COMPANY INCOME TAX AND ECONOMIC DEVELOPMENT IN NIGERIA FROM 1981 to 2019
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Abstract
This study was set to investigate company income tax and economic development in Nigeria. Using a case study of selected oil companies in Etche Local Government Area of Rivers State. Company income tax have been major driver of economic development in many countries of the world. For instance, in Nigeria, the laws of the land stipulate the categories of taxes that are collectable by each of the three tiers of government. This is with a view to enhancing basic economic growth and development at all levels of government. Both primary and secondary data sources were utilized in this study. In this study various parameters were taken into account including; income tax revenue, total revenue and GDP of the country in the nominal and real value of the money. The study found out that there is a significant relationship between development and generated company income tax collected. Also, there is a significant effect of the high incidence of tax evasion and avoidance on economic development in Nigeria. It was concluded that company income tax revenue remains a strong socio-political and economic tool for economic growth and national development. The study recommends that government should endeavour to support companies by providing basic public amenities to all nooks and crannies of the country as this will boost the level of tax compliance in Nigeria.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The deployment of certain levies on companies is done by every government globally to generate funds needed to provide certain infrastructural and basic/social amenities that will meet the demands of her citizenry. Nigeria is not an exception, which is why the provision of basic infrastructures to her citizens has become one government’s primary task at all levels. To achieve this priority, the Nigeria government have been saddled with the responsibility of generating revenue in a bid to execute such tasks as infrastructural development, provision of social goods and services, maintenance of law and order amongst others. In view of this, taxation remains an essential means through which governments generate the needed revenue to meet her financial demands and execute other functions (Azubike, 2009; Edame, 2011).
Experts and prior extant studies have it that tax is a mandatory levy charged by the government of a country, state, local council, municipal or jurisdiction on the income and properties of the citizens and corporate bodies in order to generate sufficient revenue that will finance the creation of infrastructures, provision of social services and support the improvement of the entire economy (Worlu and Emeka, 2012; Abata, 2014; Adudu and Ojonye, 2015; Etale and Bingilar, 2016; Oyebanji and Oyebanji, 2017). Tax is charge based on valid statute in accordance with some reasonable rule of apportionment on persons or property within tax jurisdiction. Abiola and Asiweh, (2012) support tax as an instrument of social engineering which can be used to stimulate general or special economic growth. Structure among the various tax structures in Nigerian economy is company income tax. By virtue of section 8 (1) of the Companies Income Tax Act (CITA) 1990, taxes are payable as specified upon profits of any company accruing in, derived from, brought into, or received in Nigeria in respect of amongst others, any trade or business for whatever period of time the trade or business may have been carried out. As at date, companies’ income tax is 30 per cent of assessable income.
Taxes are generally categorized as either direct (where the taxes are charged on the income of body corporate or individuals) or indirect (where taxes are charged on goods and services rendered so that the burden of payment rests on the final consumers). In Nigeria, whether direct or indirect, taxes come in different forms – petroleum profit tax, personal income tax, value added tax, customs and excise duties, companies’ income tax, stamp duties and capital gains tax. Samuel, Adewole and Idih (2019) posited that the financial capacity of any government depends among other things, on its revenue base, the fiscal resources available to it and the way these resources are generated and utilized. It is, therefore, the duty of the government to adequately mobilize potential revenue across the country to prevent economic stagnation. This mobilization involves the adoption of economically and politically acceptable taxes that would ensure easy administration, accounting, verification, auditing and investigation based on the equality, neutrality and other attributes of a good tax (Myles 2000).
Taxes, according to Adegbite and Owolabi (2017), have different effects on various economic activities. Taxes affect individuals’ decisions to save, the decision of firms to produce, invest, create jobs, innovate investment in human capital and supply of labour. Tax revenue has been seen as major source of government revenue all over the world. Government use tax proceeds to render their traditional functions, such as the provision of public goods, maintenance of law and order, defense against external aggression, regulation of trade and business to ensure social and economic maintenance (Edama, 2012).
1.2 Statement of the Problem
The role of taxation in promoting economic development in Nigeria is not felt, primarily, because of its poor administration. It is obvious that Nigeria being one of the developing nations of the world is seriously faced with series of problems which includes, the extent in which the relationship exists between economic development and taxation in Nigeria, the probable impact of the taxation on the Nigeria economic growth and development. The major challenges facing tax administration in Nigeria include frontiers of professionalism, poor accountability, lack of awareness of the general public on the imperatives and benefits of taxation, corruption of tax officials, tax avoidance and evasion by taxing units, high rate of tax, poor method of tax collection etc. There is also the problem of accuracy of tax statistics, taxes can inhibit investment rate through high tax rates such as corporate and personal income. However, over the years, revenue derived from taxes has been very low and no physical development has actually taken place (Afuberoh & Okoye, 2014). This has resulted to the increased incessant lamentation of the people to infrastructure decay and the government justification of inadequate fund to attend to provisions of these amenities. Taxation of companies and revenue generated is usually used as a major instrument for revenue generation and to sustain economic development, but the situation is different in Nigeria. This led to a study on company income tax and economic development in Nigeria.
