Impact Of Federal Government Tax Policies On Nigerian Economy

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Impact Of Federal Government Tax Policies On Nigerian Economy


Abstract


The purpose of writing this research works. The impact of federal government tax policies on the Nigerian Economy, is determine whether the federal government tax policies in Nigeria has contributed immensely to the overall growth of the economy. It also seeks to investigation on the extent the polices of federal government tax has helped in revenue generation and allocation. The literature review gave a background and in depth in the country and also the various policies banking them. The decision made on this work was derived based on the test conducted. The chi-square was used in testing the hypothesis while frequency tables and percentage were used in analyzing the data. The decisions were that the federal government tax policies is actually a regulatory frame work of revenue generation in Nigeria. While the other one is that the federal government tax policies has contributed to the growth of the economy. Based on the above decision, some findings were made which necessitated recommendations and finally conclusions


Chapter One


Introduction

1.1 Background of the Study

The desire to build a civilized country with a strong and sound economy is the desire of every Country, including Nigeria. Tax payment is the demonstration of such a desire, although some income earners see it as a means of exploitation by the government. Tax payment is a voluntarily contribution imposed by the Government on personal income earners, companies, investors, exporters, importers etc. revenue realized from taxation is a major source of revenue to the Government of Nigeria, and as such is an important tool used in the development of Nigeria and her economy. A country’s tax policies and systems are greatly related with business ventures in that country. An economy that enacts favorable and progressive tax laws and policies will definitely breed successful and finance-healthy business organizations. Once businesses flourish, the economy flourishes as well, as there is no quicker way of stirring the affairs of an economy without the help of organizations that move services, goods, money and investments from those with surplus to those with deficit; those with marketable ideas/output to those who need these ideas and products. In essence, businesses and tax policies greatly depend on one another for survival. If one is greatly affected, the other follows suite.The Nigerian Tax System has undergone significant changes in recent times. With the help of various studies and research done by tax experts, tax laws are being reviewed with the aim of repelling obsolete provisions and simplifying the main ones. Under current Nigerian law, taxation is enforced by the 3 tiers of Government, i.e. Federal, State, and Local Government with each having its sphere clearly spelt out in the Taxes and Levies (approved list for Collection)Small businesses are generally recognized as important drivers of economic success. The recent economy recession contributed to inconsistencies in the Nigerian tax laws which had made it difficult for the tax authority to administer and tax payers to comprehend tax system, (Matthew, 2014). The intention of the federal government to maintain a uniform tax system proved abortive as a result of economy condition of each state which gives room for divergence system. In any economy, the usefulness of taxation in the activities of any government cannot be overemphasized. The main aim of any developing nation like Nigeria is to increase the rate of economic growth and per capital income which otherwise increases the standard of living thus taxation can be used as a stimulus to accelerate such growth. Tax is one of the major sources of government revenue however, not every government effectively exploits this opportunity as a means of revenue generation. Azubike (2009), posits that tax is a major player in every society of the world. It is an opportunity for government to generate additional revenue to discharge its pressing obligations. Also, it is one of the effective means of mobilizing a country’s internal resources so as to promote economic growth. According to Appah (2004), tax is a compulsory levy imposed on a subject or properties by the government to provide security, social amenities and cater for the wellbeing of the society. It is levies imposed by the government on incomes, profits and properties of both individuals and corporate bodies for the sole administration of that government which has no compensatory benefits. The main forms of tax collected are direct and indirect taxes. For the direct taxes, it is levied on individuals and factors of productions e.g. Personal Income Tax (PIT), Capital Gain Tax (CGT). However, indirect taxes are levied on goods and services e.g. import and export duties. Thus, the consumers bear the ultimate burden. It is an important note that taxation supposed to be an instrument of social change which is not answering as much as it should be doing presently in Nigeria. The impact of tax payment is not felt by payee and some do not understand some tax laws and this indeed has put them into doubt and confusion which has definitely led to tax evasion and avoidance. Having realized that taxation is one of the most important sources of revenue for the various tiers of government and a major way of sourcing financial support to the Nigeria government at large, it is of paramount importance that tax evasion and avoidance is discouraged with every conceivable means.


1.2 Statement of the Problem

Every modern state or nation requires a lot of revenue to be able to provide and maintain essential services for its citizen. One ready means of revenue for the government is through the imposition of tax. The imposition of tax by the government is not a new phenomenon. There is hardly any government today that does not rely on taxation. However, apart from the complications that have crept into the taxation system in modern times, the reason for the imposition of tax in fact ceased to be only for the generation of revenue for the state. It has also become the avenue for the redistribution of wealth and re-adjustment of the economy (Ojo, 2008). Therefore, the tax system is one of the most powerful levies available to any government to stimulate and guide its economic and social development.

