The Role Of Personal Income Tax On The Economic Growth In Nigeria
This study examines the role of personal income tax on the economic growth of Nigeria. the objective of the study was to determine how tax income affects economic growth in Nigeria. To achieve this objective, relevant secondary data from the period of 2000-2012 on personal income tax were collected from the Central Bank of Nigeria (CBN) statistical bulletin. The data collected for the study were analyzed using the ordinary least square (OLS) method of regression using SPSS to explore the relationship between the GDP (the dependent variable) and the PIT, TTR and TGOv Exp (the independent variables) head over the period, which where considered as the model.
The result shows that there is a significant positively relationship between the dependent variable (GDP) and the independent variable (PIT, TTR, GovExp). The model indicates that the variables as a group explains economic growth and development of Nigeria. It was gathered that personal income tax is generally effective in the growth and development of Nigeria as it is one of the source of revenue to the federal, state and local government. It is recommended that well equipped database on tax payers should be established by the federal state and local government with the aim of identifying all possible source of income to tax payer for tax purposes.
1.1 Background Of Study
The desire to uplift one’s society is the first desire of every patriotic citizen. Tax payment is the demonstration of such a desire. The payment of tax is a civic duty and an imposed contribution by government on their subjects and companies to enable her finance or run public utilities and perform other social responsibilities. Taxes, thus, constitute the principal source of government revenue (Kaibel and Nwokah, 2009).
However, one of the greatest problems facing Nigeria tax system is the problem of tax evasion and tax avoidance. While tax evasion is the willful and deliberate violation of the tax law in order to escape payment of tax which is unquestionably imposed by the law of the tax jurisdiction, tax avoidance is the means by which taxpayer seeks to reduce or remove altogether his liability to tax without actually breaking the law. These “Twin devils” have created a great gulf between actual and potential revenue (Kaibel and Nwokah, 2009).
The tax administrations in Nigeria are weak, corrupt and non-transparent (kiabel, 2009). This inefficiency reflects on the mix of taxes and the faulty design in their structure and in there operational systems (Kiabel, 2009). The tax administration is also affected by policies relating the salary, the attitude, the reward and the punishment system of personnel. The tax administration in Nigeria is driven by detailed revenue targets not by the tax laws and accounting records. The tax officials are allowed to earn money and still meet their revenue targets. Many things are done through negotiation rather than basis of information processing (chartered Institute of Taxation of Nigeria).
In addition, low tax compliance is a serious issue in Nigeria, limiting the capacity of the government to raise revenue for development purposes. It is commonly acknowledged that many factors contribute to this weakness such as corruption, weak legal system, high marginal tax rate, paucity of adequate information, accounting system and ineffective tax administration (chartered Institute of Taxation of Nigeria Website). However, it has never been easy to persuade tax payers to comply with requirement of a tax system.
Furthermore, taxpayer tends to have low level of literacy, low tax morale and negative attitude towards government. (UNSW Law Research paper no 2009-17). It is therefore felt that personal income taxation in Nigeria requires radical handling to ensure that a large chunk of the taxable population does not escape tax. An effective tax system, aside from maximizing revenue for development is expected to be well structured and managed with a feeling of common purpose, joint responsibility or obligation amongst the taxable person in a country.
From the foregoing, the future prospects of the study can be established. A key component of any tax system is the manner in which it is administered. No tax is better than its administration, so tax administration matters a lot. An essential of objective tax administration is to ensure the maximum possible compliance by tax payers of income.
In summary therefore, according to Chris and Elizabeth (2001) tax has three basic features namely; a compulsory levy imposed by government, or local authority, for public purpose and to encourage social justice. A tax according to Ayua (1996) is not a voluntary payment but a compulsory pecuniary burden placed on taxpayers for the benefit of the society.
Generally, taxation can be described as a form of levy imposed on all residents living and non-residents doing business within a tax jurisdiction. It is a civic and patriotic responsibility of citizens to pay taxes imposed which also come to the government as income or revenue yielding device to finance the provisions of socio-economic and infrastructural amenities and also to enhance industrial efficiency.
1.2 Statement of Problem
It is the duty of the government of any country to provide its citizens with those basic amenities that will make life enjoyable to them. This is because individual cannot single handedly provides amenities themselves. The provision of these basic amenities can only be possible through payment of taxes by the citizen.
There have been a heart provoking outary by various state government in Nigeria over their poor financial base. This situation is becoming even more compounded by the obvious dividing feature of our oil economy. Inspite of the broadness and the comprehensive nature of our tax system, tax avoidance and evasion are on the increase.
The ugly development has placed most state government in a situation where they cannot cope with their civic responsibilities to their citizens, hence a compelling need to put an end to this unwhole some circumstance in Nigeria through proper problem identification.
Due to lack of fund arising from low revenue receive from personal income tax. It has not contributed some basic amenities to the economic growth and development of Nigeria.
Problem regarding poor method of collections of income tax which have reduce a part of revenue of income tax for economic growth.
