The Impact Of Taxation As An Aid To Economic Development

The Impact Of Taxation As An Aid To Economic Development
Proposal
The research work will discuss in detail the impact of taxation as an aid to Economic Development in Edo State. It will also take cognizance of the aims and objectives of taxation and its impact on the economic developments of Nigeria. It also aimed at identifying problems that inhibit the efficient and effective administration of the Nigeria tax’s system.
- The chapter one of this work is going to discuss in brief, the introduction, statement of the problem, purpose of the study, significance of the study, scope of the study, limitations of the study, assumptions of the study, formulation of hypothesis and definition of terms.
- In chapter two, the researcher will deliberate on: Definition of Tax and types, incidence of taxation, principles of taxation, element of taxation, importance of taxation, structure and administration of Nigerian Tax system, appraisal of some tax legislation and taxation functions and problems.
- Chapter three will consider design and methodology, selection of data: primary data, secondary data, population, sampling technique, sample size and problems of data collection.
- Chapter four will deliberate on the data presentation and analysis, interpretation of result and test of hypothesis.
- Conclusively, chapter five will centre on the summary of the findings, conclusion from the study, recommendation and suggestion for further research.
Abstract
The purpose of this study is to find out if actually there is an impact of taxation as aid to economic development and my study is based on the survey of Edo State, using Oredo as a case study. This research also became necessary in order to bring to the proper understanding of the enquirer the best ways to solve such problems connected with the taxation especially: what is taxable, which system of tax is acceptable, the rate of tax evasion and avoidance and the assessment of Nigeria tax system.
The primary function of every government is to make provision for its citizens in terms of infrastructural facilities. The provision of this enormous work cannot be carried out adequately by the government due to its limited resources therefore, there is the imposition of tax on all citizens, companies to augment government financial position. Government have always enacted various tax laws and reformed to stand the taste of time.
Chapter One
1.0 Introduction
1.1 Background of the Study
One of the major functions of any government especially developing countries such as Nigeria is the provision of infrastructural services such as electricity, pipe-borne water, hospitals, schools, good roads and as well as ensure a rise in per capita income, poverty alleviation to mention a few.
For these services to be adequately provided, government should have enough revenue to finance them. The task of financing these enormous responsibilities is one of the major problems facing the government. Based on the limited resources of government, there is need to carry the citizens (governed) along hence the imposition of tax on all taxable individuals and companies to augment government financial position. To this end, government have always enacted various tax laws and reformed existing ones to stand the taste of time. They include: Income Tax Management Act (ITMA), Companies Income Tax Decree (CIID), Joint Tax Board (JIB) etc.
All these are aimed at ensuring adherence to tax payment and discouraging tax evasion and avoidance. For the purpose of this study, the researcher would be concerned with the impact of taxation as an aid to the economic development of Edo State (Nigeria).
1.2 Statement of the Problem:
The first need of any modern government is to generate enough revenue which is indeed “the breath of its nostril”. Thus taxation is by far the most significant source of revenue for the government. Nigerians regard payment of tax as a means whereby government raises revenue on herself at the expense of their sweat.
It is good to note that no tax succeeds without the taxpayer’s co-operation. Here, we can ask some thought-provoking questions such as: what makes taxation such a difficult issue? Why do people feel cheated when it comes to tax? Is government making judicious use of taxpayer’s money? In view of these questions above, this study is going to be carried out to offer solution to them.
We shall also look at the following issues and offer recommendations.
- Problems affecting the successful operation of tax system in Nigeria.
- How to determine the Assessable income.
- Process of tax administration in Nigeria.
1.3 Objective of the Study:
The general objective of the study is to assess the contribution of taxes towards the growth of the Edo State Economy.
However, the specific objective of the study includes:
- To examine the relevance of taxation in Edo State.
- To determine why people feel cheated when it comes to tax.
- To determine the extent government has been using revenue generated from tax.
- To examine how tax rate affects the rate of investment in the economy.
- To know general desirability of firms to invest as a result of tax incentive measures.
Generally, the 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.
1.4 Significance of the Study:
One of the most frequently discussed issues in Nigeria is how to solve the economic hardship in the country and how to create an industrial base that can be guarantee self sustaining economic development. Also one wonders why a country which is richly endowed with the necessary human and material resources and which the people pay tax has been turned a heavily indebted country.
The study will afford us the opportunity to know the roles taxation play in the Edo State economy such roles includes:
- Taxation is a major source of revenue to the government.
- Revenue generated from tax enables government performs its functions effectively.
- Taxation acts as an instrument of fiscal policy.
- The impact of tax on small business in the state.
- The study will in addition reveal if there are other better sources of government funding.
1.6 Scope of the Study:
The scope of this study covers critical examinations on the impact of taxation on Edo State economic development. It will also analyse other related issues such as structure and administrative machinery of tax in Edo State and their associated problems. The essence of this digression is to possibly find out the obstacles if any, that hinder the effective collection and administration of tax in the State.
1.7 Limitation of the Study:
It can be seen from all indications that a research such as this cannot be carried out in one semester. There are constraints that limit the work of the researcher. Among these are:
- Inadequate Time: The time available is very limited, as a result of this, the researcher is restricted to some places for interviews and questioning during the collection of data.
