The Effect Of Taxation On Fiscal Policy Development In Nigeria

Project and Seminar Material for Economics

The Effect Of Taxation On Fiscal Policy Development In Nigeria


Abstract


This study is on the effect of taxation on fiscal policy development in Nigeria. The total population for the study is 200 staff of federal Inland Revenue service, Abuja. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made of tax managers, assistant tax managers, officers i and officers ii were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


Chapter One


1.0 Introduction

1.1 Background of Study

There are several factor that are considered with view of the economic development of Nigeria, some of this factors include taxation, fiscal policies and social policies etc; but for the purpose of this study we shall consider the effect of taxation on fiscal policy development in Nigeria; taxation is one of the major pivot to consider when dealing with fiscal policy; Olanifa I.F (1994) in his work said that it is compulsory transfer of resources from private sector to the public economy of the nation. The direction of taxes is mostly noticed in its potential in the fiscal policy development and the economic growth of Nigeria. this can be done in the following ways:

  1. It alters the determinants of economic development e.g. capital formation, technological change, factor supplies etc.
  2. It permits the financing of the federal government activities or government financed private investment without the effect of the method of financing; the role of taxation can also be seen on the rate of the federal government expenditure on issues like resource allocation, and other distribution of wealth and income.

Another important aspect of the fiscal policy is on the area of revenue generation in Nigeria; since the federal government of Nigeria uses the fiscal policy in planning, controlling and co-ordinating of most of the economic activities in Nigeria; the fiscal policy will be made effective through revenue generation from taxes mostly; making the tax system of Nigeria the major tool for fiscal policy development.

The fiscal policy plays a major role in the distribution of resources round the nation so as to help control the nation in the time of economic recession.

Most of the economic policies today are becoming more fundamental i.e. it serves a foundation for the success of other policies of the government.

Sometimes the constituent elements of these economic policies need to be manipulated for a particular purpose, and most of them simultaneously for the desired result. One of the major root of both the economic policies and fiscal policy is related to government tax and expenditure. According to Baumel, W.J. and Blinder A.S., (1979) in the book “Economic principles and policy” he defines fiscal policy as governments plan for spending and taxation. It serves as a means of planning, controlling and co-coordinating the speed of activities in the economy.


1.2 Statement of Problem

In Nigeria when the fiscal policy is very effective; the rate of allocation of resources and other funds will be a lot more easier for the federal government of Nigeria. The fiscal policy development has noticed a decline due to some of the reasons stated below:

  1. The inability of the federal government of Nigeria to plan correctly and the rate of ad hoc tax holidays and incentives.
  2. Lower rate of tax due to poor coverage by the tax agents
  3. The lack of elasticity and buoyancy is another cause of this decline.
  4. Another cause is the issue of time to time tax amnesties.
  5. Finally; the inconsistency in the administration.

The inability of the federal government of Nigeria to establish a direct and precise statistical correlation between tax rates and private capital formation due to many factors and the time lag, changes in the tax base and other externalities determining investment has led to the poor Tax rates, saving and capital formation. Nevertheless historical and statistical trends tend to suggest that savings and private capital formation have been sensitive to effective tax incidence. The tax revenue continue to drop as the economy of the country continue to drop i.e. a drop in the GDP.


1.3 Objective of the Study

The research work tries to resolve the issue on the effect taxation on fiscal policy development in Nigeria; with the above stated problems militating against the development of fiscal policies in Nigeria, the study came up with the following objectives to help in the resolution of the above problems

  1. To determine the effect of taxation on fiscal policy development.
  2. To determine the factors militating against the implementation of fiscal policies by the federal government of Nigeria.
  3. To determine the effect of weak administration on revenue generation through tax.
  4. To investigate the roles of the federal government of Nigeria in the administration of tax.
  5. To explain the roles of fiscal policies in the stabilization of the Nigeria economy.

1.4 Research Hypotheses

  1. H0: There is no significant relationship between the taxation and fiscal policy development
    H1: There is significant relationship between the taxation and fiscal policy development
  2. Ho: Implementation of fiscal policy does not stabilize the economy.
    Hi: Implementation of fiscal policy stabilizes of the economy.

1.5 Significance of the Study

The research will be of immense help to the state and the federal government of Nigeria as it will elicit information on the effect of taxation on fiscal policy development in Nigeria, the study will discuss the role of the federal government of Nigeria in the administration of tax, it will discuss the effect of weak administration in revenue generation through tax, finally the research work will explain the factors militating against the implementation of fiscal policies by the federal government of Nigeria.


1.6 Scope and Limitation of the Study

This study the effect of taxation on fiscal policy development in Nigeria will cover the various areas of taxation and its effect on the development of fiscal policy in Nigeria in order to achieve a good tax system and revenue generation for the growth and development of Nigeria economy

Financial Constraints:

Financial constraints tends to impede the speed of the research student to buy materials and visit other areas of the federal government sector to get information and other materials concerning the research topic but the researcher was able to get meaningful information concerning the research topic.

Time Constraints:

This researcher still being a student must be involved in one or two departmental activities like seminar presentation, submission of assignment, attendance to lectures etc but the researcher was able to meet up with the time allocated for the completion of the research work.


1.7 Definition of Terms

Taxation:

Taxation in accordance to the research topic is the process of tax payment for the development of fiscal policy.

Fiscal Policy:

Fiscal policy in accordance to the study is that means by which the federal government of Nigeria adjust the rate of administration of tax, the rate of spending so as to effectively monitor the Nigeria economy.

Revenue:

Revenue in accordance to the study is the money generated by the federal government of Nigeria through the administration of tax.


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows.

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain the effect of taxation on fiscal policy development in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of the effect of taxation on fiscal policy development in Nigeria


5.2 Summary

This study was on the effect of taxation on fiscal policy development in Nigeria. Four objectives were raised which include:To determine the effect of taxation on fiscal policy development, to determine the factors militating against the implementation of fiscal policies by the federal government of Nigeria, to determine the effect of weak administration on revenue generation through tax, to investigate the roles of the federal government of Nigeria in the administration of tax, to explain the roles of fiscal policies in the stabilization of the Nigeria economy.In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of federal Inland Revenue service, Abuja. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made of tax managers, assistant tax managers, officers iand officers ii were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


5.3 Conclusion

In conclusion, the price system promotes income inequalities thereby creating poverty and agony amidst of plenty in the economy. Government therefore, intervened to correct unjust inequalities of income through introduction of tax system, among other programmes, desired to take more from the rich and less from the poor and to achieve economic growth and development. However, the Government should bridge the gap between the rich and the poor by taxing the rich high and using the tax proceeds to provide basic amenities for the masses. Based on the findings, taxation can indeed be used to correct income inequalities and to achieve economic growth and development in Nigeria and it is a tool for raising the quality of life of all citizens.


5.4 Recommendation

In view of this study, the following recommendations shall be made

  1. Government should ensure that the revenue generated from tax paid is well utilized to provide essential services for the masses. For instance, good road, efficient transport network, constant supply of electricity and pipe-borne water as well as health facilities because “health is wealth”.
  2. The tax administrators should be well remunerated and their condition of services improved for more efficient performance and to ensure honesty among them.
  3. Efforts should be intensified to recruit and retain adequately trained, qualified and experienced revenue staff.
  4. There should be effective communication of government policies and strategies on subjects relating to taxation. Government should create a transparent and accountable system to ensure that tax is used to build a more equitable society, redistribute wealth and attract investment flows into the country

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