1.0 Introduction
1.1 Background of Study
Tax is a major player in every society of the world. The tax system is an opportunity for government to collect additional revenue needed in discharging its pressing obligations. A tax system offers itself as one of the most effective means of mobilizing a nation's internal resources and it lends itself to creating an environment conducive to the promotion of economic growth. Nzotta (2007) argues that taxes constitute key sources of revenue to the federation account shared by the federal, state and local governments. This is why Odusola (2006) stated that in Nigeria, the government's fiscal power is divided into three-tiered tax structure between the federal, state and local governments, each of which has different tax jurisdictions. The system is lopsided and dominated by oil revenue (Azubike, 2009).
One of the major functions of any government especially developing countries such as Nigeria is the provision of infrastructural services such as electricity, pipe-borne water, hospitals, schools, good roads and as well as ensure a rise in per capital income, poverty alleviation, maximize the utility of its citizens, improve their standard of living and so on. For these services to be adequately provided, government should have enough revenue put in place to finance them. The task of financing these enormous responsibilities is one of the major problems facing the government of which it is of great necessity for these services to be provided to citizens of a state. Based on the limited resources of government, there is need to carry the governed (citizens) along via the imposition of tax on all taxable individuals and companies to augment government financial position. To this end, government have enacted various tax laws and reformed existing ones to stand the taste of time. They include: Federal Inland Revenue Service (FIRS), State board of internal revenue, Income Tax Management Act (ITMA), Companies Income Tax Decree (CIID), Joint Tax Board (JIB) etc.
All these are aimed at ensuring adherence to tax payment and discouraging tax evasion and avoidance by citizens. For the purpose of this study, the researcher would be concerned with the Impact of Taxation on Nigeria Economy Growth. The challenge of Taxation on Economic Development in Nigeria identified according to Oyedele (2011) that the mark-to-market (MTM) or Fair Value Accounting (FVA) of the financial instrument upon adoption of International Financial Reporting Standards (IFRS) would create significant swings in earnings and capital. By extension, it will affect taxable profit been reported by some management of organizations that use discretion in managing profit and tax, companies shelter their taxes at the detriment of tax authority duty of collecting taxes, due to the government.
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Impact of Taxation on Nigeria Economy Growth.
1.2 Statement of Problem
Investigation reveals the challenges of Taxation on Economic Development in Nigeria identified according to Oyedele (2011) that the mark-to-market (MTM) or Fair Value Accounting (FVA) of the financial instrument upon adoption of International Financial Reporting Standards (IFRS) would create significant swings in earnings and capital. By extension, it will affect taxable profit been reported by some management of organizations that use discretion in managing profit and tax, companies shelter their taxes at the detriment of tax authority duty of collecting taxes, due to the government.
Obviously, the first need of any modern government is to generate enough revenue which is indeed “the breath of its nostril”. Thus taxation is by far the most significant source of revenue for the government. Nigerians regard payment of tax as a means whereby government raises revenue on herself at the expense of their sweat.
1.3 Aim and Objectives of Study
The aim of the study is to examine the Impact of Taxation on Nigeria Economy Growth. In achieving this aim, the following specific objectives were laid out as follows:
- To examine the extent government has been using revenue generated by tax;
- To determine the reaction of people towards tax payment;
- To find out if tax revenue is the most effective source of government revenue;
- To find out the most significant effect of taxation; and
- To examine how tax rate affects the rate of inflation, unemployment and Gross National Product (GNP).
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 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 significant effects of taxation on the growth of Nigeria economy?
- Does tax revenue have any significant impact on GDP, inflation and unemployment?
- Is tax the most effective source of revenue to the government?
- How do people react towards tax payment?
- To what extent has government been using tax generated revenue?
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:
- Know the roles taxation play in the Nigerian economy.
- Ascertain how government has been using tax generated revenue.
- 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.
1.7 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.
1.8 Assumptions of the Study
The researchers in carrying out this study will make the following assumptions:
- That the data that will be used are true and fair figures actually collected by the Federal Government each year of assessment.
- That the data will be authentic and can be relied on for further research work on the topic.
- That the data is going to form the basis of the research work.
1.9 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 One
- The null hypothesis (H0): 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 Two
- The Null Hypothesis (H0): Taxation has no significant impact on GDP, Inflation and Unemployment.
- The Alternative Hypothesis (H1): Taxation has a significant impact on GDP, Inflation and Unemployment.
Hypothesis Three
- The Null Hypothesis (H0): Revenue generated from tax is so meager compared to revenue from other sources as such, government can do without tax.
- The Alternative Hypothesis (H1): Revenue generated from tax is a major source of government revenue and as such government cannot do without tax.
1.10 Definition of Terms
Tax:
It is 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):
It 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):
It is a multistage tax levied and collected on transactions at all stages of sales and distribution.
CGTA (Capital Gain Tax Act):
It 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):
It is an act that regulates the petroleum profit tax and also specifies how profit from petroleum will be taxed.
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