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ABSTRACT
The project investigates the impact of taxation revenue on economic growth in Nigeria during the period of 2005-2014. The PPT, CIT, VAT and PIT were regressed on gross domestics product as a measure of economic growth using the O.L.S as analytical tool. The time series properties of the variables were investigated by conducting a multiple regression test analysis. The econometric evidence confirms that there is a short run positive relationship between PPT, PIT, and gross domestic product in Nigeria. Also the econometric result revealed that there is a short run negative relationship between CIT, VAT and economic performance in Nigeria. The study therefore, recommends that government should take seriously tax issues both for tax awareness on the part of tax payers and training for tax workers in the area of company income tax (CIT). Also, there should be check and balances in the management of revenue collected.
CHAPTER ONE 1
INTRODUCTION 1
1.1 BACKGROUND OF THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 6
1.3 OBJECTIVE OF THE STUDY 9
1.4 RESEARCH QUESTIONS 10
1.5 RESEARCH HYPOTHESES 10
1.6 SIGNIFICANCE OF THE STUDY 11
1.7 DEFINITION OF TERMS 12
1.8 LIMITATION AND SCOPE OF THE STUDY 13
1.9 ORGANIZATION OF THE STUDY 14
CHAPTER TWO 16
LITERATURE REVIEW 16
2.0 INTRODUCTION: 16
2.1 ECONOMIC GROWTH 18
2.1.1 THE USE OF TAX TO STIMULATE ECONOMIC GROWTH 18
2.2 Taxation 20
2.2.1 GENERAL PRINCIPLES OF TAXATION 21
2.2.2 THE EQUITY PRINCIPLE 22
2.3 THE REVENUE PRODUCTIVITY PRINCIPLE 23
2.2.4 THE EFFICIENCY PRINCIPLE 23
2.2.5 THE NEUTRALITY PRINCIPLE 23
2.2.6 THE CERTAINTY PRINCIPLE 24
2.3 TAX LEGISLATION IN NIGERIA 24
2.3.1 CLASSIFICATION OF TAX 25
2.4 DIFFERENT ASPECTS OF TAXES IN NIGERIA 27
2.4.1 PETROLEUM PROFIT TAX (ISSUES AND PERSPECTIVE) 27
2.4.2 COMPANY (CORPORATE) INCOME TAX 28
2.4.3 VALUE ADDED TAX (VAT) 31
2.4.4 VAT IN NIGERIA 32
2.4.5 PERSONAL INCOME TAX 32
2.4.6 RELIEF AVAILABLE TO INDIVIDUAL UNDER PERSONAL INCOME TAX 33
CHAPTER THREE 36
RESEARCH METHODOLOGY 36
3.1 INTRODUCTION 36
3.2 RESEARCH DESIGN 36
3.3 DATA REQUIREMENT A ND SOURCES 36
3.4 MODEL SPECIFICATION 37
3.5 ECONOMIC MODEL 38
3.6 METHOD OF DATA ANALYSIS 39
CHAPTER FOUR 40
DATA PRESENTATION AND ANALYSIS 40
4.1 INTRODUCTION 40
4.2 DATA PRESENTATION 40
4.3 ANALYSIS OF RESULT. 41
4.4 INTERPROTATION OF RESULT 41
4.5 DISCUSION OF FINDING 43
CHAPTER FIVE 44
SUMMARY, CONCLUSION AND RECOMMENDATION 44
5.1 SUMMARY OF THE WORK 44
5.2 CONCLUSION 45
5.3 RECOMMENDATIONS 45
REFERENCES 47
APPENDIX I 49
APPENDIX II 50
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In a natural resources blessed country like Nigeria also with the operation of indigenous and foreign companies, the problem of underdevelopment should not be the topic of the day. Thus the emphasis on taxation by one and all cannot be over emphasized though is just one of the avenue open to the government to generate revenue. Taxation according the Nightingale (1997) is a compulsory contribution imposed by the government on its citizens. Our guest to ensure economic growth shall meet with desired expectation if all expected tax is paid and as at when due.
From the forgoing, we can now deduce the need to garnish our understanding with contemporary knowledge in the area of taxation, economic growth so as turn around the fortune of our governments.
Taxes are levied on individuals, groups, business or corporate organization, by constituted authority for funds used by state in the maintenance of peace, security, economic growth and social engineering among others for the benefits of the citizenry. In this view, the management of a society for effective growth rest on the government who can only discharge such responsibilities creditably to the citizenry with adequate resources. Therefore, it behaves a responsible citizenry to discharge his/her duties to the state through prompt and regular payment of taxes. The economic history of both developed and developing countries reveal that taxation is an important weapon in the hands of the government; not only to generate revenue, but also to achieve goals such as influencing the direction of investment and taming the consumption of certain foods and services. As hold by Hyman (1992) a tax is simply a compulsory payment levied on the citizens by government for the purpose of the government itself.
