A CRITICAL APPRAISAL OF TAXATION AS AN INSTRUMENT OF ECONOMIC GROWTH IN NIGERIA

A CRITICAL APPRAISAL OF TAXATION AS AN INSTRUMENT OF ECONOMIC GROWTH IN NIGERIA

 

 

BY

 

 

OGUNLEYE, FOLORUNSHO ISAAC

MATRIC NO: 0802425

 

 

 

DEPARTMENT OF ACCOUNTING,

FACULTY OF THE MANAGEMENT SCIENCES, EKITI STATE UNIVERSITY, ADO-EKITI, NIGERIA.

 

 

MARCH, 2013.

A CRITICAL APPRAISAL OF TAXATION AS AN INSTRUMENT OF ECONOMIC GROWTH IN NIGERIA

 

 

BY

 

 

OGUNLEYE, FOLORUNSHO ISAAC

MATRIC NO: 0802425

 

 

 

 

BEING A PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTING, FACULTY OF THE MANAGEMENT SCIENCES, EKITI STATE UNIVERSITY, ADO-EKITI, NIGERIA.

 

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF BACHELOR OF SCIENCE (B.Sc.) DEGREE (HONOURS) IN ACCOUNTING.

 

MARCH, 2013.

CERTIFICATION

This is to certify that this research work was carried out by OGUNLEYE, FOLORUNSHO ISAAC with Matriculation Number 0802425 of the department of Accounting has been carefully read through and approved as adequate and qualify for a partial fulfillment for the award of Bachelor of Science (B.Sc.) in Accounting of Ekiti State University.

 

 

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  1. OLUWAKAYODE, E.F. Signature and Date

Project Supervisor

 

 

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  1. AWE, A.A. Signature and Date

Head of Department

 

………………………………..                             ……………………………….

External Examiner                                                         Signature and Date

 

 

 

 

DEDICATION

This research work is dedicated to God Almighty, the Alpha and Omega, the rule of the universe, the custodian of great wisdom and giver of knowledge for His blessings and guidance throughout my four years’ study in Ekiti State University.


 

 

ACKNOWLEDGEMENT

Firstly, I appreciate the Lord Almighty who has being my help and sufficient throughout my stay in school. My unalloyed appreciate  goes to my supervisor, MR. OLUWAKAYODE, E.F. for his useful advice, support, suggestions and direction during this project work. I say a very big thank you Sir. I also acknowledge the effort of all the lecturers in the department for impacting me during my degree programme.

My warm appreciation goes to the Head of Department  Dr. AWE, A.A.  for his fatherly role in the department.

My special thanks goes to my parent Mr. and Mrs.  E.O. Ogunleye for their parental care, encouragement, prayers and financial support towards the successful accomplishment of my degree programme in this citadel of learning (EKSU).

I also want to use this medium to appreciate my uncle and his wife Prof. and Mrs. I.E. Owolabi for their support and guidance throughout my stay in school. May God reward your kind gestures.

I also want to acknowledge my loving brothers; Bro. Sunday and Bro. Gbenga and not to forget my sweet sister Taiwo. May God continue to be with you all. To all my friends; Ademola Jimoh (Prof), Funsho Ajayi (Honourable Jay), Seun Tanimola (Noble Flow), Ibukun Odejide (IBK), Azeezat Elegushi, Bimbo Ajileye and all my close associate  that I cannot exhaust all your name on this page for your support and loyalty in all facet of my academic pursuit on campus. I hold you guys at high esteem.

To my Greenwich  family; Bro. Segun, Bro. Kot, Olumide, Kunle, Bro. IBK, Bro. Oye, Bro. Kunle, Bro. Kenny, Femi Ofini, Oyin Williams, Bro. Taiwo(Chairman) and all occupant for your peaceful co-existence throughout my stay in school.

Lastly, my undiluted appreciation goes to my spiritual home, Redeemed Christian Fellowship (RCF EKSU) for a wonderful spiritual experience, TLG my executive family in the fellowship and EDITORIAL my nuclear family in the fellowship. Also never to forget GTI. I just want to say I love you all, thanks for accepting me the way I am, you  have all contributed immeasurably to my success in life. May God Almighty be with you all (AMEN).

 

 

 

 

 

 

 

ABSTRACT

 

The study set out to critically appraise taxation as an instrument of economic growth in Nigeria. Taxation was been neglected in Nigeria by various government in power after the discovery of oil. However, the subject was beginning to attract more attention from the government because of the volatility of oil prices, the agitation of oil producing states to control their resources and the felt need to diversify the nations economy. The unpredictable fluctuation in petroleum price which has continue to result into low accruable income needed to facilitate economic  growth and development.  Hence, the three levels of government are now constrained to revitalize their tax system either by modifying the existing tax laws or introducing new ones. Though, tax is seen as a punitive instrument by some certain class but is a veritable tool employed by the developed nation to accelerate their economic growth.

