The Impact Of Taxation On Nigeria Economy Growth

Project and Seminar Material for Economics

The Impact Of Taxation On Nigeria Economy Growth


Abstract


This research work was carried out in order to find out if actually there is any impact which taxation has on Nigerian economy and the survey for this study is based on Enugu state. This research work also became necessary in order to bring to the proper understanding of the enquirer the best way to solve such problems connected with tax especially: what is taxable, which system of tax is acceptable, the rate of tax evasion and tax avoidance, the assessment of Nigeria tax system and which of the impacts of taxation is the most essential.

The primary function of every government is to make provision of this enormous work cannot be carried out adequately by the government due to its limited resources therefore, there is 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.


Table of Contents


  • Title page
  • Certification page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of content

Chapter One

1.0 Introduction

  • 1.1 Background of Study
  • 1.2 Statement of the problem
  • 1.3 Objective of the study
  • 1.4 Research Questions
  • 1.5 Significance of the Study
  • 1.6 Scope of the study
  • 1.7 Limitations of the study
  • 1.8 Assumptions of the study
  • 1.9 Formulation of Hypothesis
  • 1.10 Definition of Terms
  • References

Chapter Two

2.0 Review of Related Literature

  • 2.1 Introduction
  • 2.2 Definition of Taxation
  • 2.3 Incidence of Taxation
  • 2.4 Principles of Taxation
  • 2.5 Elements of Taxation
  • 2.6 The Importance of Taxation
  • 2.7 Structure and administration of Nigeria tax system
  • 2.8 The problems of taxation and its function
  • Reference

Chapter Three

3.0 Design and Methodology

  • 3.1 Primary Sources of Data
  • 3.2 Secondary sources of Data
  • 3.3 Population and Sample size Determination
  • 3.4 Method of Data Collection
  • 3.6 Method of Data Analysis

Chapter Four

4.0 Data Presentation and Analysis

  • 4.1 Presentation and Analysis
  • 4.2 Summary of Findings/Results
  • 4.3 Testing of Hypothesis
  • 4.3 Regression Analysis

Chapter Five

5.0 Summary, Conclusion and Recommendation

  • 5.1 Summary of the Findings
  • 5.3 Conclusion
  • 5.3 Recommendations
  • Bibliography
  • Appendix
  • Questionnaire

Chapter One


Introduction

1.1 Background of the Study

One of the major functions of the government especially developing countries such as Nigeria is the provision of infrastructural services such as electricity, schools, hospitals, pipe-borne water, good roads and as well as ensure a rise in per-capital 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/organizations to augment government financial position is essential.

To this end, government have always enacted various tax laws and reformed existing ones to stand the taste of time. These laws include: Income Tax Management Act (ITMA), Companies Income Tax Decree (CITD) etc.

All these are aimed at ensuring adherence to tax payment and discouraging tax evasion and avoidance. For the purpose of this study, the researchers would be concerned with the impact of taxation on Nigeria economy.


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 nostrils”. Thus, taxation is by far one the most significant source of revenue for the government. Nigerians regard payment of tax as a means through which government raises revenue on herself at the expense of their sweat.

It is good to note that no taxation succeeds without the tax payers’ co-operation. Here, we can ask some thought – provoking questions such as:

  1. What makes taxation such a difficult issue?
  2. Why do people feel cheated when it comes to tax?
  3. Is government making judicious use of taxpayers’ money?

In view of the above questions, this study is going to be carried out to offer solutions to them.

We shall also look at the following issues and offer recommendations:

  1. Problems affecting the successful operation of tax system in Nigeria.
  2. How to determine the assessable income.
  3. Process of tax administration in Nigeria.

1.3 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:

  1. To examine the extent government has been using revenue generated by tax.
  2. To determine the reaction of people towards tax payment.
  3. To find out if tax revenue is the most effective source of government revenue.
  4. To examine how tax rate affects the rate of inflation, unemployment and Gross National Product (GNP).
  5. 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.


1.4 Research Question

  1. To what extent has government been using tax generated revenue?
  2. How do people react towards tax payment?
  3. Is tax the most effective source of revenue to the government?
  4. Does tax revenue have any significant impact on GDP, inflation and unemployment?
  5. Which of the effects of taxation is the most significant?

1.5 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 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:

  1. Know the roles taxation play in the Nigerian economy.
  2. Ascertain how government has been using tax generated revenue.
  3. The study will also 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 Nigerian economy. It will also analyze other related issues such as structure and administrative machinery of tax in Nigeria 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 country.

The reference period for this study is 2000 – 2011. Inability of the researcher to procure current data forced the researcher to utilize only available ones. Data for this study were collected from Board of Internal Revenue and National Bureau of Statistics, Enugu.

B. Limitations of the Study

It is obvious that a research work like this cannot be carried out without some hindrances. There are constraints that limit the work of the researchers amongst which are:

Inadequate time:

The time available is very limited, as a result of this, the researchers are restricted to some places for interviews and questioning during the collection of data.

Insufficient fund:

The fund available to the researchers to carry out this work is not sufficient. As a result of high economic hardship as well as high cost of transportation.

There were also scarcity of current textbooks on taxation because tax laws are constantly changed and so many textbooks were obsolete for the study.

The inability of some government officials to disclose certain reliable information which they considered confidential also constitute a limitation to this study.

Finally, the academic workload on the campus is one of the limiting factors on this research work. Despite all these constraints, the researchers were able to carry out a fair and effective study on this topic.


1.7 Assumptions of the Study

The researchers in carrying out this study, will make the following assumptions:

  1. That the data that will be used are true and fair figures actually collected by the Federal Government each year of assessment.
  2. That the data will be authentic and can be relied on for further research work on the topic.
  3. 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 is any impact taxation has on the Nigeria Economy; some statistical model will be used based on the responses from oral interview carried out and the questionnaires distributed and also statistical data generated from the appropriate sources. The data generated from all these will be used to test the following hypothetical statements:

Hypothesis 1:
  • The null hypothesis (Ho): Revenue generated from tax does not make any positive impact on the economic development of the nation.
  • The alternative hypothesis (H1): Revenue generated from tax has a positive impact on the economic development of the nation.
Hypothesis 2:
  • The null hypothesis (Ho): Taxation has no significant impact on GDP, Inflation and Unemployment.
  • The alternative hypothesis (Ho): Taxation has a significant impact on GDP, Inflation and Unemployment.
Hypothesis 3:
  • The null hypothesis (Ho): That revenue generated from tax is so meager compared to revenue from other sources as such, government can do without tax.
  • The alternative hypothesis (H1): That 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 citizens for the provision of public goods and services.

Tax Base:

The object which is taxed for instance personal income, company profit.

Tax Incidence:

This is the effect and where the burden of taxation 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):

It 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):

Is established under section 85 (2) of Decree of 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 assets of individuals, 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:

They are taxes levied on some goods manufactured within a country.

Persons:

It includes all taxable persons be it individual or corporate bodies.


Chapter Five


Summary, Conclusion and Recommendation

5.1 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.


5.2 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.


5.3 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. 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.

4. 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.

5. 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 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 Enugu State (Nigeria) will be felt by all.


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