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.
1.6 SCOPE
OF THE STUDY
This
research work covers Nigeria as a whole, the problems, effect and the role of
Revenue mobilization on economic growth and development will be deeply
investigated on in this research. This research will be conducted in Oredo LGA
in Edo state.
1.7 DELIMITATION
OF THE STUDY
However,
in the course of carrying out this research work, the researcher can foresee
some limitations which include; insufficient financing, insufficient data for
the research work and the time required for the project to be concluded.
1.8 METHODOLOGY
This
study is basically on the role of revenue mobilization on economic growth and
development in Nigeria. The study therefore adopts one of the traditional
methods of gathering information, i.e. the secondary and primary sources. A
sizeable percentage of secondary sources that is used came from published and
unpublished works which include materials extracted from: Archives, Newspapers,
discussions, Conference papers, Magazines, Internets, Books, and Articles in
journals e.t.c.