CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

A tax is a compulsory, unrequited payment to general government (OECD, 1996).

Also, tax is a compulsory levy made by public authorities for which nothing is received directly in return. (James and Forbes, 1997).

There are inconsistencies in the Nigerian tax laws due to economic variance; which had made it difficult for the tax body to administer and even for the tax payer to follow. Though the federal government had the intension to maintain a uniform tax system, the economy condition of each state has given room for diverse system. The impact of tax payment is not seen by payee and some of them do not understand the tax laws which has put them into doubt and confusion and has absolutely made others to want to avoid and evade tax. Every modern state or nation requires a lot of revenue to be able to provide and maintain essential services for its citizen. One ready means of revenue for the government is through the imposition of tax. There is hardly any government today that does not rely on taxation. However, apart from the complications that have crept into the taxation system in modern times, the reason for the imposition of tax in fact ceased to be only for the generation of revenue for the state. It has also become the avenue for the redistribution of wealth and re-adjustment of the economy (Ojo, 2008).

Therefore, the tax system is one of the most powerful levies available to any government to stimulate and guide its economic and social development. The FBIR (Federal Board of Inland Revenue) which is vested with the power to administer the act and carry out all the act which may be deemed necessary and expedient for the assessment and collection of tax ,and shall for all amount so collected in a manner to be prescribed by the Federal Minister of Finance. The Board has certain reserved power which shall not be delegated to other person to perform, e.g. power to acquire, hold and dispose properties of any company in satisfaction to tax or any judgment debt, and to specify the forms of return claim and notices. The main forms of tax collected are direct and indirect taxes. For the direct taxes, it is levied on individuals, and factors of productions e.g. Personal Income Tax (PIT), Capital Gain Tax (CGT). However, indirect taxes are levied on goods and services e.g. import and export duties. Thus, the consumers bear the ultimate burden. Having realized that taxation is one of the most important sources of revenue for the various tiers of the government and a major way of sourcing financial support to the Nigeria government at large, it is of paramount importance that tax evasion and avoidance is discouraged with every conceivable means. The purpose of this study therefore is to investigate the impact of tax revenue on Nigeria economy; the effect of tax evasion on Nigeria economy; the relationship between tax policies and social development, and the effect of incompetent tax officials on Nigeria economy. Tax revenue mobilization as a source for financing development activities in Nigeria has been a difficult issue primarily because of various forms of resistance, such as evasion, avoidance and other form of corrupt practices. These activities are considered as sabotaging the economy and are readily presented as part of the reasons for present state of underdevelopment in Nigeria. Government exists in order to effectively collect taxes from available economic resources and make use of same to create economic prosperity such that available and willing human and other resources are gainfully employed, infrastructures provided, essential public services (such as the maintenance of law and order) put in place among others. Tax resistance only makes these laudable programs unattainable. Following some reasoning, changing or fine-tuning tax rates is used to influence or achieve macroeconomic stability. Some of the most recently cited examples are the governments of Canada, United States, Netherland, United Kingdom, who derive substantial revenue from Company Income tax, Value Added Tax, Import Duties and have used same to create prosperity (Oluba 2008).

According to Bariyiman and Gladson (2009), tax administration in Nigeria is carried out by the various tax authorities as established under the relevant tax laws. “Tax authority” as defined in section 100 of the Personal Income Tax Decree, 1993 and amended by Decree No 18-finance Miscellaneous Taxation Provisions) Decree 1998, means “the Federal Board of Inland Revenue, the State Board of Internal Revenue or the Local Government Revenue Committee”. The tax authority as defined in addition to the Joint Tax Board, the Joint State Revenue Committee and the Body of Appeal commissioners together constitute the organs of tax administration in Nigeria.

Ariyo (1997) in his study on productivity of the Nigerian tax system and reports a satisfactory level of productivity of the tax system before the oil boom. The advent of the oil boom encouraged some laxity in the management of non-oil revenue sources like the company income tax, which was rectified to a reasonable extent with the commencement of the structural adjustment program. The report underscores the urgent need for the improvement of the tax information system to enhance the evaluation of the performance of the Nigerian tax system and facilitate adequate macroeconomic planning and implementation.

Sani (2005), the Executive Governor of Zamfara State stated that tax system as a whole is an embodiment of contention and controversy whether in its policy and formulation, legislation or administration.

Each state in Nigeria has its own source of funding to its Government. But some states generate more funds then others through taxation.

1.2   STATEMENT OF RESEARCH PROBLEM

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, defence against external aggression, regulation of trade and business to ensure social and economic maintenance. However, it is evidenced that the role of taxation in promoting economic growth in Nigeria is not felt, primarily because of its poor administration. 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, connivance of taxing officials with taxing population, high rate of tax, poor method of tax collection, etc. Tax administration and individual agencies suffer from limitations in manpower, money, tools and machinery to meet the ever increasing challenges and difficulties. In fact, the negative attitude of most tax collectors toward taxpayers can be linked to poor remuneration and motivation. There is also the problem of accuracy of tax statistics. Apart from some few states such as Delta, Lagos, Kaduna and Katsina and the Nigerian Customs Services, where tax are known to be well kept, other agencies of the states and relevant federal tax offices have serious failures in data management. Several other effects of taxation can also be identified. First, taxes can inhibit investment rate through high tax rates such 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 its discouraging effect on research and development expenditures. Fourth, taxes can lead to a flow of resources to other sectors that may have lower productivity. Finally, high taxes on labour supply can distort the efficient use of human capital high tax burdens even though they have high social productivity. From the foregone therefore, the major question raised is what possible effect does tax revenue have on economic growth in Nigeria?

1.3       RESEACH QUESTIONS

1        What is the effect of tax revenue on economic growth in Nigeria?

2        What is the impact of domestic investment on economic growth in Nigeria?

3        Is there any relationship between taxation economic growth and infrastructure   in Nigeria

1.4       OBJECTIVE OF THE STUDY

1        To examine the effect of tax revenue on economic growth in Nigeria.

2        To assess the impact of domestic investment on economic growth in Nigeria.

4        To investigate the relationship taxation economic growth and infrastructure   in Nigeria

1.5   SCOPE OF THE STUDY

These study covers taxation as a major source of funding in Nigeria, the study will cover the impact, problems and prospect of taxation in Nigeria, the study will cover at least three LGA in Lagos state.

1.6     SIGNIFICANCE   OF   THE    STUDY

The study intend to identify the role of taxation as a major source of funding and also the mutual benefit of taxation to both the government and citizens. It will also enlighten us on how taxation can be a major source of funding to the government. It will serve as basis for further research and knowledge production on issues of taxation.

1.7    LIMITATION OF THE STUDY

As the case usually is, there are certain limitations the researcher will be faced with in the cause of this work. One is in the area of finance which might have a direct consequence on the quality of suitable materials. Also considering the fact that research work of this nature is often done within a time frame. The study therefore cannot be exhaustive in its entirety.

However, it is hoped that these constraints, will be checkmated by making the best use of the materials available and spending more than the necessary time in the research work. Therefore, it is strongly believed that despite these constraint, its effect on this research report will be minimal, thus, making the objective and significance of the study achieved.

1.8   CLARIFICATION OF KEY CONCEPTS

Taxation: A means by which governments finance their expenditure by imposing charges on citizens and corporate entities.

Funds: a sum of money saved or made available for a particular purpose.

Revenue:  this is an income, especially of an organization or government which is of a substantial nature.