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THE IMPACT
OF TAXATION ON ECONOMIC GROWTH IN NIGERIA (1986-2011)
ABSTRACT
The research
work will discuss in detail the impact of taxation on Economic growth in
Nigeria. It will also take cognizance of
the aims and objectives of taxation and its impact on the economic growth of
Nigeria. It also aimed at identifying
problems that inhibit the efficient and effective administration of the Nigeria
tax’s system. In evaluating this, the
researcher adopted econometrics by applying Ordinary Least Square (OLS)
techniques. It was found out that interest rate has no significant effects on
taxation in Nigeria economy for the said period. Hence, the researcher concludes that interest
variation has not really effected investment growth in Nigeria. I recommended
that the government should put more emphasize on the aspects of taxation since
the main source of development.
TABLE OF
CONTENTS
CHAPTER ONE
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 Research Hypotheses
1.6 Significance of the study
1.7 Assumptions of the study
1.8 Scope of the study
1.9 Limitations of the Study
1.10 Definition of Terms
References
CHAPTER TWO
Review of
related literature
2.1 Theoretical Framework
2.2 Empirical Literature
Reference
CHAPTER
THREE
RESEARCH
DESIGN AND METHODOLOGY
3.1 Research Methodology
3.2 Model Specification
3.3 Model Evaluation
3.4 Decision Rules
3.5 Data Required and Sources
Reference
CHAPTER FOUR
Presentation, analysis, and interpretation
4.1 Presentation, analysis, and
Interpretation
4.2 Evaluation of Hypothesis
4.3 Statistical Test of
Significance
4.4 Evaluation of the Working
Hypothesis
4.3 Policy Implementation of the Result
CHAPTER FIVE
5.1 Summary of finding
5.2 Summary of Findings
5.3 Conclusion s
5.4 Recommendations
5.5 Bibliography
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The
political, economic and social development of any country depends on the amount
of revenue generated for the provision of infrastructure in that given country.
However, one means of generating the amount of revenue for providing the needed
infrastructure is through a well structured tax system. According to Azubike
(2009), tax is a major player in every society of the world. The taxation is an
opportunity for government to collect additional revenue needed in discharging
its pressing obligations. A taxation 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. He further argues that over the past two decades oil revenue
has accounted for at least 70% of the revenue, thus indicating that traditional
tax revenue has never assumed a strong role in the country’s management of
fiscal policy. Instead of transforming the existing revenue base, fiscal
management has merely transited from one primary product-based revenue to
another, making the economy susceptible to fluctuations of the international
market.
However, 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 capita income, poverty alleviation to mention a few.
For these
services to be adequately provided, government should have enough revenue to
finance them. The task of financing
these enormous responsibilities is one of the major problems facing the
government. Based on the limited
resources of government, there is need to carry the citizens (governed) along
hence the imposition of tax on all taxable individuals and companies to augment
government financial position. To this
end, government have always enacted various tax laws and reformed existing ones
to stand the taste of time. They
include: 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. For the purpose of this
study, the researcher would be concerned with the impact of taxation as an aid
to the economic development of Enugu State (Nigeria).
1.2 Statement of the Problem
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.
It is good
to note that no tax succeeds without the taxpayer’s co-operation. Here, we can ask some thought-provoking
questions such as: what makes taxation such a difficult issue? Why do people feel cheated when it comes to
tax? Is government making judicious use
of taxpayer’s money? In view of these
questions above, this study is going to be carried out to offer solution to
them.
We shall
also look at the following issues and offer recommendations.
1. Problems affecting the successful
operation of tax system in Nigeria.
2. How to determine the Assessable income.
3. Process of tax administration in
Nigeria.
1.3 Objective of the Study:
The general
objective of the study is to assess the contribution of taxes towards the
growth of the Nigeria Economy.
However, the
specific objective of the study includes:
1. The evaluate the nature of relationship
that exist between taxation and economic growth in Nigeria.
2. To determine the extent government has
been using revenue generated from tax.
3. To examine how tax rate affects the rate
of investment in the economy.
5. To know general desirability of firms to
invest as a result of tax incentive measures.
Generally,
the 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
1. What the nature of relationship that exist
between taxation and economic growth.
2. Do you think that government having using
revenue generated from tax for economic growth.
3. Do tax rate affects the rate of investment
in the economy.
1.5 Formulation of Hypothesis:
To enable
the researcher test if there exist any correlation between revenue generated
from tax and its impact on Nigeria
economy, some statistical model
will be used based on the response from the secondary data obtains from Central
Bank of Nigeria annual statistical bulletin.
The Null
Hypothesis (Ho): Revenue generated from
tax does not make
any impact
on the economic development of Enugu State
The
Alternative Hypothesis (HA): Revenue
generated from tax has a
positive
impact on the economic development of Enugu State.
1.6 Assumptions of the Study
The
researcher in carrying out this study will make the following assumptions:
1. That the data that will be used are true
and fair figures of taxes actually collected by the Federal Government in each
year of assessment.
2. That the data will be authentic and can
be relied on for further research work on the topic.
3. That the data is going to form the basis
of the research work.
1.4 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 be
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 Nigeria
economy such roles includes:
1. Taxation is a major source of revenue to
the government.
2. Revenue generated from tax enables
government performs its functions effectively.
3. Taxation acts as an instrument of fiscal
policy.
4. The impact of tax on small business in
the state.
5. The study will in addition 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 economic
development. 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 Nigeria.
1.8 Definition of Terms:
Tax: A compulsory levy by the government
on its citizen for the provision of public goods and services.
Tax
Base: The object which is taxed for
instance personal income, company profit.
Tax
Rate: The rate at which tax is charged.
Tax
Incidence: It offers to the effect of
and where the burden 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 (CITA) 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 (JTB) is established
under Section 85(1) of Decree 104 of 1993 to arbitrate on tax disputes between
one state tax authority and another.
VAT: Value Added Tax is a multistage tax
levied and collected on transactions at all stages of sales and distribution.
CGTA: Capital Gain Tax Act is an act that
stipulates that all capital gains arising on disposal of asset of individual
partnership and limited companies should be taxed.
PPTA: Petroleum Profit Tax Act is an act that
regulates the petroleum profit tax and also specifies how profit from petroleum
will be taxed.
Withholding
Tax: This is tax charged on
investment income namely: rents, interest, royalties and dividends, presently
it is charged as the tax offset.
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