The FBIR (Federal Board of Inland Revenue) which is vested with the power to administer the act and carry out all the act which may be deemed necessary and expedient for the assessment and collection of tax ,and shall for all amount so collected in a manner to be prescribed by the Federal Minister of Finance. The Board has certain reserved power which shall not be delegated to other person to perform, e.g. power to acquire, hold and dispose properties of any company in satisfaction to tax or any judgment debt, and to specify the forms of return claim and notices


1.3 Objectives of the Research

In-order to achieve the purpose of this research, the following are the objectives of the research:

  1. To identify the challenges of Nigerian tax policies.
  2. To examine the influence of multiple taxation on businesses and the economy as a whole.
  3. To identify ways of properly addressing the challenges of Nigerian tax policies in order to favour businesses as well as encourage tax compliance.

1.4 Research Hypotheses

In order to achieve the objectives stated above, the following research hypotheses were used as a guide in achieving the objectives of this research:

  1. H0: There are no challenges facing tax policies in Nigeria
    H1: There are challenges facing tax policies in Nigeria
  2. H02: The challenges of tax policies in Nigeria have no influence on the growth of Nigeria economy
    H2: The challenges of tax policies in Nigeria have influence on the growth of Nigeria economy

1.5 Significance of the Study

This study gives a clear insight into the various ways in which tax policies in Nigeria can be executed efficiently to still favor small businesses and how some taxation policies in Nigeria can be properly tackled. The study also gives a clear insight into the various causes of why small businesses fail in Nigeria as well as the challenges of the tax policies in Nigeria. The findings and recommendations of the researcher will help in building a strong and better tax policy system in Nigeria, if taken seriously by government and the general public. The challenges of taxation in Nigeria are outlined in-order for drastic measures to be taken to tackle these challenges and meet the prospects of the general public so that revenue from tax policy to the government can be increased


1.6 Scope of the Study

This research focuses mainly on the impact of Nigerian tax policies on the growth of Nigeriaeconomy. The study only torches on the challenges tax policies in Nigeria and how it can affect self-employed business men and women, traders, and other forms of sole proprietorship businesses.

Based on the findings of this study other possible researchable areas may include studies on the various challenges of other forms of tax such as the Value Added Tax (VAT), Capital gains tax, Import and Export duties tax. Etc. Further research can also be done on curbing tax evasion in Nigeria..


1.7 Limitation of the Study

In the cause of the study, the researcher encounters some constrain which limited the scope of the study:

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.


1.8 Definition of Terms

Tax

A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer (an individual or other legal entity) by a governmental organization in order to fund various public expenditures.

Tax Policy

Tax policy is the choice by a government as to what taxes to levy, in what amounts, and on whom. It has both microeconomic and macroeconomic aspects.

Small Business

Small businesses are privately owned corporations, partnerships, or sole proprietorships that have fewer employees and/or less annual revenue than a regular-sized business or corporation.

Economic Growth

Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP


1.9 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 impact of federal government tax policies on Nigerian economy.

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 tax policies on the growth of Nigerian economy.


5.2 Summary

This study has been carried out with the main objective of investigating into the relationship between tax policy (reforms) and economic growth in Nigeria. Using time-series data from 1990 to 2011, the study finds statistical evidence that long-run relationship exists between economic growth and tax components. To capture this effects, a Granger – causality co integrations test in performed with the results firmly supporting the hypothesis that improvement in tax bases are necessary conditions for enhance economic growth and development in Nigeria. To ensure an efficient tax system that guarantee sustained economic growth, there should be an improved taxregime that is capable of generating funds for the Government to provide basic social services. This can be achieved through transparency and accountability in governance and in the administration of tax reforms. Secondly, efforts should be made to address all complexities involving effective tax system such as multiplicity of tax payment by individuals and organizations. Thirdly, government should discourage tax holidays to multinational corporations (MNCs) in the name of attracting foreign direct investments (FDIs). Tax holidays are serious leakages out of an income stream of the country.


5.3 Conclusion

The role of taxation in developing a nation’s economy has been described as irreplaceable. Some economic analyst suggested that taxation remains a strong socio-political and economic tool for economic growth and national prosperity. Though, the issue of tax leakages is a global concern which Nigerian situation cannot be exempted as a result of the scale of corruption practices in Nigeria. Taxation is one of the most reliable sources of income which contribute to economic development. From the findings, the study therefore concludes that tax revenues have significant impact on Nigerian economy growth for the period under review


5.4 Recommendation

Based on the findings, the following recommendations were suggested:

  1. There is need for government to clearly state the basic objectives of its tax system and the relationship between these objectives. This will give the tax administrators a sense of direction and educate the tax payers on the reasons to pay tax as at when due.
  2. Strict penalties should be meted to people who avoid and evade tax payments in order to minimize the incidence of tax evasion and tax avoidance.
  3. Government should diversify the main revenue source from oil to other sectors of the economy such as agriculture, extractive industries in order to attract direct and indirect taxes.
  4. Government should organize intensive training for all tax officials so as to identify the loopholes in tax payment system and to carry out their job effectively.
  5. Finally, government should ensure effective utilization of the income accrued taxation to encourage continuity in tax payment by the tax payers.

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