1.1 Introduction
Taxation is defined as the process by which a government imposes financial charges or levies on individuals, businesses, and other legal entities to generate revenue used for public expenditure (Adebisi & Gbegi, 2018). It is a fundamental instrument of fiscal policy through which governments mobilize resources to finance socio-economic development and maintain public services. In most economies, taxation is considered the most sustainable and reliable source of government revenue for funding national development projects, including the provision of infrastructure, health services, education, and security (Olaoye & Afolabi, 2020).
The effectiveness of taxation is largely determined by the government's ability to collect taxes efficiently and utilize the revenue for the welfare of citizens. Infrastructure, which encompasses transportation systems, electricity, water supply, telecommunication, and public facilities, is one of the major areas where tax revenue is expected to have a visible impact (Okon & Edet, 2021).
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, limitation of the study and definition of terms.
1.2 Background of Study
Historically, taxation as a tool for financing government activities dates back to ancient civilizations where rulers levied taxes on citizens and traders to fund public projects, wars, and administrative expenses. According to Adebisi and Gbegi (2018), the concept of taxation evolved from early systems of tribute collection, where subjects offered portions of their produce or income to support communal needs and royal authorities. Over time, as societies became more organized and economies diversified, taxation developed into a structured fiscal system managed by the state to provide public goods and sustain economic stability.
In the context of modern governance, taxation has remained a major source of government revenue and a critical mechanism for promoting infrastructural development. Olaoye and Afolabi (2020) stated that the industrial revolution in Europe marked a turning point in the evolution of taxation, as governments began to rely more on taxes to finance large-scale public works such as railways, bridges, ports, and roads. They affirmed that efficient tax administration and accountability mechanisms during this period contributed significantly to the economic transformation of developed nations (Olaoye and Afolabi, 2020).
Taxation plays a central role in the economic development of every nation as it serves as the primary means through which governments generate revenue to finance public goods and services. According to Adebisi and Gbegi (2018), taxation is a compulsory levy imposed by the government on individuals and corporate entities to fund public expenditures and promote social welfare. They asserted that tax revenue remains a key instrument for resource mobilization, redistribution of income, and economic stabilization. Similarly, Olaoye and Afolabi (2020) affirmed that taxation is a vital component of fiscal policy that enables the government to achieve sustainable development, particularly through investment in infrastructure and public utilities.
Adesola and Oboh (2019) reported that the quality and availability of infrastructure such as transportation networks, power supply, education facilities, and healthcare systems are strong indicators of a country's level of development. They further contended that governments rely heavily on tax revenue to provide and maintain these infrastructures. In developed nations, efficient tax systems have been instrumental in funding long-term infrastructure projects, thereby creating conducive environments for industrialization and innovation. However, the situation in many developing countries, including Nigeria, presents a contrasting picture. Ekeocha (2017) stated that despite the various forms of taxes collected by the Nigerian government, such as company income tax, petroleum profit tax, and value-added tax, the country continues to face a serious infrastructure deficit. The poor state of roads, inadequate electricity supply, and insufficient water and sanitation systems have hindered economic progress and reduced the quality of life for many citizens.
Okon and Edet (2021) contended that this persistent infrastructural decay raises questions about the effectiveness of taxation as a tool for national development. In addition, the challenges of tax evasion, corruption, weak institutional capacity, and lack of transparency in public finance management have contributed to the inefficiency of tax systems. Olaoye and Afolabi (2020) reported that a significant portion of tax revenue is often mismanaged or diverted from its intended purpose, making it difficult for the government to deliver tangible infrastructural outcomes.
Adesola and Oboh (2019) asserted that these issues have weakened public confidence in the government's ability to utilize tax funds effectively, leading to low tax compliance and a reduced revenue base. On the other hand, Adebisi and Gbegi (2018) affirmed that if properly harnessed, taxation remains one of the most sustainable and equitable means of financing infrastructure and promoting inclusive growth. Strengthening tax administration, ensuring transparency in the allocation of funds, and promoting fiscal accountability are essential to improving the effectiveness of taxation in achieving infrastructural development. Okon and Edet (2021) stated that citizens' trust in government institutions can be enhanced when tax revenues are visibly translated into quality public services and infrastructure that benefit society as a whole. This study is set against the backdrop of evaluating how effective taxation is in supporting government provision for infrastructure.
1.3 Statement of Problems
Investigation revealed that government relies heavily on taxes to finance projects such as roads, electricity, water supply, and public buildings. Yet, despite the wide range of taxes collected ranging from income tax, value-added tax, and company tax to petroleum profit tax there is still an observable inadequacy in the quality and availability of public infrastructure (Adesola & Oboh, 2019). Also, mismanagement of public funds, corruption, and poor tax administration have created gaps between tax collection and tangible infrastructural outcomes. As a result, taxpayers often feel disconnected from the benefits of their contributions to the national treasury.
