THE IMPACT OF THE NEW TAX REFORM AS AN INSTRUMENT OF ECONOMIC DEVELOPMENT IN NIGERIA
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This study aimed at ascertaining the Impact of the New Tax Reform as an Instrument of Economic Development in Nigeria using Akwa Ibom State Board of Internal Revenue as a study. Just as finance is the live blood of any nation’s economy, taxation is seen as the bed-rock through which the finance of the state is derived. For a state to survive both financially and otherwise, policies of taxation should be effectively implemented. In this kind of situation, what really comes in mind is the law, policy, guidelines that will guide the proper and effective tax collection and implementation for the growth of the state’s economy. These laws policies and guidelines is what joins a new reform used for tax collection. It is important to note that the financial source of most third world economics is the imposition of taxes on individuals, corporate bodies and on goods that being imported or exported. It is paramount to mention that taxation have been a very important source of revenue generation for the government of Nigeria. The result of poor implementation of tax reform will result in poor revenue generation thereby leading to slow pace in economic development in the country. However, this research work on the Impact of the new tax reforms as an instrument of economic development in Nigeria (A study of AkwaIbom State Board of Internal Revenue) has been able to identify problems affecting revenue generation and make suggestions for solving of such problems.
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 way 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 tax system is an opportunity for government to collect additional revenue needed in discharging its pressing obligations. A tax system offers itself as one of the most effective means of mobilizing a nation’s internal resources and it leads itself to creating an environment conducive to the promotion of economic growth. Nzotta (2007) argued that taxes constitute key sources of revenue to the federation account shared by the federal, state and local government. This is why Olusola (2006) stated that in Nigeria, the government’s fiscal power is divided in three tiered tax structure between the federal, state and local government, each of which has different tax jurisdictions.
The system is lopsided and dominated by oil revenue. He further argued that over the past two decades oil revenue has accounted for at least 70% of the revenue, thus indicating that tax revenue has never assure a strong role in the country’s management of fiscal policy. Instead of transforming the existing revenue based fiscal management has merely transited from one primary product based revenue to another making the economy susceptible to fluctuations of the international market. It is on the account of this lopsided revenue structure that tax experts and scholars stated in clear terms that the Nigeria tax system need to be reformed to achieved long-term economic growth and development.
Tax is a compulsory levy imposed on a subject or upon a property by the government to provide security, social amenities and create conditions for the economic wellbeing of the society. Appal (2004), Anyanjo (1996) and Ayanwu (1997), stated that tax are imposed to regulate the production of certain goods and services, protection of infant industries, control of business and curb inflation, reduce revenue inequalities etc. Tosin and Abizadeh (2005) said that taxes are used as proxy for fiscal policy. They outlined four possible mechanisms by which taxes can affect economic growth. First, taxes can inhibit investment rate through such taxes as corporate and personal income capital gain taxes. Second, taxes can slow down growth in labour supply by disposing labour leisure choice in favour of leisure.
Third tax policy can affect productivity growth through it’s discouraging effect on research and development expenditure.
Fourth, taxes can lead to flow of resources to other sector that may have lower productivity.
However, Anyanwu (2003) point out that there are three basic objectives of taxation. These are to raise revenue for the government, to regulate the economy and economic activities and to control income and employment. Also, Nzotta (2007) noted that taxes generally have allocated distributional stabilization functions.
The allocation function of taxes entails the determination of the pattern of production, that is the goods that should be produced, who produce them, the relationship between Private and Public Sector and part of social balance between the two sector.
The distribution function of tax relates to the manner in which the effective demand over economics goods is divided among individuals in the Society.
1.2 STATEMENT OF THE PROBLEM
Tax is a Compulsory levy imposed on a Subject or upon his property by the government to provide security, Social amenities and created conditions for the economics well-being of the society.
However, the use of tax as an instrument of fiscal policy cannot be achieved because of dividing level of revenue generated as a result of ineffectiveness of government officials.
According to Azubike (2009), tax reform is an ongoing process with tax policy makers and tax administration continually adopting the tax system to reflect changing economic, social and circumstances in the economy since Nigerian has experienced series of tax reforms in the country.
Therefore, the study argues in it statement of problem that government should comprehend to tax reform that will streamline the system, our tax regime in such a way that Nigerian will be able to move closer to a single tax system because failure to do this will hamper government efforts to grow the economic and make the business environment attractive.
1.3 OBJECTIVES OF THE STUDY
The objective of the study is to find out the following:
- To examine the impact of new tax reform as an instrument of economic development.
- To determine the impact of tax reform on the economic growth of Nigerian.
- To examine the role of tax reform in economic development of Nigeria.
- To find out the problems associated with new tax reforms in economic development.
