Taxation And Its Effect On The Nigerian Economy (A Case Study Of Edo State Tax System)

Project and Seminar Material for Business Administration and Management BAM

Project and Seminar Material for Business Administration and Management BAM


Abstract


The aim of this study was to investigate on taxation and its effects in the Nigeria economy. One of the objective carried out by the researcher was to examine peoples perception on taxation.

Taxation is seen as a tool aimed at improving the performance of the national economy by such means as altering the balance between current consumption and capital investment.

It looked at the work of other authors in order to make the exercise richer. Their different views were seen in different books and other materials (journal) which made this study much better than similar works in this area.

In carrying out this study, the researcher used both primary and secondary data. Qestionnaries and interviews were used in generating the primary data while the secondarry data were obtained through library researcher and other sources.

The purposive sample of 147 respondents were randomly selected for the study to avoid numerous errors in the calculation. From the data collected and analysed, it was evident that tax collection plays a great role in the development of the Nigeria economy.

Conclusively, discussion, summary, conclusion, and recommendations were made to achieve the purpose of this work.


Table of Contents


Preliminary Page(s)

  • Title
  • Declaration
  • Approval
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Content

Chapter One:

Introduction

  • 1.1 Background of the study
  • 1.2 Statement of the problem
  • 1.3 Purpose of study
  • 1.4 Significance of the study
  • 1.5 Scope and delimitation
  • 1.6 Definition of terms

Chapter Two:

Review Of Related Literature

  • 2.1 Taxation theory
  • 2.2 The objectives and importance of taxation and economic policy.
  • 2.3 Imposition of taxes and income chargeable under various tax laws and acts and the relevant tax authority.
  • 2.4 Ascertainment of income for tax purposes.
  • 2.5 Types and qualities of taxation.
  • 2.6 Tax effects on the economy.
  • 2.7 Tax effects on production and distribution.
  • 2.8 Tax effect on consumption and savings.
  • 2.9 Tax effects on investment and efficiency.
  • 2.10 Tax evasion and avoidance.
  • 2.11 Current charges in personal income taxation.

Chapter Three:

Research, Design And Methodology

  • 3.1 Research instruments.
  • 3.2 Sources of data.
  • 3.3 Sampling procedure.
  • 3.4 Statistical treatment
  • 3.5 Data analysis.

Chapter Four:

Presentation, Analysis And Interpretation Of Data.

  • 4.1 Data analysis, presentation and interpretation.
  • 4.2 Test of hypothesis.

Chapter Five:

Summary Of Findings, Conclusion And Recommendation.

  • 5.1 Summary of findings.
  • 5.2 Conclusion.
  • 5.3 Recommendation.
  • Bibliography
  • Appendices

Chapter One


Introduction

1.1 Background Of The Study

Taxation is the system of raising money in form of taxes paid by the citizens of the country in return for the services rendered by the government.

It could be recalled that taxation is instituted by God, this is traced back to “Mattew chapter 22 vs. 17-21”, when the Pharisees asked Jesus whether it is lawful to pay taxes or not. The Pharisees were later told render therefore to Caesars the things that are Caesar’s and to God the things that are to God.

According to Lekan .S. etal (2006), tax was described and not defined in the statues, but according to Cambridge international dictionary of English, it is “an amount of money paid to the government usually a percentage (%) of personal income or company profits”.

According to Okpe I.I (2000) tax is the transfer of resources and income from the private sector to the public sector in order to achieve some of the nation’s economic and social goals.

Taxation is universally accepted as a powerful tool in the hands of any government to raise income for its services and to ensure equitable distribution of income among its citizens.

Therefore, in every modern communities, a large amount of taxation is necessary for a public expenditure increases to promote social progress, taxation which is the main sources of funds also increases.

The present tax laws in Nigeria emanated from the Raismais commission in 1957. Before this time we only had what was called the income tax ordinance for the colonies and which was rather common in all the colonies and the provisions were very similar. Raim’s recommendation was the basis of provision in the Nigerian constitution order council of 1960 section 70(1) which conferred an exclusive power upon the parliament to make laws for Nigeria or any part thereof with certain uniform principles in respect of personnel income tax.

During 1963 when Nigeria became a republic, the mid-western region was created out of the western region and they adopted the western region tax law accordingly with the amendments, the position under the republican constitution of 1963 and that the regions (now divided into states) assumed jurisdiction over the income tax of person other than companies. While the federal government assumed jurisdiction over the taxation of companies, the uniform principles under the income tax management act and the regional taxes in the federal territory of Lagos.

