The impact of taxation on economic development in nigeria (2003 – 2012)

Project Abstract

Taxation is a critical tool for governments to generate revenue for economic development. This study examines the impact of taxation on economic development in Nigeria from 2003 to 2012. Nigeria, being a resource-rich country, heavily relies on oil revenue, but the volatility of oil prices has made the government seek alternative revenue sources such as taxation. The research aims to analyze the effectiveness of taxation policies in promoting economic growth and development in Nigeria. The study utilizes data from the Central Bank of Nigeria Statistical Bulletin and the World Bank Development Indicators. Various tax indicators such as tax revenue to GDP ratio, tax compliance levels, and tax structures are analyzed to understand their impact on economic development indicators such as GDP growth, investment levels, and government expenditure. The findings indicate that taxation has a significant impact on economic development in Nigeria during the period under review. The tax revenue to GDP ratio has increased steadily, reflecting the government's efforts to improve tax collection and compliance. This increase in tax revenue has allowed the government to invest in infrastructure, education, and healthcare, which are critical for long-term economic development. Furthermore, the study reveals that the structure of taxation plays a crucial role in economic development. A well-balanced tax system that includes direct and indirect taxes can promote investment, savings, and overall economic growth. The research also highlights the importance of tax compliance in maximizing revenue collection and ensuring that the tax system is efficient and equitable. Overall, the study suggests that a well-designed taxation system can positively impact economic development in Nigeria. By diversifying revenue sources away from oil and improving tax collection mechanisms, the government can create a more stable fiscal environment that supports sustainable economic growth. Policymakers are encouraged to continue reforming the tax system to enhance its effectiveness in promoting economic development and reducing dependency on oil revenue.

Project Overview

<p> </p><p><strong>1.0 &nbsp; &nbsp; INTRODUCTION:</strong><br><strong>1.1 &nbsp; &nbsp; OVERVIEW</strong>:<br>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 capital income, poverty alleviation, maximize the utility of its citizens, improve their standard of living and so on.<br>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 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. For these services to be adequately provided, government should have enough revenue put in place to finance them. The task of financing these enormous responsibilities is one of the major problems facing the government of which it is of great necessity for these services to be provided to citizens of a state. Based on the limited resources of government, there is need to carry the governed (citizens) along via the imposition of tax on all taxable individuals and companies to augment government financial position. To this end, government have enacted various tax laws and reformed existing ones to stand the taste of time. They include: Federal Inland Revenue Service (FIRS), State board of internal revenue (SBIR), Income Tax Management Act (ITMA), Companies Income Tax Decree (CIID), Joint Tax Board (JIB) etc.<br>All these are aimed at ensuring adherence to tax payment and discouraging tax evasion and avoidance by citizens. For the purpose of this study, the researcher would be concerned with the impact of taxation on economic development in Nigeria.<br><strong>1.2 &nbsp; &nbsp; STATEMENT OF THE PROBLEM:</strong><br>Obviously, 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.<br>It is good to note that no tax succeeds without the taxpayer’s co-operation and that every government expects its citizens to see it as a duty to pay up their taxes. 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 being carried out to offer solution to them. We shall also look at the following issues and offer recommendations.<br>1. &nbsp; &nbsp; &nbsp; Problems affecting the successful operation of tax system in Nigeria.<br>2. &nbsp; &nbsp; &nbsp; How to determine the Assessable income.<br>3. &nbsp; &nbsp; &nbsp; Process of tax administration in Nigeria.<br><strong>1.3</strong>&nbsp; &nbsp; &nbsp;<strong>OBJECTIVE OF THE STUDY:</strong><br>The general objective of the study is to assess the contribution of &nbsp;taxes towards the growth and development of the Nigerian economy.<br>However, the specific objective of the study includes:<br>1. &nbsp; &nbsp; &nbsp; To examine the relevance of taxation in Nigeria.<br>2. &nbsp; &nbsp; &nbsp; To determine why people feel cheated when it comes to paying their taxes.<br>3. &nbsp; &nbsp; &nbsp; To determine the extent to which federal government has been using the revenues generated from tax.<br>4. &nbsp; &nbsp; &nbsp; To examine how tax rate affects the rate of investment in the Nigeria economy.<br>5. &nbsp; &nbsp; &nbsp; To know general desirability of firms to invest as a result of tax incentive measures. Generally, this study is carried out to know if tax constitutes the bulk of government revenue and to erase the erroneous that is the exploitation by government for their selfish interest.</p><p><strong>1.4</strong>&nbsp; &nbsp; &nbsp;<strong>RESEARCH QUESTION:</strong><br>Upon completion of this research, the following are the questions generated from the above research objectives:<br>1. &nbsp; &nbsp; &nbsp; Is taxation relevant in Nigeria?<br>2. &nbsp; &nbsp; &nbsp; Do people feel cheated when it comes to paying their taxes?<br>3. &nbsp; &nbsp; &nbsp; What is the extent to which federal government has been using the revenues generated from tax?<br>4. &nbsp; &nbsp; &nbsp; How does tax rate affect the rate of investment in the Nigeria economy?<br>5. &nbsp; &nbsp; &nbsp; Do firms generally desire to invest as a result of tax incentive measures?</p> <br><p></p>