Traditionally, taxes are based on income of individuals or profit of an economic entity. Other bases of taxes are wealth, capital, property and consumption. All forms of consumption taxes falls within the preview of indirect taxation, income taxes and those based on capital and wealth are in the realm of direct taxation.
The imposition is a tax is based on certain considerations. One of these is how effective as well as equitable the tax can be. Since tax can be equitable without being effective and vice versa, the capacity of the tax based to reflect both equity and effectiveness becomes a serious subject in taxation. Taxation as a system has been known to have existed as early as history. In the Bible, we learnt that even Christ paid tax and also encourage his disciples to follow suit. According to bible book Mathew 17:24 and 25 there; Christ gave evidence that there was payment of tax back then. Also in Romans 13:7 also attested to that. During his missionary days on earth, he says the need to support the Romans Government through the payment of tax, hence, he advised his followers to render therefore, unto Caesar the things which are Caesars.
Nearly, fifty year after, it is therefore not surprising that Nigeria is yet to appreciate the fundamental place of taxation; hence what is in place even now could at best described as committees and commission charged with realizing various tax objectives concludes Adams (1993).
Today it is valid to posit that, apart from the provision of money or defense, security, education, industry, culture, social and their economic infrastructure, taxation serve as a veritable tool of fiscal policy. It is used to pursue the realization of what have overwhelmingly been accepted as the objective of fiscal policy. That is, mobilization and allocation resources to desired productive sector of the macro-economy; i.e. distribution of income and wealth among different groups of citizens; and stabilization effect of market forces on prices, employment and balance of payments amongst others. Increased taxation on imported goods and services have affected the level of such goods and services that industrialist within our sovereignty are encouraged to produce.
Over the period with the advent of democracy and effective tax management put in place, substantial measure of macro-economic stability has been achieved.
Anyanwa and Oaikhenan (1995) contributed that for the first time in Nigeria’s recent history; value of Naira has not fluctuated so badly but fairly stabilized. The level of inflation is now under control as a result of stable macro-economic policies. It is worthy of note that there is significant improvement in industrial capacity utilization as result of improvement in electricity. Also, there has been remarkable improvement in non-oil sectors, capital market, education, transport, electricity and steel sector etc. Whether these improvements are enough to justify tax pages fund or the extent of impact of taxation to economic growth is the problem that this research is to find out.
The link between these constructs are tested using the model below which is adopted as our conceptual framework to determine if the results from this study are consisted with previous studies published in literature about taxation as it impacts in the economic growth during the periods under review of if it will lead to an entirely new discovery.
1.2 STATEMENT OF THE PROBLEM
The institution of taxation is more or less a permanent feature of any state or country, which requires a degree of popular acceptance as well as sound administrative structures capable of regular assessment and collection by the operators. The problems of this study according to previous researcher’s reveals that revenue from taxation often fall short of expectation and besides this; the administration of tax is faced with so many constrains that it requires re-examination periodically for the purposes of maximizing the gains from the sector in order to reflect a better economic growth .
Consequently tax administration results in increased revenue yield, this is not possible because of the presence of tax evasion and avoidance due to loopholes in the law Akapkam (1989).
On the other hand, people do expect and rightly so, that for scarifying their private resources to the state in form of taxes, government is expected to reciprocate by spending public revenue in a way that will enhance their welfare. But governments and tax collectors have been dubiously mismanaging public treasury, Aguyei (1983).
Another problem as noted by Ariwodola (2009) is the presence of persons regarded as above the laws and they do not pay taxes. These groups of persons be called the sacred cows. They make so much money and have enormous influence, which they throw around negatively. These sacred cows are not considered about paying their dues. There is also the presence of professional who connive with unscrupulous tax officers in government offices to falsify records of those willing to evade taxes. Sometimes even the police aid and abate the activities of these criminals openly.
Also, there is high level of manipulation and diversion of tax revenue by collectors to satisfy their own personal aggrandizement. The dwindling tax revenue as is presenting witnessed results from lack of encouragement of the public due to the fact that there is very little evidence to show for taxes collected, Ariwodola (2009). For these reasons therefore, there is an increased cases of tax evasion. Based on the above statements of previous scholars and goal of this study, attention will be focused on exploring the interactive relationship of the indicators and dimensions of the dependent and independent variables under study which is: taxation and economic growth in Nigeria from 2000-2014. The main attraction is to determine this interplay of sub-variables such as revenue from Petroleum Profits Tax (PPT), Company Income Tax (CIT), Personal Income Tax (PIT), VAT, as proxy for taxation and Gross Domestic product representing the monetary value of goods and services produced in Nigeria for 2000 – 2014 as a proxy to economic growth which stands as the dependent variable.