Thus, after the creation of former 12 states in 27th may 1967, the state assumed the tax laws of the regions in which they were before the creation of such states. The uniform principle covered by the income tax management act of 1961 were as follows:

  1. Specifies what income are exempted from tax.
  2. What constitute income for tax purposes.
  3. Upholds residence on the basis for taxation or in the alternative, the principal place of business.
  4. And recently prescribed the rates of tax and personal reliefs.

1.2: Statement Of The Problem

There is high incidence of tax evasion and avoidance by tax payers. This may affect the amount of revenue collectible by the government for the running of administration.

Furthermore, it is hoped that people were wrongly assessed and the assessment sometimes result to regressive taxation.


1.3 Purpose Of The Study

The purpose of this study include the following:

  1. To examine the causes and reasons for high tax evasion and avoidance.
  2. To generate revenue to help the government to finance ever-increasing public sector expenditure.
  3. To promote social, economic, and good governance through provision of merit goods.
  4. To examine the effect on economy, the high incidence of tax evasion and avoidance.
  5. To examine people’s perception on taxation.

1.4 Significance Of The Study

The topic “taxation and its effects of the Nigerian economy”, will educate the entire public on how the federation could encourage economic development and also how a reduced tax could promote the standard of living of the tax payer and increases his capital formation and investment thereby, resulting in a higher gross National Product(GNP) of the economy(country) and also promote the industrial development of the nation and Enugu state in particular.

The study will be of immense benefit to the following group of persons.

  1. Government of the federation of Nigeria, especially the Enugu State Government.
  2. The business community for the purpose of companies income tax.
  3. The tax experts especially the practicing professional accountants.
  4. Enugu state university community.
  5. The Nigerian Institute of Management and Nigerian Statisticians.
  6. The economist and financial analysts or capitalist.
  7. The students of Accountancy profession and other allied professions.
  8. The tax-payers, especially the employers of labour and the employees of various organisations.
  9. Tax researchers.

1.5 Scope And Delimitation.

This topic, taxation and its effect on the Nigerian economy(A case study of Enugu state tax system and economy) should have been expected to cover all the 36 states of the federation and Abuja and the entire economy but the writer intends to limit this topic to only Enugu state due to financial handicap, distance and time constraints.

Therefore, since the same tax Acts are applied throughout the federation Republic of Nigeria, the study of Enugu tax system and economy shall be deemed to serve other states of the federation. Thus, the writer will rely heavily on the board of internal Revenue and state ministry of finance and Economy planning since they have adequate information and data on the government of Enugu state of Nigeria, thereby covering all the local government areas of the state.

Since there are often changes in the tax laws of Acts both at the state and federal level of government, the writer may wish to visit the chief inspector of taxes of some urban and rural local government areas in the state in other to confirm the information or data so collected from the Board of Internal Revenue and the state Ministry of Finance and Economy Planning.


1.6 Definition Of Terms.

I.T.M.A:

Income tax management Act of 1961, which deals with chargeable income and how they are administered.

C.I.T.A:

Companies income tax Acts of 1979 which deals with profit chargeable in respects to companies.

P.I.T.D:

Personal income tax degree/Act of 1993 as amended deals with profit chargeable in respect of individuals.

Hypothesis:

It is an idea or suggestion put forward for reasoning or explanation .subject to confirmation or rejection.

Law Of Territory:

This means any enforce in a particular territory example, state, or country.

Methodology:

It is the science or study of methods or ways to be adopted in a given direction.

Tax Evasion:

This means trying to escape tax liability by an individual.

Direct Taxes:

This means that taxes are levied on income and property of individuals or group of individuals who bears their full burden.

Indirect Taxes:

These are the taxes levied on goods and services and are paid by individuals by virtue of their associating with the goods and services.

Earned Income:

It is the income which the tax payer actually earned, which may require mental and physical exercise such as salaries, wages, e t c.

Unearned Income:

This income accrue whether or not the tax payer is there or not, example, rent, interest, royalties, and dividends.

Other Incomes:

It is the income which comes once in a while and they are not regular, thereby undetermined example, gift of windfall income, lottery winnings e t c


Chapter Five


Summary of Findings, Conclusion and Recommendation

5.1 Summary of Findings

In summary of this work, taxation and its effect in the Nigeria economy, there should be adaptation of tax systems to the needs of the country and there should be need to adapt this systems and policies to the stages of economic development and the existing institutional setting of the country. How extent should taxation be carried and how great use should be made of particular taxes can only be decided by consideration of the maximum social advantage to be derived.

The following are some of the findings.

