 as a replacement of the sales tax which had been in operation under Federal government Legislated decree No.7 of 1986 but administered by the states and the Federal capital territory (Ugwa & Embuka, 2012).
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