The study was limited to 10 years of data which was gathered from secondary sources and the ordinary least square analysis method was used to test the reliability and validity of data collected. It was also used to determine the relationship that exist between the variables used during the course of the study.

However, from the research findings, it was concluded that there  exist a significant relationship between taxation and economic growth of Nigeria and also significant relationship between taxation and revenue generation in Nigeria. Finally, it is hope that better tax structure should be put in place to ensure effective execution of the various tax Acts that will lead to rapid economic stability and growth of the nation.

 

 

 

TABLE OF CONTENT

Title

Certification

Dedication

Acknowledgement

Abstract

Table of Content

CHAPTER ONE

  • Introduction

1.1 Background of the Study

1.2 Statement of the Problem

1.3 Objective of the Study

1.4 Significance of the Study

1.5 Research Questions/ Hypothesis

1.6 Research methodology

1.7 Scope and Limitations of the Study

1.8 Definition of terms

1.9 Organisation of the study

End of chapter references

CHAPTER TWO

  • Literature Review

2.1 Introduction

2.2 Definition of Taxation

2.3 Historical and Legal Development of Taxation in Nigeria

2.4 Characteristics of Taxation

2.5 Objectives of Taxation

2.6 Structure of the Nigeria Tax system

2.7 Principles of Taxation

2.8 Sources of Nigerian Tax Laws

2.9 Nigerian Tax Laws

2.10 Organ of Tax Administration

2.11 Sources of  Revenue to the Nigeria government

2.12 Tax Jurisdictions

2.13 Tax Exemptions

2.14 Problems of Taxation in Nigeria

End of Chapter References

CHAPTER THREE

  • Research Methodology

3.1 Research Focus

3.2 Research Instruments

3.3 Restatement of Research Questions/ Hypothesis

3.4 Description of the Population and Sample of the Study

3.5 Sources of Data Collection

3.6 Method of Data Analysis and Description of Tools of Analysis

End of Chapter References

CHAPTER FOUR

  • Data Analysis, Interpretation and Discussion of Findings

4.1 Interpretation of Items

4.2 Analysis of Data

4.3 Analysis of Table

4.4 Test of Hypothesis

End of Chapter References

CHAPTER FIVE

  • Summary, Conclusion, Recommendation and Suggestions for further studies

5.1 Summary

5.2 Conclusion

5.3 Recommendation

5.4 Suggestions for further studies

End of chapter references

Bibliography

Appendices:

Appendix A: Data Analysis variables (2002-2011)

Appendix B: Descriptive Analysis (Gross Domestic Product)

Appendix C: Descriptive Analysis (Government Revenue)

Appendix D: Analysis of Empirical Result Presentation (GDP)

Appendix E: Analysis of Empirical Result Presentation (GREV)

 

CHAPTER ONE

  • INTRODUCTION

1.1     BACKGROUND OF THE STUDY

According to Black Law Dictionary, tax is a ratable portion of the produce of the property and labour of the individual citizen, taken by the nation, in the exercise of it’s sovereign right, for the support of government, for the laws, and as the means for continuing in operation the various legitimate function of the state. The Institute of Taxation of Nigeria (2002) viewed tax as ‘an imposed or enforced contribution of money, enacted pursuant to legislative authority. If there is no valid statute by which it is imposed, a charge is not tax’.

Tax is assessed in accordance with some reasonable rule of apportionment on a persons or property within jurisdiction. Sanni (2007) advocated tax as an instrument of social engineering which can be used to stimulate general or special economic growth. Nigeria is richly blessed with oil and gas among other mineral resources, but the over dependence on oil revenue for the economic growth and development of the country has left much to be desired.

According to Ariyo (1997) he posited that “Nigeria over dependence on oil revenue to the total neglect of other revenue source was encouraged by the oil boom of 1974. This is unsustainable due to the fluctuation in the oil market which have in most cases plunged the nation into deficit budget”. It was the view of Popoola (2009) that, Nigeria tax administration and practice be structured towards economic goal achievement since government budget for the year centers on the oil sector.

While decrying the low productivity of Nigerian tax system, “deficiencies in the tax administration and collection system, complex legislations and apathy on the part of those outside the tax net” were identified as some of the root causes. Ijewere (1991) and Ndekwu (1991) as cited in Ariyo (1997). The incessant unemployment and lack of basic infrastructure in major parts of the country are product of poor tax system which could have provided for alternative source of revenue. The sudden mega city status attained by Lagos State was as a result of a well structured tax system which has helped in the growth and development of the state.

With the growing population of the country, the government need to develop alternative streams of financial relief aside from crude oil in other to combat the increasing need for welfare and security services of her populace. Section 14 (29) of the 1999 constitution states ‘the security and welfare of the people shall be the primary purpose of government…’ (Olaoye 2008).