  1. Based on hypothesis, deficiencies contribute to fraud and dishonesty in tax assessment and collection (table 30).
  2. Some well known businessmen with lots of properties dodge being adeguately assessed through refusing to consult accountant to audit their books, some of them convert their private property to business property, theirby saying that their property has been transfered to their limited liability companies, whereas they are still earning the income from such property.
  3. The owners of the property refuse to disclose their ownership, some of them recruit tenants into their house without completing the certificate of occupancy requirement, resulting to the tax authorities not knowing when the house are completed.
  4. The business executives who incorporate their companies do so to avoid paying tax to the Board Inland Revenue. They tag their salaries to a very small amount which is not really the income they consume having regards to their lifestyle.
  5. Some people who are involved in tax evasion and avidance points some fake identify cards as a civil servant so that when the tax collectors come in contact with them, they will believe that their tax have been deducted from their salary.
  6. Some of the tax agents appointed may hide their relatives and prevent them from paying the adequate tax during revision of the norminal roll.
  7. g) There is the need to adopt the tax system and policies to the stages of economic development and the existing institutional setting of the country.
  8. There is no limit to increase of taxation in general provided that the loss from such an increase is not greater than the gain from the corresponding increase of public expenditure.
  9. It is discovered that the problems encountered by the tax officials in meeting their tax obligation are lack of facilities, insufficient trained officers, lack of good roads to the rural areas, and lack of good respondent from the tax payer.

5.2 Conclusion

Tax has been defined simply as a compulsory contribution to the public authority to meet the expense of government and the provision of general benefits of the citizens of the country. Therefore, it must be distinquished from other fees, which is payment for a specific service. This is unavoidable and must be paid since it is imposed by the state on her citizens.

Thus, having conducted a thorough research on taxation and its effects on the Nigerian Economy with a particular reference to the Board of Inland Revenue Enugu State, the researcher has to draw a conclusion of the findings.

The researcher found out that it has both negative and positive effect which has been fully discussed in chapter two.

To this end, the project writer made a number of recommendations to rectify the situation, if fully implemented.

Conclusively, the labour and benefits of this research will only yield fruit. If there is a means of alerting the government of Enugu State to upheld the Adams Smith Cannons of taxation at all times and subsequent realisation of an improved tax assessment, introducing suggested tax laws, collection and accounting system, if the taxation in Enugu State tax system in particular and Nigeria must survive the test of time.


5.3 Recommendation

Since we have examined the effects and problems of taxation in chapter two, the researcher of this work wish to recommend the following points which he feels will help in the development of the Nigerian taxation system and its economy in order to reflect to the increase in standard of living and economic development.

  1. Government should consolidate on the existing tax laws, review and up-date them to reflect the present circumstances to arrest the rapid tax evasion and aviodance in the country, just like the current review of the 1996 tax law. In addition Enugu State tax system should include road and radio tax. Thus the state government should promulgate traffic and entertainment tax laws,” if not yet in existence to take care of roads and vehicle radio taxes. This will help the government to recover more revenue from those who evade tax especially the wealthy class of indivduals.
  2. Government should introduce “undeveloped land tax in accordance with the land use decree of 1978 which empowers all the state government to hold intrust all land in that state. with this view any undeveloped land in the urban area is to be taxed, this will encourage the owners (s) to develop them thereby increasing investment opportunities for the citizen of the country and as well improve the standard of living and economic development.
  3. Operation show your tax clearance certificate should be introduced by the government and carried about whole travelling on the public roads, in hospitals both private and public.
  4. Government should allocate more money to the Board of Internal Revenue for training of their officers and recruit more workers and tax agents and set up at least one tax office in all the communites in Enugu State, since the sucessor failure of any tax law in Enugu State depends on them. The Board of Inland Revenue should set up special task force on tax collection in all the local governments of Enugu State to check tax avoidance and tax evasion in the state.
  5. The tax executives should allocate their agents to a place where they have no relative or allocate three agents from different places at the same time so that sufficient tax should be collected.
  6. Government should re-examine the four cannons of taxation of Adam Smith which includes equality, convenience, certainty and economy, to ensure its conformity in Enugu State tax system.
  7. Government should organise seminars aimed at educating the public on importance of paying taxes and as well provide adequate social amenities such as good roads, hospitals, pipe born water, electricity etc and bring it to the notice of the public, so that they should see the need of paying taxes and realise that without these taxes all this infrastructure cannot be provided.
  8. Government should above all justifies all these taxes by increasing their expenditure to benefit the masses also ensures that the current directorate of food, roads and rural infrastructure popularly known as DFRRI is intensified in every part of Enugu State. This will reflect the three sector model economy of consumption, investment and government expenditure.

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