- To recommend ways based on the findings.
- RESEARCH QUESTIONS
- What is the impact of new tax reform as instrument of economic development?
- Does the impact of tax reforms enhance economic growth of Nigeria?
- Does Board of Internal Revenue play any role on tax reforms in economic development of Nigeria?
- What are the problems associated with tax reform in economic development?
- RESEARCH HYPOTHESIS
The following hypothesis were formulated to guide the study:
H0: There is no significant relationship between the impact of tax reform and economic growth of Nigeria.
H1: There is no significance relationship between the impact of tax reforms and economic growth of Nigeria.
H0: Board of Internal Revenue play no role on tax reforms in economic development of Nigeria.
H1: Board of Internal Revenue play a significant on tax in economic development of Nigeria.
- Significant of the Study
The purpose of carrying out this research is related to the impact that the new reform migh play in the economic development of Nigeria as a nation. This study is part of the effort that would assist the government in making goods tax reforms which would enable the government to generate revenue. Tabansi (2004) “A good tax policy could attract both local and foreign investors in an effort to oil the wheel of a nation’s economic development”.
Also reliance on revenue generated from the oil sector which is the main stay of the nation will be reduced as this source of revenue (tax) will be explore.
On the part of the individual this study would aid edify the taxable adult on the need to be concerned whenever the government intends to review the tax system in the country.
The citizen should see the payment of tax as obligatory since tax revenue enable government to provide the populace with necessary infrastructure and amenities. The collective efforts of tax payers in the country has resulted in the revenue generate from tax, therefore measures should be taken to ensure that tax payers benefit from the revenue generated.
- Is income tax reform necessary?
- Does the internal revenue service has enough manpower to handle tax matters?
- Does AkwaIbom State government has enough equipment for effective tax collection and accountability?
- What has been the attitude of taxpayers in the state since the reform?
1.7 Scope of the Study
The scope of the study is to examine the impact of new tax reform as an instrument of economic development with a particular reference to Board of Internal Revenue Service, Uyo.
1.8 Limitation of the Study
The inability of management and staff of the board to Divulge certain information which they consider sensitive and tear of publication which might be detrimental to their operation. The length of time scheduled for the research, the instrument and methodology adopted by the research tends to barriers the study.
The other limiting feature is that of human attitude towards researchers. There is the feeling that researchers are private investigators and as such should not be allowed to have access to some information for the fear it exposing information that were considered to be organizational secrets.
Another limiting feature of the research is work is economical in nature. To this, the issues of finance is considered. Due to the economic nature in the country, it has been very difficult having sufficient money to help finish the project at the required time and also to run around for the necessary information needed.
1.9 DEFINITION OF TERMS
This is the process of changing the way taxes are collected or managed by the government Tabansi (2004).
This is the total income of a tax payers from all sources of income around to him after deducting allowable losses from the income Ariwodola (1998)
This is a tax relief which is mostly available for tax payers who operates in a country with whom Nigeria has double taxation agreement, SeyiOjo (2009).
This is a tax relief given by the government of Nigeria to pioneer company by way of complete exemption from income tax payment within a specified period of time, usually a period of three years. Ariwodola (1998).
Tax Payers Right Of Election
Under the commencement rule, the tax payer may exercise its right of election by requesting that it should be assessed to taxation in the second and third tax years on the actual year basis, Ojo (2009).
Tax Authority’s Right of Election
Under the cessation rule, the tax authority may exercise its right of election by determining whether it should assess the tax payer in the penultimate tax year or actual year basis, Ojo (2009).
The 1996 decrees provision stipulates that whenever any company pays interest, royalties, rent to any person or company, it shall deduct tax there. Known as withholding tax at the rate of 10% such a tax must be paid the Federal Inland Revenue Authority within 30 days. Tabansi (2004).
Relevant Tax Authority
The tax authority when has the jurisdiction to collect a particular tax in Nigeria is referred to as Relevant Tax Authority (RTA) Aguola (2004).
Penultimate Tax Year
This represent the tax year before the year of cessation Tabansi (2004).
Ultimate Year Tax
This is the year of cessation it is the final or last year in the life of a business Ojo, (2009).
1.10 Organization of Study
For the purpose of appreciation and conceptualization of the study, there is need for a systematic and logical presentation of data. In recognition of this, the study has been planned under five (5) chapters. The first chapter which is the introduction chapter provides and highlight into what the study is all about. Chapter two (2) centres on review of related literatures to the subjects matters chapter three (3) will reveal the method and procedures used in conducting the study. Chapter four (4) of the study will contain the analysis and findings of data, telling the hypothesis and interpretation of results chapter five (5) will explain the research summary of the findings, conclusion of the study and recommendations.
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