Taxation can play a significant role in advancing the growth of the economy if it is well structure and money accrued from it are channeled towards infrastructure and social amenities. Proper mobilization of resources from taxation is seen as the key to unlocking public investment, unemployment and overall economic growth. Government must also take care in curbing tax evasion and avoidance which is common among Nigerian. Country like Britain majorly depends on tax to generate revenue and provide basic needs for her citizens.

Therefore, a well structured tax administrative system would in a long way address the inadequate financial resources which is needed for economic growth and development.

 

1.2     STATEMENT OF THE PROBLEM

For any government to achieve it’s primary function of providing essential services (security and welfare) to the people of her country, a sustainable revenue generation policy must be adopted in other to grow and develop.

One of the greatest challenges of the government of today is lack of basic amenities, wealth redistribution to establish equality and also to create another major source of financial income aside from oil. One major question the government of today need to answer is when the black gold (crude oil) Well dries up today, how do we survive as a nation?

The Nigerian economy is a ‘mono-economy’ which mainly depend on one commodity which is oil. Though, oil still stand as the major source of foreign exchange of the country which implied that, government earn most of her income through oil taxes, but since it is not the only method of generating revenue, this has been a failure of successive administration in the country who have shy away from other sources.

 

1.3     OBJECTIVE OF THE STUDY

The overall objective of the study is to evaluate taxation as an alternative instrument for economic growth in Nigeria with a view of suggesting some solving measures, the specific objectives are;

  • To examine ways in which more revenue could be generated through taxation.
  • To examine other taxable income apart from oil taxes.
  • To analyse and evaluate the types or sources of revenue through taxation and also the effect of tax laws.
  • To examine the problem associated with generating revenue through taxation.
  • To assess the impact and level of tax revenue generated on the overall economy of the country.

1.4     SIGNIFICANCE OF THE STUDY

The study is relevant in the economy now than ever before due to the escalating problems on lack of social infrastructure which could bring about economic development and growth in the country. One significant aspect of this study is centered on providing alternative economic development therapy through a well structured tax system.

The research work will contribute to the already available empirical literature and outline the critical challenges facing the government in area of economic growth. Such challenges as tax evasion and avoidance, narrow revenue tax base, weak tax administration, corruption and fraud tax administration in Nigeria which has led to poor revenue generation so that appropriate measures could be taken to tackle this problem.

1.5     RESEARCH QUESTIONS/HYPOTHESES RESEARCH

QUESTIONS

  1. Does taxation have any impact on the level of revenue generated?
  2. Has revenue generated from tax impacted positively on the overall economic growth?
  3. Does the income of taxable persons have any effect on the total revenue generated?
  4. Has tax laws promulgated help to reduce tax evasion and avoidance?
  5. Has tax been able to redistribute wealth and income to promote welfare and equality among the citizen?

HYPOTHESES

The hypotheses postulated for the purpose of this study are;

Ho:    Taxation does not have any effect on the economic growth of

Nigeria

Hi:     Taxation has an effect on the economic growth of Nigeria

Ho:    Taxation does not have any effect on the revenue generated in

Nigeria

Hi:     Taxation has an effect on the revenue generated in Nigeria

1.6     RESEARCH METHODOLOGY

The data for this research would be gathered using secondary sources, that is, already published books, journals, government gazette, relevant textbooks and internet research.

Relevant information on tax structure and characteristics of Nigeria shall be collected from different publication of the Central Bank of Nigeria (CBN), CITN.org, Federal Inland Revenue Services (FIRS) and shall be presented using percentages, ratios and tables.

For clarity and proper analysis of how revenue generation in Nigeria could be improved upon through tax, this has necessitate the usage of these methods. The data will be more concise and simple to understand for readers.

 

1.7     SCOPE AND LIMITATION OF THE STUDY

For the purpose of brevity and flow of relevant facts, this research work is confined to appraise taxation as an instrument for economic growth in Nigeria. It touches briefly taxation as a whole without going in depth into the various types of taxes. The main idea is to assess taxation in Nigeria as a whole and draw-up conclusion and recommendation to existing work on taxation.

Due to the broad nature of our subject of discuss, some factors which militate against the process of getting quantitative and qualitative information needed for research work are; time constraint, availability  of data and finance.

Another limitating factor faced in the gathering of information for this research work is the issue of confidentiality, whereby some sets of information are difficult to obtain due to the degree of vitality of such information to the organization.

1.8     DEFINITION OF TERMS

Assessment: This is the process of computing the tax liability of a tax payer by complying with the laid down legislation how such persons should be taxed.

Economic Growth: Is concern with the relative change in the real value to volume of goods and services produced by a country for final demand (i.e. demand by households, consumers, government, capital formation and net exports).

Person: Means a company and any unincorporated body of persons.

