Abstract
This research presents the impacts of taxation as an aid to economic development in Nigeria. Oredo LGA was used as the location for the study and a total of 40 staffs of the FIRS office in Benin City was sampled. Data was gathered using a self -constructed questionnaire and the result gotten was analyzed using the simple percentage method. The validity and reliability of instrument were ascertained. The result of the study revealed that taxation is one of the most powerful ways of generation revenues for the growth and development of Nigeria and also there are some challenges identified that serve as an impediment to growth and development of the State and Nigeria therefore the study recommended that tax administrative loopholes should be plugged for tax revenue to contribute immensely to the development of the economy since past value added tax and custom and excise duty had a significant impact on economic growth.
TABLE OF CONTENTS
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.3 OBJECTIVES OF THE STUDY
1.4 RESEARCH QUESTIONS
1.5 SIGNIFICANCE OF THE STUDY
1.6 SCOPE OF THE STUDY
1.7 METHODOLOGY
1.8 DELIMITATION OF THE STUDY
1.9 DEFINITION OF TERMS
CHAPTER TWO
2.0 LITERATURE REVIEW
CHAPTER THREE
3.0 RESEARCH METHODOLOGY
3.1 RESEARCH DESIGN
3.2 AREA OF STUDY
3.3 POPULATION OF THE STUDY
3.4 RESEARCH SAMPLE AND SAMPLING TECHNIQUE
3.5 INSTRUMENT FOR DATA COLLECTION
3.6 VALIDITY OF THE INSTRUMENT
3.7 METHOD OF DATA COLLECTION
3.8 METHOD OF DATA ANALYSIS
CHAPTER FOUR
4.0 DATA ANALYSIS AND PRESENTATION
CHAPTER FIVE
5.0 SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 SUMMARY
5.2 CONCLUSION
5.3 RECOMMENDATIONS
REFRENCE
APPENDIX
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
In every economy, revenue mobilization and allocation is an essential pre-requisite of the development process. All the three tiers of government (Federal, State and Local Government) need to plan for the future. They need an instrument like taxes that will assist them generate revenue to finance developmental activities such as provision of education, roads, pipe borne water, good health etc.
The Institute of Chartered Accountant of Nigeria (2006) and the Chartered Institute of Taxation of Nigeria (2002) defined tax as an enforced contribution of money to government pursuant to a defined authorized legislation. In other words, every tax must be based on a valid statute. Without a valid statute no legitimate tax can be imposed. The income tax is levied on incomes such as salaries, business profits, interest, dividends, commissions, royalties and rent. It may also be charged on capital gains and petroleum profits. Taxation yields very substantial revenue to government. Therefore, it has a bearing on the Gross Domestic Product (GDP) which is the standard indicator for measuring the economic wellbeing of a nation. The nature and level of taxes vary according to the economic policies adopted by the government of the day.
A tax is also defined by Ewa and Agu, (2008) as “a compulsory payment made by each eligible citizen towards the expenditure of the state”. Tax revenue is one of the most productive source of revenue, hence most government rely on it solely as the main source of revenue accumulation. A tax is levied by government without regard to the specific personal benefits that individual taxpayers may receive from taxes they have paid.
In Nigeria tax is levied on the authority of the Federal Government Income Tax Management Act 1961 and subsequent amendments including- The Finance (miscellaneous Taxation Provision) Decree 1992 and Finance (miscellaneous) Decree 1997 and1998. Recently the Nigerian government undertook various tax law reforms to improve tax administration and to increase tax yield. The Value Added Tax (Amendment) Act, 2007, was for instance intended to widen the value added tax base and improve machinery for its collection. Similarly the Company’s Income Tax (Amendment) Act 2007; the Federal Inland Revenue Services (Establishment) Act, 2007 and The Personal Income Tax (Amendment) Act 2011, were all aimed at encouraging tax compliance and increasing tax yield (Aguolu, 2010).
Also Olaoye (2009) defines tax as a means by which Government appropriate part of the private sectors income. Deduced from the above definition, tax helps government in redistribution of income amongst the populace through provision of social and economic services. Tax occupies a unique position because it is an important part of Government policies. The ability of a government to generate revenue from this sector affects services offered by such a Government. A means of improving internally generated revenue is through effective tax collection in the economy.