Citizen do not enjoy some basic amenities benefit because of not payment of income tax.
1.3 Objectives Of The Study
The specific objective of this study are stated below:
- To examine the extent at which personal income tax has contributed to the economic growth of Nigeria.
- To examine how total tax revenue has contributed to the economic growth of Nigeria.
- To determine how total tax revenue affects government expenditure on social amenities.
1.4 Research Hypotheses
- Ho: total tax revenue affects government expenditure on social amenities
- Hi: total tax revenue does not affect government expenditure on social amenities
- Ho: personal income tax has no impact on economic growth in Nigeria
- Hi: personal income tax has no impact on economic growth in Nigeria
1.7 Significance of the Study
The importance of the study is throwing more light on the role of personal income tax on the economic growth in Nigeria. Findings from the research will enable the following group of people benefit the following:
The result of this study will help to create an awareness to the citizens on benefit that can be derive from payment of taxes.
It will help the government aware of the benefit provided by them through payment of taxes.
It will help provide meaningful recommendation to the society on the way taxes should be handled and administered.
It will help researchers especially student to be educated on the roles of personal income tax on the economic growth in Nigeria.
1.6 Scope and Limitation of the Study
It is the intention of the researcher to investigate into the extent our tax system with emphasis on personal income tax has affected the economic growth of Nigeria. Also the personal income tax Amendment Act 2011 will also be attempted by the researcher.
This research work is to look into the period from 2000-2012. Also the research work would cover forms on taxes and the personal income tax administration in Nigeria
The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following.
a) Availability of Research Material:
The research material available to the researcher is insufficient, thereby limiting the study
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.
1.7 Definition of Terms
A tax can be defined as a compulsory levy imposed by public authority on incomes, consumption, and production of goods and services (Ojo, 2009).
This refers to the accounting period of a business where income is assessable to tax in the year of assessment (Ojo, 2009).
Year of Assessment (YOA):
This is the period from January 1st to 31st December of the same year. It is the reference year which tax is paid (Ojo, 2009).
This refers to the income derived by an individual from a trade, business, vocation, or employment as well as incomes derived from a previous employment by a way of pension (Ojo, 2009).
This refers to the procedure by which tax payable by taxable person or company is computed (Ojo, 2009).
This is considered as a way of identifying the loopholes in the tax laws and then take advantages of such loopholes to reduce the tax payable (Ojo, 2009).
This is a deliberate act on the part of the tax payer not to pay tax due (Ojo, 2009)
Pay as You Earn:
This means that tax is deducted from the income of an employee at source. The tax deducted is then remitted to the relevant tax authority on a monthly basis (Ojo, 2009).
1.8 Organization of the Study
This research work is organized in five chapters, for easy understanding, as follows
- Chapter one is concerned 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
Summary, Conclusion and Recommendation
It is important to ascertain that the objective of this study was to have a critical analysis of the role of personal income tax on the economic growth 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 are made, which in the opinion of the researcher will be of benefit in addressing the challenges of personal income tax in Nigeria.
This study aimed at having a critical analysis of the role of personal income tax on the economic growth in Nigeria. Four objectives were raised to guide the study. These objectives include; To examine the extent at which personal income tax has contributed to the economic growth of Nigeria, to examine the performance and contribution of personal income to Nigeria revenue, to evaluate the problems associated with personal income tax administration and to determine how total tax revenue affects government expenditure on social amenities.
Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
This study has thrown more light to the government and parastatals involved in the administration of tax in the country on more efficient techniques of tax collection and ways of reducing tax evasion.
It has shown that there is a significant relationship between GDP and personal tax in the Nigeria, hence, it can be concluded that personal tax has an impact on economic development.
- Efforts should be intensified by the government towards increased collection of tax revenue this is due to the low contribution of tax revenue to GDP over the period of study. This can be done through blocking all loopholes in our tax laws as well as bringing more prospective tax payers into the tax net (especially the informal sector).
- There should be stringent penalty imposed on any individual or corporate body who indulge in any form of tax malpractices irrespective of states, if the positive correlation between tax revenue and economic growth should be maintained.
- Government through Federal Inland Revenue Service should create an effective and reliable data base for every vatable persons to minimize (if not eliminate) the incidence of tax evasion and there should be constant training and re-training of VAT administrators through seminars, conference to keep them abreast with the modern trend in tax administration. This is because as shown in the result, in the long run VAT has a positive effect on GDP.
- Government should also be able to use taxpayers’ monies in the provision of infrastructural facilities. This will in no doubt boost the morale of the citizenry to pay more. Staff that work with the Tax Authorities should be adequately motivated in order to enhance revenue generation and improve the percentage of tax revenue to GDP.
- There should be constant review of existing tax laws just as it is obtained in the United State of America and other advanced economics, so as to keep the act in pace with the economic reality. Custom Excise Duties (CED) do not contributed positively to economic growth of this nation.
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