ABSTRACT
The contribution of taxation to any economy globally cannot be
overemphasized. Apart from the revenue function it performs for the government,
it is also used to assist the national government to achieve the country’s
macroeconomic objectives in areas of fiscal and monetary policies. Past
documentations have revealed that revenue from taxes in developed nations have
high impact on its economic growth and development which is clearly seen by the
amenities provided and improvements in living standards by such nations. Thus,
the main objective of this study is to evaluate the relationship between
taxation in Nigeria her economic growth and development. Time series data were
applied in carrying out this research work. The research design adopted in the
study is the Ex-post facto method of research. Hence, Simple linear regression
analysis was used to analyse the data by the use of Pearson Product Moment
Model, while T-test was used to test validity and reliability of instrument.
The study tried to treat two hypotheses, one of which states that Taxation has
no positive, significant relationship with employment in Nigeria. Findings
revealed that company income tax, value added tax and custom & excise
duties and petroleum profit & royalties tax, have no positive significant
relationship with employment in Nigeria. Therefore, a conclusion was drawn
highlighting there is no significant relationship between tax revenue and Total
employment in Nigeria with a view to selected taxes used. It is however,
recommended that tax revenue be used effectively to pursue economic development
in terms of employment by investing in key sectors of the Nigerian economy which
will transform the economy positively.
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
Nigeria
as a nation has the vision of becoming one among the world's twenty biggest
economies in the year 2020; this obviously, is the brain behind the priority
attention the present administration is directing at infrastructural
development which is essential for economic growth and development. A developed
economy is one with the ingredient to stimulate investment and create wealth,
this by implication offers an atmosphere that is favorable for business and has
the potentials to realize its vision for 2020. The desired outcome requires a
lot of money and resources to put the economy in a position that stimulates
investment, therefore, tax policies need to attract potential investors, and
the revenue from tax should be sufficient enough to meet the infrastructural
expenditures of the government.
Tosun
and Abizadeh (2005) acknowledged that taxes are used as proxy for fiscal
policy. They outlined five possible mechanisms by which taxes can affect
economic growth, first, taxes can inhibit investment rate through such taxes as
corporate and personal income, capital gains tax, second, taxes can slow down
growth in labour supply by disposing labour leisure choice in favor of leisure.
Third, tax policy can have effect on research and development expenditure;
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.
Governments
in all parts of the world and at all points in history have faced similar
challenges when it comes to finding their ambitions. We do not believe that
government in the past nor in today’s developing world are any less rational
compared to those in today’s developed world.
But important as it is, economic development
does not mechanically translate into more uses in the tax take. Even in fast
growing economies, such as India and China, decisions by the state are needed
to yield a dividend in the form of a higher tax share in GDP.
Sustainable
economic development is one of the fundamental objectives which every
government mostly in developing economy seeks to achieve. The pursuit of this
goal underlines the rationale behind the identification of ways of raising
revenue. Nigeria just like every numerous countries through which revenue is
sourced in order to finance developmental projects in the economy.
As
the Nigerian economy is in recession period, there are inconsistencies in our
tax laws which had made it difficult for the tax body to administer and even
for the tax payer to follow. The federal government had the intension to maintain
a uniform tax system but the economic condition of each state has given room
for divergence system. The most important thing one should have in mind is that
taxation is supposed to be an instrument of social change which is not
answering as much as it should be doing presently in Nigeria. The purpose of
this study is to evaluate taxation as a tool for economic growth and
development in Nigeria.
1.2.
STATEMENT OF PROBLEM
In
developing countries, the government has to play an active role in promoting
economic growth and development because private initiative and capital are
limited. Fiscal policy or budget has become an important instrument in
promoting growth and development in such economies.
Taxation
is an important part of fiscal policy which can be used effectively by
government and developing economies. Taxation play a vital role in the economic
development and growth of a country which include: resources mobilization,
reduction in inequalities of income, improvement in social welfare, foreign
exchange, regional development, control inflation.