However, the free online dictionary defined taxation as the act or practice of imposing taxes on subjects or members of the state by the government. The primary purpose of taxation is to raise revenue for the government. In modern times, taxation does more than raising revenue for the government; the government uses taxation to promote economic and social activities too. Revenue derived from tax if properly accounted for can help in carrying out developmental projects such as provision of social amenities which can help to eradicate poverty to the barest minimum and in turn help increase the standard of living of the citizenry. Government can also encourage economic growth by pursuing generous investment policies through granting of some industries tax concessions, or impose protective tariffs to discourage imports and encourage the production and purchase of home-made goods.
In countries with advanced tax system, the essence of income tax is hardly debatable. The greater the percentages of taxable adults pay their taxes voluntarily and the government also plays her role of providing social amenities with the taxable revenues. Speaking with reference to American Tax system, Otto (2006) observed that, in many advanced economics like United States, China etc, serious development has been recorded as a result of appropriate tax administration.
The Central Bank of Nigeria’s annual report of 2011 shows that, total Federal tax collected revenue rose by 52.2 percent to N11, 116.9 billion in 2011 and constituted 31.4 percent of GDP. Gross revenue from non-oil sources increased by 17.3 percent to N 2,237.9 billion representing 20.1 percent of the total or 6.3 percent of GDP. A breakdown indicated that value added tax (VAT) rose by 15.4 percent to N649.5 billion, while corporate tax (CT) and custom/excise duties rose by 6.6 and 41.8 percent to N700.5 billion and N438.3 billion, respectively. The independent Revenue of the Federal Government and custom levies also grew by 18.8 and 51.6 percent, to N182.5 billion and N156.8 billion respectively. In the same vein, the Federal Inland Revenue Services (FIRS) reported that, receipts from petroleum profit tax (PPT) and royalties increased by 104.5 percent to N3, 976.3 billion, while revenue from domestic crude oil sales rose by 49.4 percent to N2608.8 billion.
Despite this significant increase in tax revenue, unemployment is still at the high rate, Nigerians are still suffering from poor education facilities, bad roads, poor pipe borne water, poor health facilities etc. it is in the regard of the above that, a study of the impact of taxation as an aid to economic development in Nigeria is being carried out with the hope of ascertaining its viability as tool for enhancing economic development of Nigeria.
1.2 Statement of the Problem
Taxation has been a very important tool for economic development of Nigeria. Tax revenue is one of the most productive sources of revenue, hence most government depend solely on it as the main source of revenue accumulation. Thus, there are various tax policies instituted by several governments of Nigeria to enable appropriate applicability of taxes thereby enhancing economic development and stabilization.
The Federal Inland Revenue Service (FIRS) report shows that, receipts from petroleum profit tax (PPT) and royalties increased by 104.5 percent to N3, 976.3 billion. The Central Bank of Nigeria’s annual report of 2011 also shows that, total Federally-tax collected revenue rose by 52.2 percent to N11, 116.9 billion in 2011 and constituted 31.4 percent of GDP.
Tax revenues are used by the states to support certain state obligations such as education systems, health care systems, and pensions for the elderly and retirees, unemployment benefits and public transportation etc. which in turn pave way for economic development of the country. Is the economic development commensurate to the tax revenue collected? Nigerians are still suffering from poor educational facilities, bad roads, poor pipe borne water supply, and poor health facilities etc. Unemployment is still at its high pace, no industries to absorb the teeming youth.
However, applicability of tax policies, administration, and judicious use of tax revenue is a thing of worry to the researcher. Is there any correlation between tax policies instituted by various government tax revenues and economic development? This study however will investigates the impact of taxation on Nigeria economic development.
1.3 Objectives of the Study
The main objective of this research work is to investigate the contributions of taxation to the economic development of Nigeria. Specifically the study intends to investigate the extent to which petroleum profit tax (PPT) impacts on the gross domestic product (GDP).
1. To find out the impact of taxation on economic development in Nigeria
2. To investigate the tax factors hindering economic development in Nigeria
3. To find out the challenges of taxation
4. Proffer solution the challenges of taxation in Nigeria
1.4 Research Question
1. What is the impact of taxation on economic development in Nigeria?
2. What are the tax factors hindering economic development in Nigeria?
3. What are the challenges of taxation in Nigeria
1.5 SIGNIFICANCE OF THE STUDY
This study would be significant to several stakeholders:
To scholars and academicians, this study would increase body of knowledge to the scholars in the area of government revenue and economic development. It would also suggest areas for further research so that future scholars can pick up these areas and study further. The study would be important to the government especially the Ministry of Finance for making policy decisions whose overall objectives is to influence the level of economic activity and Government revenue in line with the expanding Government budget. Finally, the findings of this study would be important to policy makers especially on matters concerning taxation and budgeting so as to have manageable budgetary deficits.