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TAXATION AND ECONOMIC DEVELOPMENT IN NIGERIA

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How boosting taxation policy can advance Nigeria's economy - Financial experts - Daily Post Nigeria

Abstract

This study was set to examine taxation and economic development in Nigeria. The populations of the study were basically staffs of Federal Inland Revenue Service, Enugu. The study developed three research objectives among which included to evaluate the effect of petroleum profit tax on the real gross domestic product of Nigeria. The study was also guided by three research questions and two hypotheses. The study employed the survey method of descriptive research; questionnaires in addition to library research were applied in order to collect data. Primary and secondary data sources were used and data was analyzed using the chi square statistical tool at 5.99 level of significance which was presented in frequency tables and percentage. The study findings revealed that petroleum profit tax has significant effect on the real gross domestic product of Nigeria. Also, company income tax has a significant impact on the real gross domestic product of Nigeria. It was concluded that petroleum profits tax ,Company income tax and custom and excise duty has a significant positive relationship with Gross Domestic Product and still have a long run relationship among themselves for the period covered in the study. The study recommended that Government agencies should effectively devise procedures for the collection of company income tax as it contributes to economic growth as reported in the findings.

                                                         CHAPTER ONE

                                                         INTRODUCTION

1.1 Background to the study

In recent times, there have been notable modifications to the tax system in Nigeria. The goal of the study of the tax laws is to eliminate unnecessary provisions and streamline the primary ones. The taxes and levies Act, 1998 clearly defines the respective jurisdictions of the federal, state, and local governments, which are responsible for enforcing tax revenue under current Nigerian law. According to Akwe (2014), the main objective of tax revenue is to finance national programs that enhance public welfare, with a focus on promoting economic development and growth by supplying the resources required for improved public services through suitable administrative systems and structures. Tax revenue is necessary to promote economic activity, growth, and development. Adereti, Sanni, and Adesina (2011) state that while aiding the poor, the government ensures that money is allotted to important social projects. By way of tax collection, this is accomplished. Taxes have the ability to boost economic development and activity, but this potential may be lost if they are not handled properly. It is essential to appropriately assess the relationship between tax income and the economy in order to establish methods for their efficiency and to formulate policies. The Nigerian economy is in dire need of both dramatic reform and rejuvenation and rebirth, according to macroeconomic data presented by Adegbie and Fakile (2011). The economy of the nation is still soundly asleep. Additionally, tax administration needs to be updated, and duty disadvantages and refunds are ineffective from the perspective of Adedeji and Oboh (2010). In Nigeria in the twenty-first century, one of the most important challenges facing tax administration is to push the boundaries of professionalism, accountability, and public awareness of the needs and advantages of tax revenue in our personal and professional lives, which include fostering economic activity, making savings and investments easier, and creating advantageous competitive positions. Reform of the tax system and tax administration is desperately needed if it is unable to address the aforementioned issues for whatever reason. Taxation is defined by Emekekwue (2009) as the government’s legal jurisdiction to collect a portion of an individual’s or an organization’s income and wealth. There is a correlation between a nation’s tax structure and the rate of economic growth and development, and the tax system has a significant role in determining other macroeconomic indices for both developed and emerging countries. It has been asserted, in fact, that the goals of tax policy change as a nation advances in development and that the rate of economic growth has a significant influence on the tax base of that nation. The economic standards used to evaluate a tax system and the relative significance of each revenue source also change over time. For instance, the only purpose of tax collection was to raise revenue during the colonial era and in the immediate aftermath of Nigeria’s political independence in 1960. Subsequently, the goals of income redistribution and protection for the emerging industries took center stage. National taxes are levied in many nations, while state and local governments may also impose comparable levies. Other names for the taxes are capital taxes and income taxes. In general, partnerships are not subject to entity-level taxes.  Wang (2012) states that a country’s tax may apply to:

  • Corporations Incorporated in the country,
  • Corporations doing business in the country on income from that country,
  • Foreign corporations who have a permanent establishment in the country, or
  • Corporations deemed to be resident for tax purposes in the country.