According
to the classical economist, the only objective of taxation was to raise
government revenue. But with the change in circumstances and ideologies, the
aim of taxes has also been changed. These days apart from the objectives of
raising the public revenue, taxes level affect consumption, production and
distribution with a view to ensuring the social welfare through the economic
development of a country, tax can be used as an important tool in the following
manner: optimum allocation of available resources, raising government revenue,
encouraging savings and investment, acceleration of economic growth, price
stability, control mechanism and others. One of the major problems to be
addressed is "the poor fiscal discipline in the allocation of resources
and the operations of an ineffective tax regime in Nigeria". Therefore,
this study examines whether taxation can serve as a tool for economic growth
and development in Nigeria.
1.3. OBJECTIVES OF THE STUDY
This study generally seeks to identify the extent to
which taxation can be used as an instrument for economic growth and development
in Nigeria. While the specific objectives are as follows:
i.
To investigate, the extent to which taxation has
relationship with the Gross domestic product in Nigeria.
ii.
To examine, the role of taxation on employment in
Nigeria.
1.4. RESEARCH QUESTIONS
i.
Has taxation related with the Gross domestic product
in Nigeria.
ii.
Does taxation play any role on employment in Nigeria.
1.5. RESEARCH HYPOTHESES
Hypothesis 1:
H0; Taxation has no significant relationship with
the Gross Domestic Product (GDP) in Nigeria.
H1; Taxation has significant relationship with the
Gross Domestic Product (GDP) in Nigeria.
Hypothesis II:
H0; Taxation does not have positive significant
relationship with employment in Nigeria.
H1; Taxation has a positive significant relationship
with employment in Nigeria.
1.6. SIGNIFICANCE OF THE STUDY
Government: This study is of immense significance at all levels of
government including both the federal, state and local governments, as it
depicts the relationships and impacts of taxation on economic growth and
development of Nigeria.
Relevance
of Tax Collection: The essence of this research work is to evaluate taxation as a tool for
economic growth and development in Nigeria. Thus, this study will at a wide
range be beneficial to the federal, state and local governments as well as
international communities, as it will highlight the relevance of taxation in the
society.
Granting
more experience on Tax Payments: This study would also be of immense benefit to
employees of Federal Inland Revenue Service (FIRS), who has been at the fore
front of experiencing incorporation of tax payers by paying their taxes promptly.
Encouraging
Tax Remittance: This study would be beneficial to the public, private sectors,
individuals, business owners will find it necessary by encouraging them to
comply by remitting their taxes.
Further
Studies: It would also be of huge benefits to students of higher
institutions who may wish to carry out further research on similar topics.
1.7. SCOPE OF THE STUDY
The study is concerned with the evaluation of
taxation as a tool for economic growth and development in Nigeria. The study
will also consider, how taxation has affected the Gross Domestic Product of
Nigeria and also the effect of taxation on employment in Nigeria from 2006-2015
1.8. LIMITATIONS OF THE STUDY
The limitation encountered in this study includes
the following;
Hoarding
of Data:
The inability of the researcher to collect adequate data in Enugu, which
brought about the need to travel down to Abuja, so as to gather data's needed
for the study in National Bureau of Statistics.
Existing
Data’s: The
gathered materials and data's are not essentially, the one formulated
personally by researcher; they are already formulated information’s and data’s
that were used for this study.
Country
Barrier:
The results of this study can only be restricted to Nigerians and no other
parts of the world as it only gives a general overview of Nigeria and no other
countries.
1.9. DEFINITION OF TERMS
Federal
Inland Revenue Service (FIRS)
Gross
Domestic Product (GDP): it is the monetary value of all the finished goods and services produced
within a country's borders in a specific time period. Though, GDP is usually
calculated on an annual basis, it can be calculated on a quarterly basis as
well.
Taxation: it is a compulsory levy
imposed on a subject or upon his property by the government to provide
security, social amenities and other amenities for the well-being of the
society.
Petroleum
profit tax act (PPTA): it is an act that regulates the petroleum profit tax and also specifies
how profit from petroleum will be taxed.
Economic
Growth: Economic
Growth is an increase in a country’s physical output over a long period of time
Economic
Development:
Economic Development is the elimination or reduction in poverty, inequality and
unemployment within the context of a growing economy; there might be growth
without economic development
Economy: Economy is the large set of
interrelated production and consumption activities that aid in determining how
scarce resources are allocated.
Development: development is the
systematic use of scientific and technical knowledge to meet specific
objectives or requirements.
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