On the other hand, some argue that the problem does not lie entirely in taxation itself but in the efficiency of how tax revenues are allocated and managed (Ekeocha, 2017). Poor accountability, weak institutional frameworks, and lack of transparency in public expenditure have limited the impact of taxation on infrastructure provision. In addition, tax evasion and avoidance practices by individuals and corporate entities continue to reduce the volume of revenue available to the government.
Furthermore, the complexity of the tax system, coupled with low public awareness and limited trust in government institutions, has contributed to low tax compliance rates. Citizens often question why they should fulfill their tax obligations when they cannot visibly identify improvements in their living conditions or infrastructural facilities (Okon & Edet, 2021). The resulting cycle of distrust and inefficiency has perpetuated underdevelopment and widened the gap between revenue potential and actual development outcomes. It is against this backdrop that this study seeks to examine the effectiveness of taxation on government provision for infrastructure.
1.4 Aim and Objectives of Study
The main aim of this study is to assess the effectiveness of taxation on government provision for infrastructure in Nigeria.
The specific objectives are to:
- Evaluate the extent to which tax revenue contributes to infrastructural development in Nigeria.
- Identify the existing problems in the tax system affecting the government's ability to provide adequate infrastructure.
- Examine the level of accountability and transparency in the use of tax revenue for infrastructural projects.
- Determine how tax evasion and avoidance impact government revenue and infrastructure delivery.
- Recommend strategies to improve the efficiency of taxation in promoting infrastructural development.
1.5 Research Questions
Based on the stated objectives, the following research questions will guide the research study:
- To what extent does tax revenue contribute to infrastructural development in Nigeria?
- What are the existing problems in the tax system that affect government provision of infrastructure?
- How transparent and accountable is the government in utilizing tax revenue for infrastructural projects?
- What impact do tax evasion and avoidance have on the availability of funds for infrastructure development?
- What strategies will improve the effectiveness of taxation in financing infrastructure in Nigeria?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: There is no significant relationship between tax revenue and infrastructural development in Nigeria.
- H1: There is a significant relationship between tax revenue and infrastructural development in Nigeria.
Hypothesis Two
- H0: Inefficiencies in tax administration do not significantly affect the government's ability to provide adequate infrastructure.
- H1: Inefficiencies in tax administration significantly affect the government's ability to provide adequate infrastructure.
Hypothesis Three
- H0: Transparency and accountability in tax utilization have no significant effect on infrastructural development.
- H1: Transparency and accountability in tax utilization have a significant effect on infrastructural development.
1.7 Significance of Study
It is believed that at the completion of the study, the findings will contribute to policy formulation aimed at reducing inefficiencies and ensuring that tax revenues are judiciously used for national development. In addition, the study will offer data-driven evidence to inform decisions on tax reforms and infrastructural planning.
Furthermore, the findings will help the government design more effective fiscal policies and strengthen accountability in the use of tax revenue for infrastructure. It also will serve as a valuable reference for future studies on taxation, fiscal policy, and development economics.
Lastly, the study will serve as an academic contribution for future researchers interested in taxation and infrastructure financing in Nigeria.
1.8 Scope of Study
The scope of this research will be limited to Lagos State, Nigeria, examining the effectiveness of taxation in supporting infrastructure development within the state.
The research will also focus on the activities of FIRS and LIRS as key institutions responsible for tax collection.
1.9 Limitations of the Study
During the course of this study, there were some problems encountered which stood as limitations to the research work. Some of the limitations include:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
- Initial Cooperation Delay from Respondents: A particular limitation of this work came as a result of the respondent refusal to offer their cooperation at the initial time they were contacted. This contributed in making the success of this research study difficult.
1.10 Definition of Terms
Taxation:
Taxation refers to the compulsory financial charges imposed by a government on individuals and organizations to raise revenue for public expenditure (Adebisi & Gbegi, 2018).
Infrastructure:
Infrastructure encompasses physical and organizational structures such as roads, electricity, water supply, schools, and hospitals necessary for economic growth and public welfare (Adesola & Oboh, 2019).
Tax Revenue:
Tax revenue is the income a government generates from various taxes such as income tax, value-added tax, and company tax used to fund public services and infrastructure (Olaoye & Afolabi, 2020).
Tax Evasion:
Tax evasion is the illegal act of deliberately avoiding paying due taxes through concealment or misrepresentation of income (Ekeocha, 2017).
Fiscal Policy:
Fiscal policy refers to government actions involving taxation and public expenditure to influence economic activity and achieve developmental goals (Okon & Edet, 2021).
Tax Administration:
Tax administration involves the implementation, collection, and enforcement of tax laws by relevant authorities to ensure effective revenue generation (Olaoye & Afolabi, 2020).
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