- Insufficient Fund: The funds available to the researcher is not sufficient to carry out this research work. As a result of high economic hardship as well as high cost of transportation.
- The inability of some government officials to disclose certain reliable information which they considered confidential may also limit the study.
- There is also scarcity of current textbooks on tax because tax laws are constantly changed and so many textbooks are obsolete for this topic.
Finally, the academic workload on the campus is one of the limiting factors on this research work. Despite all these constraints, the researcher is able to carry out a fair and effective study on this topic.
1.8 Assumptions of the Study:
The researcher in carrying out this study will make the following assumptions:
- That the data that will be used are true and fair figures of taxes actually collected by the Federal Government in each year of assessment.
- That the data will be authentic and can be relied on for further research work on the topic.
- That the data is going to form the basis of the research work.
1.8 Formulation of Hypothesis:
To enable the researcher test if there exist any correlation between revenue generated from tax and its impact on the Edo State economy, some statistical model will be used based on the response from the oral interview carried out and the questionnaire distributed, the data gathered from here will be used to test the following hypothetical statement (assumption).
Hypothesis I:
- The Null Hypothesis (Ho): Revenue generated from tax does not make any impact on the economic development of Edo State
- The Alternative Hypothesis (HA): Revenue generated from tax has a positive impact on the economic development of Edo State.
Hypothesis II:
- The Null Hypothesis (HO): That tax evasion and avoidance do not affect tax revenue.
- The Alternative Hypothesis (HA): That tax evasion and avoidance do affect tax revenue.
Hypothesis III:
- The Null Hypothesis (HO): That revenue generated from tax is so merger compared to revenue from other sources as such, government can do with tax.
- The Alternative Hypothesis (HA): That tax is a major source of government revenue and as such government cannot do without tax.
1.9 Definition Of Terms:
Tax:
A compulsory levy by the government on its citizen for the provision of public goods and services.
Tax Base:
The object which is taxed for instance personal income, company profit.
Tax Rate:
The rate at which tax is charged.
Tax Incidence:
It offers to the effect of and where the burden is finally rested.
FBIRS:
Federal Board of Inland Revenue Services. It is an operational arm of Federal Board of Inland Revenue which is responsible for the Federal Tax matters.
CITA:
Company Income Tax Act (CITA) is a federal law operated by the FIRS, which deals with the taxation of all limited liability companies in Nigeria with the exception of those engaged in petroleum operations.
JTB:
Joint Tax Board (JTB) is established under Section 85(1) of Decree 104 of 1993 to arbitrate on tax disputes between one state tax authority and another.
VAT:
Value Added Tax is a multistage tax levied and collected on transactions at all stages of sales and distribution.
CGTA:
Capital Gain Tax Act is an act that stipulates that all capital gains arising on disposal of asset of individual partnership and limited companies should be taxed.
PPTA:
Petroleum Profit Tax Act is an act that regulates the petroleum profit tax and also specifies how profit from petroleum will be taxed.
Withholding Tax:
This is tax charged on investment income namely: rents, interest, royalties and dividends, presently it is charged as the tax offset.
Progressive Tax:
This is a tax incidence that increases as the size of income increases.
Regressive Tax:
A tax is regressive when its tax rate decreases as the income increases.
Excise Duties:
These are taxes on some goods manufactured within a country.
Persons:
It includes all taxable persons whether it be individual or corporate bodies.
Chapter Five
Summary, Conclusion and Recommendation
5.0 Summary of the Findings
The main objective of the study was to examine the aims and objectives of taxation and its impacts on the economic development of Nigeria. It was also aimed at identifying the problems that inhibit the efficient and effective administrative of the Nigeria tax’s system no doubt this study had attested to address some of these issues.
In the course of this study, various literatures were reviewed to provide a theoretical framework to the study while field survey was carried out to get the applicability of the study. Form the theoretical and practical aspect of the study, it was observed that the issue of taxation evokes many responses in this 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 1 resulted tot he 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 6,7 and 8 of chapter four-lender data presentation and analysis.
Hypothesis No 2 also resulted in the acceptance of the alternative hypothesis. It shows that taxation is a major source of government revenue and also government cannot do without it. This is further evidence in response to question 10 of chapter four data analysis and test of hypothesis.
Other research finding 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 following:
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.
5.1 Conclusion
Effort has been made in this study to examine the impacts of taxation as aid to Economic development various data were gathered an analyzed to determined the reliability of the formulate hypothesis.
The study showed that in some countries, taxation is the most significant source or revenue to the country. In Edo (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.
5.2 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:
1. Staff Training:
The tax official needs improvement through adequate training and provision of suitable working materials and facilities.
2. 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.
3. Public Enlightenment:
There should be a public enlightenment campaign by the government aimed toward emphasising on the importance and nee to pay taxes and when due unless people know what is expected of them in the form of tax contribution and how their obligations are to be discharged, much money will be lost to the treasury’s a result of ignorance.
4. 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.
5. Computerisation 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.
6. 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.
- Mobile revenue Courts should be established to assist in collecting assessed taxes from individuals and employers using “Operation show your tax receipt’s” system and prosecuting defaulters.
- Financially activities of the Inland Revenue department 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 Edo State (Nigeria) will be felt by all


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