CHAPTER ONE
1.0 INTRODUCTION
1.1 Background to the Study
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. 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).
1.2 STATEMENT
OF THE PROBLEM
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. This
invariably reduces their overall performance, considering their expenditure
profiles. Taiwo (2008) observed that the distribution of government revenue is
skewed in favor of one tax base or the other (eg oil revenue) in Nigeria.
Nevertheless, the overwhelming evidence of positive impact of oil revenue on
economic growth in Nigeria cannot be overemphasized (Odusola, 2006). However,
the first question is, are other forms of taxes not important for consideration?
Emanating from the above, there are some questions to ask: what relationship
exists between Nigeria’s tax revenue and her economic growth? And what is the
contribution from other tax base to the overall tax revenue of a nation
1.3 OBJECTIVE
OF THE STUDY
The
main objective of this study is to find out the role of revenue mobilization on
economic growth and development, specifically the study intends to:
1. Determine
the impact of tax on economic growth in Nigeria;
2. Investigate
the role of revenue mobilization on economic growth and development in Nigeria.
1.4 RESEARCH
QUESTIONS
The
following research questions are formulated to guide the study:
1. What
is the impact of taxation generation on Nigeria economic growth
2. What
is the role of revenue mobilization on
economic growth and development
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.
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 RESEARCH
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 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.