The Impact of Taxation on Nigeria’s Economy Growth
Chapter One
OBJECTIVES OF THE STUDY
The general objective of the study is to assess the effect that taxation has towards the development/growth of Nigerian economy.
However, the specific objective of the study includes:
- To examine the extent government has been using revenue generated by tax.
- To determine the reaction of people towards tax payment.
- To find out if tax revenue is the most effective source of government revenue.
- To examine how tax rate affects the rate of inflation, unemployment and Gross National Product (GNP).
- To find out the most significant effect of taxation.
Generally, this work is done to find out if tax constitutes the bulk of government revenue and to erase the erroneous that it is an exploitation by government for their selfish interest.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
There are several literatures by different authors, scholars and researchers on taxation as source of government revenue and its impact on Nigeria economy. Many of them have covered all its ramifications while some have effectively appraised the problem of tax administration in Nigeria. Despite these appreciable and commendable efforts, it should be noted that much is still need to really quantify the contributions of taxes to the growth and development of our dear country, Nigeria.
DEFINITION OF TAXATION
Anyanwu (1997) defined taxation as the compulsory transfer or payment (or occasionally of goods and services) from private individuals, institutions or groups to the government. The main purpose of taxation is to raise revenue to meet government expenditure and to redistribute wealth and management of the economy (Ola 2001; Jhingan, 2004; Bhartia, 2009). Ewa Udu (2009) defined taxation as a compulsory payment made by each eligible citizen towards the expenditure of the country. He (Ewa) added that tax is been levied by the government without regards to the specific benefit that individual tax payers may receive. The National Accountants defined taxation as a levy by public authorities on citizens within their tax jurisdictions for the purpose of obtaining compulsory payments to meet financial, social and economic goals of the authorities. According to Nzotta (2007), four key issues must be understood for taxation to play its functions in the society. First, a tax is a compulsory contribution made by the citizens to the government and this contribution is for a general common use. Secondly, a tax imposes a general obligation on the tax payer. Thirdly, there is a presumption that the contribution to the public revenue made by the tax payer may not be equivalent to the benefits received. Finally, a tax is not imposed on a citizen by the government because it has rendered a specific service to him or his family. Thus it is evidence that a good tax structure plays a multiple role in the process of economic development of any nation which Nigeria is not an exception (Appah, 2010).
Types of Taxation
Odoh, Nick N. (2004: 84), taxes can be conveniently classified into two categories: direct and indirect:
1) Direct Tax: These taxes are not shifted, their burden is borne by the persons or firms originally taxed. They are taxes levied on individual income, earnings from labour, rents, dividends and interest. A common feature of this type of tax is that it is levied based on the ability to pay, that is “Pay As You Earn” (PAYE). In Nigeria, direct taxes are classified into the following:
- a) Personal Income Tax: This is tax charged on earnings from wages, salaries, rent, interest, premium etc. It is normally charged progressively. After deducting all the tax relief, the remainder becomes the taxable income.
- b) Company Tax: The tax on company’s profit is called company tax. This tax is also progressive in nature because the higher the income (receipts) or profit from business activities, the higher the tax and vice versa (Odoh, 2004: 85). Company tax appears to have less tax avoidance and evasion when compared with personal income tax because of the federal government insistence on the submission of text certificates with respect to any official issues involving companies.
- c) Petroleum Profit Tax: This is tax charged on the profit of oil producing companies. Since its introduction in Nigeria from 1959, it has remained the most important revenue item not only under the direct taxes, but among all revenue items. This single tax has been accounting for over 70% of government revenue for many years now.
- d) Capital Tax: Capital taxes are imposed on property and other capital assets. These taxes are paid either yearly or at particular times. For instance, when a person dies, his assets are subject to capital tax in this case the term death duty or estate duty is used before assets could be transferred to the relatives who will inherit the assets.
- e) Pool Tax: This is a system of tax structure whereby a tax is imposed at a flat rate per head of population or among a group of people. It is regressive tax because no matter what the size of a person’s income, everybody has to pay the same amount.
- f) Capital Gain Tax: This tax is charged on gains in value (profit) accruing to any company or individual on the disposal of assets eg land. This system of tax was introduced in Nigeria in 1967 under the capital gain tax decree 44 of 1967 as amended.
Indirect Tax: David Begg (1984) defined indirect tax as taxes levied on expenditure of goods and services. They are taxes imposed indirectly on tax payers’ income. This tax can be shifted either partially or entirely to some other person other than the individual or firm originally taxed. Taxes chargeable to indirect taxes include:
Value Added Tax (VAT) This is effectively a retail sales tax and is an indirect form of taxation based on the consumption of certain goods and services. VAT is collected at different stages of production process and on the added value at each stage of consumption. It came into operation to Nigeria courtesy of VAT decree of 1993, which became effective from 1st January 1994. The introduction of VAT replaced the Sales Tax Decree of 1986.
CHAPTER THREE
DESIGN AND METHODOLOGY
The study is a sample data collected from Enugu South Local Government Area of Enugu State of Nigeria. A letter of introduction containing the research topic and the purpose of the study was given to the local government concerned. During the course of the study, the researchers carried out field study on their activities. The primary field study was aimed at finding out the various ways in which taxation is employment. To achieve this aim, various research techniques and strategies will be used by the researchers to carry out the study in an organized manner to arrive at their conclusion. The investigation strategy the researchers adopted at its preliminary study were oral interview, observations and distributed questionnaires to some employees and staff and few top management officials including the accountants, employees of the Federal Board of Inland Revenue Service.
Selection of Data
With regards to the research study, two major types of data were used. They are: primary data and secondary data.