1.3 Conceptual Framework
Tax according to Worlu and Emeka (2012) is a compulsory fee levied by the government on incomes, activities, products and properties by a government. Similarly, Abata (2014) and Adudu and Ojonye (2015) describes tax as a mandatory charge, intentionally imposed by governments on the people of a country in order to generate extra income that will support the running of the affairs of the entire state. Globally, tax is becoming an essential revenue source for governments. Taxation is a compulsory but non-penal levy by the government through its agent on the profits, income, or consumption of its subjects or citizens. It is also viewed as a compulsory and obligatory contribution made by individuals and organization towards defraying the expenditure of government (Ehinomen & Adeleke, 2012).
Several studies have examined taxation as an instrument of economic development in different countries with diverse techniques. The outcome of the investigations, however, shows a degree of relatedness in the results. The tax reform in Nigeria is spearheaded by the Federal Inland Revenue Service which is geared to achieving greater revenue collection, voluntary and willing compliance and breaking the long piercing phobia between taxpayers and tax collectors.
Direct Taxes: These are taxes levied directly on the income and property of individuals and Companies. Their burden is borne directly by the tax payer and may take these forms (Rabius, 2016).
- Company Income Tax: This is levied on the net profits of companies. The gross income of companies are adjusted by deducting all allowable expenses before taxation is imposed on the net profit.
- Personal Income Tax: This is levied on an individuals income which he earned during a specified period of time usually one fiscal year. It varies with the size and sources of the tax payers income and some other factors contained in the personal income tax Act. 104 of 1993.
- Capital Gains Tax: A capital gain accrues when the value of capital assets goes up and is realized when the asset is sold. Capital gains are unearned increments brought about by market and development forces. Capital gains tax is levied with references to its realization and it rates are progressive.
- Expenditure Tax: It is levied on that part of a persons income he is actually left with after deduction of savings.
- Petroleum Profit Tax: Nigeria law by virtue of the petroleum profits tax act requires all companies engaged in the extraction and transportation of petroleum to pay tax. The taxable income of a petroleum company is subject to tax at 85% but this percentage is lowered to 65.75% during the first 5 years of operation.
- Economic Development: This is the creation of wealth from which community benefits are realized. It is more than a jobs program, it’s an investment in growing your economy and enhancing the prosperity and quality of life for all residents. Economic development means different things to different people.
1.4 Objectives of the Study
The primary aim of this study is to examine company income tax and economic development in Nigeria. The specific objectives are;
- To examine the extent government has been using revenue generated by company income tax in Rivers State.
- To investigate the relationship between company income tax and development in Nigeria.
- To evaluate the effect of the high incidence of tax evasion and avoidance on economic development in Nigeria.
- To examine the statistical association between the various forms of tax revenue and the economic development of the Nigerian economy.
1.5 Research Questions
The following questions were formulated to guide the study;
- Is there any significant impact of generated company income tax on economic development in Rivers State?
- Is there any significant relationship between company income tax and development in Nigeria?
- Is there any significant effect of the high incidence of tax evasion and avoidance on economic development in Nigeria?
- What is the statistical association between the various forms of tax revenue and the economic development of the Nigerian economy?
1.6 Research Hypotheses
The following research hypotheses will be tested in the course of the study;
H0: There is no significant relationship between development and generated company income tax collected.
H1: There is a significant relationship between development and generated company income tax collected.
H0: there is no significant effect of the high incidence of tax evasion and avoidance on economic development in Nigeria.
H2: there is a significant effect of the high incidence of tax evasion and avoidance on economic development in Nigeria.
1.7 Significance of the Study
The study is important in such that: The outcome of this study would enhance the students offering course in taxation to understand the subject properly, the findings of this research would help the Nigerian government to utilize taxation in achieving desired developmental goals. The study will also serve as an eye opener to government of the present time that taxation can be used as economic tool for growth and development of the country in order to avoid inflation, control high cost living and low standard of living. This research, will serve as a resource base to scholars and researchers interested in carrying out further research. In this field subsequently, it applied it will go to an extent to provide new explanation to the topic.
1.8 Scope and Limitation of the Study
The researcher limits the scope of this work to the company income tax and economic development in Nigeria from 1981 to 2019. The study will be restricted to cover some companies in Etche Local Government Area of Rivers State. Although the following constraints tend to hinder the flow of the study;
Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.9 Operational Definitions of Terms
Income: can be defined as money received during a certain period for work of enforcements, the income or output of a country always refers to the value of output during a specific or definite [period says one year calendar.
Company Income Tax: This is levied on the net profits of companies. The gross income of companies are adjusted by deducting all allowable expenses before taxation is imposed on the net profit.
Economic development: is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and objectives.
Tax: is a compulsory levy made by all concerned to the government of a country from which essential services are rendered, without necessarily offering an explanation on how the money generated was spent or equating the services with the money collected.
Taxation: is regarded as a Compulsory charge imposed by the public authority (Federal, State and Local Government) for the general purposes of government (Ene, 2011).
Indirect Taxes: These are levied on persons or groups who are not intended to bear the burden or incidence but who will shift them to other people. They are normally levied on commodities or services hence their incidence does not fall directly on the final payers (Safe, 2011, Tabani, 2014).
Value Added Tax (VAT): This is not a tax on the total value of the goods being sold but only on the value added (the difference between the value of factor services and materials that the firm purchased as input and the value of the output) it requires a taxable person upon registering with the federal board of inland revenue to charge and collect VAT at a flat rate of 5% of all invoiced amounts of taxable goods and services.
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