Empirical evidence on the relationship between other fiscal policy tools and economic growth exist and economic growth during 2000-2014 is lacking. Hence the choice for this topic to fill the existing gap.
1.3 OBJECTIVE OF THE STUDY
To meet the general objectives of the study the following areas of specification were considered.
- To analyze the impact of tax on the growth of the economy.
- To evaluate if any, the contribution of VAT to economic growth.
iii. To critically evaluate the effect of petroleum profit tax on the growth economy.
- To investigate the influence of company income tax on economic growth in Nigeria.
- To determine the impact of personal income on economic growth in Nigeria.
1.4 RESEARCH QUESTIONS
In order to have a directional approach to carrying out the purpose of the study, the following research questions were drawn. They include,
- To what extent do CIT policies of government influences tax revenue?
- What is the extent of response of PPT to the measures taken by government to improve the economic growth?
iii. What is the impact of PIT on the growth of the economy generally?
- What is the impact of VAT to the economic growth?
1.5 RESEARCH HYPOTHESES
To conduct this study the following null hypotheses have been posited.
- Ho1: There is no significant relationship between economic growth and petroleum profit tax (PPT).
- Ho2: There is no significant relationship between economic growth and (VAT).
- Ho3: There is no significant relationship between economic and company growth Income Tax (CIT).
- Ho4: There is no significant relationship between economic growth and personal Income Tax (PIT).
1.6 SIGNIFICANCE OF THE STUDY
The result of the study i.e. taxation and economic growth, and investigation of Nigeria’s experience provide basic panacea for effective tax system and economic growth in Nigeria. Virtually, this study will analyze the vital role of taxation and its contribution to economic growth. With an efficient tax system in place, the economic potentials of the nations becomes realizable and guaranteed on a fast lane since tax reforms if properly implemented, will increase resources at both the disposal of government and individuals which in turn translate to benefit in terms of social economic growth, Musgrave and Peggy (1989). This will create a better stock of knowledge for tax consultants and tax managers in their quest for tax reform. It is imperative at this juncture that the study provides ingredients for awareness of taxation which will go a long way to educate the society on strategies for investment drive in addition to all else.
1.7 DEFINITION OF TERMS
The following concepts/terms have been defined in relevance to the context in which they were used in this work.
Tax: This an obligation and transfer of resources from the private to the public sector in other to accomplish some nation’s economic and social goals.
Administration: Is that part of management which is conceived with the installation and carrying out of the procedures by which the programme laid down are communicated and the progress of activities is regulated and checked against plans.
Taxation: This is the transfer of resources form the private to the public in accomplish some of the nation’s economic and social goals.
Economy: Is the collection of all productive activities in the society.
Economic growth: It refers to the increase overtime of an economy’s capacity to produce those goods and services needed to improve the well being of the citizen in increasing numbers of diversity.
Income: This is usually the objective that is to be taxed. It could be the personal income to individual or partnership.
Tax rate: This refers to the percentage of the net value of the tax base.
1.8 LIMITATION AND SCOPE OF THE STUDY
One major challenge of this research work apart from time and finance is that of the non-availability of tax data to the common public.
Tax control and administration is the responsibility of the federal republic of Nigeria, through its agencies like Federal Board of Inland Revenue (FIRS), central Bank of Nigeria (CBN), National Bureau of statistics (NBS), Department of petroleum Resources, etc. we shall beam search on these agencies.
To overcome the problem of tome, we would also scoop several tax materials concerning Nigeria in the FIRS, SBN and NBS, library, related text and discussions with tax professionals and economic expects.
The context scope of this study covers only major tax revenue realized in Nigeria within 2000-2014.
1.9 ORGANIZATION OF THE STUDY
This study is drawn into five chapters. Chapter one is more or less and introductory chapter, which dwells on background of the study, statement of the problem, purpose of the study, research questions, hypotheses, significance of the study, definition of terms, limitation and scope of the study and organization of the study.
Chapter two concentrated on the review of related literature to the study.
Chapter three represented the methodology of the study which focuses on the methods used in collecting data as well as methods used in analyzing and presenting the data.
Chapter four dwells on presentation, analysis and interpretation of data on taxation and conclusions made and recommendation for further research made in chapter.
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