PRIMARY SOURCE OF DATA
Primary source of data deals with those data originated by the research in the course of carrying out his research work on a particular study. The primary data for this study are made up of information generated specifically for this study. In order to have an insight into the research topic and confer as much authenticity as possible to the assignment, the researchers carried out oral interview and distributed questionnaire to the following class of people:
- Employees of Federal Board of Inland Revenue Service (FBIRS).
- Taxable persons which include individuals and corporate bodies.
- Professionals from private sector.
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
INTRODUCTION
In chapter, the researchers intend to analyze the data collected in chapter three. It should be necessary to point out that the researchers generated data through oral interview, questionnaire and already made materials.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
SUMMARY OF THE FINDINGS
The main objective of the study was to examine the aims and objectives of taxation and its impact on Nigeria Economy. It was also aimed at identifying the problems that inhabits the efficient and effective administration of tax and its impact on the economy of Nigeria.
In the course of this study, various literatures were viewed to provide a theoretical frame work to the study while field survey was carried out to get the applicability of the study from the theoretical and practical aspect of the study, it was observed that the issue of taxation evokes response in this study country.
People fell reluctant to pay their tax some will try to avoid it while others would not like to see the tax collectors not to talk of paying taxes.
To give the study desired acceptability three basic hypothetical statements were formulates and two tested, leading to the acceptance or rejection of the null or alternative hypothesis.
The proposed working hypothesis no 1and 3 resulted to the acceptance of the alternative hypothesis (Hi), showing tat the revenue generated from taxation has a positive impact on the economic development of Nigeria. This is further evidenced in response to question 9 and 13 of chapter four-lender data presentation and analysis.
Hypothesis No 3 which was tested together with hypothesis 1 equally results to the acceptance of the alternative hypothesis. It shows that tax is the major source of government revenue and also government cannot do without it. This is further evidence in response to question 5 and 8 of chapter four data analysis and test of hypothesis.
Other research findings revealed that the system of tax administration is deficient which has encouraged tax evasion and avoidance. This is basically because of operational hardware, lack of honest and trained revenue officers.
In addition tot the above research findings, some problems connected with the Nigeria tax system were identified to included:
- The pay as – you – earn (PAYE) system inspite of its numerous benefits has the problem of some employees telling lies on for the purpose of getting unjustified reductions in their tax liabilities for instance, an unmarried person could claim that he has a wife and fur children so as to get the maximum relief under these provision.
- Amount deducted by employers from their employees cold remain uncollected for a long time and sometime claim capital allowances on non – existing assets to evade tax.
This work was able to provide the answer to all the research questions. This was with the help of the questionnaires designed for the purpose.
The regression analysis carried out was equally helpful in ascertaining which hypothesis to accept in the second formulated hypothesis. With the aid of the regression analysis, the alternative hypothesis was accepted. This means that tax revenue has a significant impact on GDP, inflation and unemployment.
CONCLUSION
Effort has been made in this study to examine the impacts of taxation as aid to on Nigeria Economy. Various data were gathered and analyzed to determine the reliability of the formulated hypothesis.
The study showed that in some countries, taxation is the most significant source or revenue to the country. In Enugu (Nigeria), it was noted that taxation is the second most significant source of government revenue after crude oil. This is the more reason why taxation should be taken more seriously.
The study further discussed the problem of tax administration in Nigeria to include operational hardware, the structure of government expenditure programme, lack of trained and qualified revenue official.
Based on the result of the findings the study has seen that Nigeria cannot survive without taxation alone, hence, it is a fact that tax plays a strong and significant role in the economic growth and development of Nigeria. This can be interpreted to mean no tax, no economic development of Nigeria.
RECOMMENDATIONS
Going by the finding of the researcher, the following suggestion and recommendation are made which he believes will increase tax revenue as well as eliminate administrative problems:
- Staff Training: The tax official needs improvement through adequate training and provision of suitable working materials and facilities.
- Government Programme: Government should distribute its social welfare programmes in such a way as to provide direct benefit to tax payers. This makes them believe that the portion of their hard earned money paid for purposes, is being effectively utilized by the government.
- Elimination of Loopholes: Its is suggested that all of us should eschew corruption in all its facts and pursue virtue. Our tax laws and statute should be reviewed so as to block the loopholes of evasion and avoidance. We should all salvage our great country.
- Computerization Of Records: Full computerizations of records of the inland Revenue department should be in place in order to be able to make assessment, have quick access to tax papers personal files and provide data for decision making.
- Total Reorganization: The modus operand for the assessment and collection of taxes by revenue staff should be reorganized such that:
- A revenue intelligence section should be established in each revenue office charged with the specialized responsibility of investigating information field on return. They should answer that subjectivity in the application of tax laws by the tax officials is reduced.
- Financially activities of the Inland Revenuedepartment should be audited amnesty by external auditors to ensure proper accountability control of fraudulent practices and careless errors in making assessments and ensure efficient revenue collection.
Conclusively, it is believed that if the above – mentioned recommendations are put into use the aim of imposition of taxes will be achieved. Then the impacts of taxation as an aid to economic development of Enugu State (Nigeria) will be felt by all.
BIBLIOGRAPHY
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- Ageyi A. K. (1985), Economic Development for West Africa
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- Bharti H.L. (2009), Public Finance 14th Edition Vikas publishers
- Eze U. M. (2010), The problems of Tax Planning and Administration in Nigeria.
- Ogbonna G. N. (2011), Taxation Issues in Nigeria, New Life Publishers Onitsha
- Odoh N. K. (2004), Public Finance for Polythensic, J, T. C. Publishers, Enugu