Corporate taxable income is frequently determined in the same way that individual taxpayers’ taxable income is. Generally, the tax is levied on net profits. In some jurisdictions, rules for taxing businesses may differ dramatically from those for taxing individuals. Certain company actions, such as reorganizations, may not be taxed. Some entities may be exempt from taxes (Bhartia, 2010). There is no doubt that income is required for the State to support citizens’ basic necessities and fulfill the social compact. While this goal is being pursued, there is a need to focus on the fundamentals in order to understand the constraints to industrial development and job creation, as well as to establish and implement innovative industrial and employment policies. This is because special achievement that is solely focused on earning cash for the state might drive unemployment and deindustrialization due to its short-term optimism in financing state budgetary policy. Furthermore, it can lead to disenchantment among local and foreign investors, causing international investors to quickly rebalance their international investments in Nigeria and flee to countries with tax systems that promote industrial growth and, as a result, higher investment returns. According to Chude & Chude (2015), the Nigerian tax system is currently oriented towards raising funds to meet state expenditures (recurrent and capital). As admirable as this is, it has hidden the need for a tax structure that can serve as a viable tool for founding and developing enterprises in Nigeria. Given the foregoing, Nigeria’s tax architecture must be centered on the goals of industrial development, economic growth, and job creation. As a result, it should consider the function of taxes in fostering good industrial performance and reducing unemployment. A tax system is not just designed to generate a specific amount of income; rather, it is designed to do so from those segments of the population who can best endure the tax. The goal, in brief, is to ensure a fair allocation of the tax burden. This clearly cannot be accomplished unless an attempt is made to trace the incidence of each tax. Despite the contribution that taxation can make to a country’s Gross Domestic Product (GDP), great attention must be paid to the side effects of taxation on economic developmenr.

1.2 Statement of the Problem

Nigeria is currently experiencing chaos as a result of a plethora of issues, such as inadequate power supply, a subpar educational system, a lack of infrastructure, a government that is inept and moves slowly, a property regulation system that is broken, a poor electoral process, trade restrictions, militancy, and insecurity. Nigeria’s tax money is meant to fund infrastructure projects, social welfare programs, and other necessities for its people. Even though its country is rich in oil, Nigeria has faced several difficulties. The inefficiency of the tax system resulted in the passing of various laws, including the Companies Income Tax Decree (CITD) and the Income Tax Management Act (ITMA). However, the system still faces many problems and difficulties, including tax touting, multiple taxes, poor administration, a lack of databases, the complexity of Nigerian tax laws, minimum tax, commencement, changes to the accounting date, and unpaid tax refunds. The Nigerian government has not been able to strengthen tax auditing, establish a special court to handle tax issues, ensure good, effective, and efficient tax administration, introduce tax technology, educate the public about taxes, simplify and abolish some tax laws, refund overpaid taxes, allow tax authorities to operate independently, address the issue of corruption among tax officials, or streamline tax collection mechanisms. This concern led to the conduct of this study, which assessed how taxes affected Nigeria’s economy and made any necessary recommendations to allay worries and advance the country’s economy.

1.3 Objective of the study

The main objective of this study is to investigate the effects of taxation on economic development of Nigeria. The specific objectives of this study are to:

  1. Evaluate the effect of petroleum profit tax on the real gross domestic product of Nigeria.
  2. Ascertain the impact of company income tax on the real gross domestic product of Nigeria.
  3. Determine the impact of custom and excise duty on the real gross domestic product of Nigeria.

1.4 Research Questions

  1. What is the effect of Petroleum profit tax on the real gross domestic product of Nigeria?
  2. What is the impact of company income tax to the real gross domestic product of Nigeria?
  • What is the impact of custom and excise duty to the real gross domestic product of Nigeria?

1.5 Research Hypotheses

H0: Petroleum profit tax does not have any significant effect on the real gross domestic product of Nigeria.

H1: Petroleum profit tax has significant effect on the real gross domestic product of Nigeria.

H0: Company income tax does not have significant impact on the real gross domestic product of Nigeria.

H2: Company income tax has a significant impact on the real gross domestic product of Nigeria.

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