1.1 Introduction
Government revenue refers to the revenue received by a government to finance its operations and development projects. It is an important tool of the fiscal policy of the government as it facilitates government spending (OECD, 2008b). Governments need to perform various functions in the field of political, social and economic activities to maximize social and economic welfare. In order to perform these duties and functions government require large amount of resources. These resources are called Public Revenues. Public revenue consists of taxes, revenue from administrative activities like fines, fees, gifts and grants. The revenue mobilizing processes in terms of long-term impact on the economy of Greece and the euro zone.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
Revenue mobilization has been considered, as the first element of success in the 21st-century economy. The higher is the revenue of the government; then it will be convenient to create capital for the activities and additional expenditures against such a development process, which includes its infrastructure, health, and education. The primary objective of the tax system is to raise the revenue that will aid in offering the nation with valuable services to the citizens, developing the nation, encouraging innovations and trade. The strengthening of the revenue mobilization in the developing countries is advisable, as it helps to build better taxation. As most of the countries are arising from the economic crisis they require extra revenue from their taxation policies as well.
According to Popoola et al. (2018), to accomplish developing goals, domestic revenues are substantial, especially in low-income nations. There is a need for infrastructure in such countries and environmental challenges Most of the countries have enhanced their domestic revenue mobilization in order to strengthen their efforts and situations. The objective of the imposition was to compel the countries towards economic growth.
Public revenue can be classified into two types including: tax and non-tax revenue (Illyas and Siddiqi, 2010). Taxes are the first and foremost sources of public revenue. Taxes are compulsory payments to government without expecting direct benefit or return by the tax payer. Taxes collected by Government are used to provide common benefits to all mostly in form of public welfare services.
Taxes do not guarantee any direct benefit for person who pays the tax. It is not based on direct quid pro quo principle. The government collects tax revenue by way of direct & indirect taxes. Direct taxes includes; Corporate tax; personal income tax, capital gain tax and wealth tax. Indirect taxes include custom duty, central excise duty, Value Added Tax (VAT) and service tax (Chaudhry and Munir, 2010). Non tax revenue refers to the revenue obtained by the government from sources other than tax. These include fees, fines and penalties, surplus from public enterprises, special assessment of betterment levy, grants and gifts and deficit financing.
Fiscal policy aligning government revenue and expenditure is of crucial importance in promoting price stability and sustainable growth in output, income and employment which are important parameters of economic growth (Ahmed, 2010). It is one of the macroeconomic policy instruments that can be used to prevent or reduce short-run fluctuations in output, income and employment in order to move an economy to its potential level. However, for sound fiscal policy, a good understanding of the relationship between government revenue and economic growth of a nation is very important, for instance, in addressing government’s budgetary deficits. Government collects tax revenues, provides goods and services not produced by the private sector, engages in commercial-type activities, makes cash and in-kind transfers to families and businesses, and pays interest on its debts (Abiola and Asiweh, 2012).
All these activities require that government raise enough revenue. Governments raise revenue from different sources in order to undertake its development agendas (Ahmed, 2010). A country’s revenue structure determines who pays for public services and goods. By spreading revenues across different instruments, countries can distribute the burden across particular groups of citizens and sectors of the economy. In all OECD member countries, taxes other than social contributions represent the largest share of government revenues.
Revenue is defined as all amounts of money received by a government from external sources for example those originating from “outside the government” net of refunds and other correcting transactions, proceeds from issuance of debt, the sale of investments, agency or private trust transactions, and intergovernmental transfers ((Ahmed, 2010). Government Revenue comprises amounts received by all agencies, boards, commissions, or other organizations categorized as dependent on the government concerned. Stated in terms of the accounting procedures from which these data originate, revenue covers receipts from all accounting funds of a government, other than intra-governmental service (revolving), agency, and private trust funds (Chaudhry and Munir, 2010).
Ayres and Warr (2006) define economic as ‘a rise in the total output (goods or services) produced by a country’. It represents an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. Economic growth refers only to the quantity of goods and services produced. Economic growth can be measured in nominal terms including inflation, or in real terms, which are adjusted for inflation like by the percent rate of increase in the gross domestic product (GDP).
Economic growth measures growth in monetary terms and looks at no other aspects of development (Illyas and Siddiqi, 2010). Economic growth can be either positive or negative. Negative growth can be referred to by saying that the economy is shrinking. Negative growth is associated with economic recession and economic depression (King and Levine, 1993). Gross national product (GNP) is sometimes used as an alternative measure to gross domestic product. In order to compare multiple countries, the statistics may be quoted in a single currency, based on either prevailing exchange rates or purchasing power parity. Then, in order to compare countries of different population sizes, the per capita figure is quoted (Beck and Web, 2003).
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Role of Taxation in Revenue Generation and Economic Development in Nigeria.
1.3 Statement of Problems
Investigation revealed that the state of economic development of the society affects revenue collection provision of enhanced infrastructures enhance ability to pay as this, gets as impetus. There is evidence of dissatisfaction with poor conditions of services as well as working environment. There is lack of motivation as opportunities rarely exist for revenue collectors to reach the private of the state administrations.
Economies with large public sectors will grow slowly because of large tax wedges but a lack of growth-enhancing government initiatives may stymie growth in countries with very small governments (Barker, Buckle and St Clair, 2008). However, not all expenditure and methods of financing have the same impacts on economic growth. While economic research suggests that the cumulative effect of taxes on economic growth is moderate, recent research (OECD, 2008b) has suggested that there is a relationship between the types of taxes imposed and economic growth. Several research studies have been conducted on government revenue and economic development.
In Nigeria, people, especially the rich and the elites, deliberately dodge this civic responsibility of paying tax and sometimes employ the service of tax specialists in order to pay less tax to the government. There is also the problem of falsification of ages and the number of children and dependents one has in order to reduce the amount of tax payable. Emanating from these factors, the sub-national governments (state and local governments) contend that their currently assigned taxes are poor in terms of their bases and, therefore, accruable revenues are not enough to meet their expenditure targets. Also the statutory allocation from the federation account has been grossly inadequate as a result of a fall on gross domestic product.
1.4 Aim and Objectives of Study
The aim of the study is to examine the Role of Taxation in Revenue Generation and Economic Development in Nigeria. In achieving this aim, the following specific objectives were laid out as follows:
- To examine the roles or revenue generation in the economic growth and development in the area under study;
- To find out how revenue mobilization is used in budgeting realization in the area under study;
- To find out the problems confronting revenue mobilization and how to improve it;
- To find out how revenue collection could be used in the mobilization as an item aimed to budget realization; and
- To find out the sources of revenue generation to the federal, state and local government in the area under study.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Are there problems facing revenue generation in the state?
- Can revenue generation be used in budget realization?
- Can revenue allocation be used in budget realization?
- Does revenue generation influence economic growth in the state?
- How is revenue generation utilized in budgeting realization in the area under study?
- What are the roles or revenue generation in the economic growth and development in the area under study?
- What are the sources of revenue generation to the federal, state and local government in the area under study?