Profit: Excess of revenue over expenditure obtained in any business endeavour.

Revenue: These are money collected from sales of goods and services.

Tax: It is an amount of money that you must pay to the government according to your income, property, goods e.t.c that is used to pay  for public services and perform other social responsibilities.

Tax Avoidance: is an Endeavour on the part of the tax payer to reduce his tax liability by taking advantage of the specific provision of the law.

Tax base: This is the basis of taxation i.e. what is to be tax.

Tax evasion: is a criminal procedure of manipulating the tax form.

Taxable income: is the aggregate assessable income from all sources for the year after adding balancing charge and deducting losses and capital allowance.

Taxation: is a system of imposing a compulsory levy on all income, goods, services and properties of individuals, partnership, trustees, executors and companies by the government which is supported by law

1.9     ORGANISATION OF STUDY

This research work shall be divided into five chapters;

Chapter one: Begins with the introduction, background of study,

statement of problems, objective of the study, significance of study, research questions and hypotheses, research methodology, scope and limitation of the study, definition of terms.

Chapter two: This consist of the literature review which focus on

taxation as an instrument for economic growth in Nigeria, with various contributions by scholars on the subject matter critically looked into.

Chapter three: it centers on the procedures and other research

activities and method employed. These are sectionalized into the following; research focus, research instruments, restatement of search question/hypotheses, description of population and sample of the study, source of data collection, description of tools of analysis and method of data analysis.

Chapter four: it examines the data analysis, interpretation and

discussion of findings for understanding of the context of the research work.

Chapter five: the last chapter of the research summarizes and make

recommendations and conclusion based on the overall findings in this research work.


END OF CHAPTER REFERENCES

Bakare, I.A.O. et al (1999) Principles and Practice of Economic” Ramson Printing Services, Lagos.

 

James, A. (2012) “Impact of Tax Administration on Government Revenue in a Developing Economy” Leicester Business School International Journal of Business and Social Sciences, Vol. 3 No. 8, Page 1 and 2.

 

Olaoye, .C.O. (2008) “Concept of Taxation in Nigeria” Clemart Publishing, Kwara State.

 

Olaoye, .D. (2008) “Concept and Practice of Public Sector Accounting in Nigeria” Aseda Publishing, Ibadan.

 

 

 

 

 

 


CHAPTER TWO

  •          LITERATURE REVIEW

2.1     INTRODUCTION

Globally, government is saddled with the responsibility of providing some basic infrastructure for her citizens. Among these are the provision of school, hospital, construction of roads, bridges, railways, airports and seaports. Moreso, is the security of life’s and property of the citizen in the country against foreign or local aggression. Abdulfattah o. et al (2010) stated “most southeast governors are spending fortune to keep the police and other security agencies”.

The stabilization of the economy, the redistribution of income provision of services in form of public goods are among other functions and obligation government owes her citizen. Tax, is a necessary ingredient for civilization. The history of man has shown that, man has to pay tax in one form or the other, that is, either in cash or in kind, initially to his chieftain and later on a form of organized government (Ojo, 2003).

Lopez and Kadar (2001) posited that taxation among Organization for Economic Development Countries (OEDC) had uniformity been geared towards efficiency, increased tax revenue equity and enforceability. Having stated some of the functions of government to the citizen, using taxation as a tool, the objective of taxation as a tool, can therefore be summed up as in Nightingale (2002) and Lyme and Oats (2010);

  1. Raising revenue to finance government expenditure.
  2. Redistribution of wealth and income to promote the welfare and equity of the citizen and
  3. Regulation of the economy thereby creating enabling environment for business to thrive.

Taxation is therefore, one among other means of revenue generation of any government to meet the need of the citizen. According to Public Financial General Directorate (2009) the purpose of taxation as enshrined in the French law is “For the maintenance of public force and administrative expenses”. Miler and Oats (2006) maintained taxation is required to finance public expenditure. It is worthy of note however, that there are other sources of revenue generation by the government e.g. borrowing, grant e.t.c.

Some countries tax system is structured purely towards revenue generation and that has negative effect on the economy Laffer (2009) cautioned that, a government simply cannot tax a country into prosperity. As important as tax revenue is to a nation, many people still find it difficult to comply with their tax obligation. Nightingale (2002) opined that no one really likes paying taxes yet they are inevitable for the provision of social welfare. With the exception of countries like UK, America, France and a few others where taxation seems to be the main sustenance of the economy, every other nation almost look up to the government as the almighty provider of basic amenities.

A closer examination of some of the factors or reasons for the uncooperative attitude of people towards taxation reveals that the onus is on the complication and complexity of tax policies and administration in the country most  times, the resistance to taxation is so fierce that it could lead to social unrest. Tracing back memory lane in Nigeria, the Aba Women Riot of 1929 was one of the historic resistance and challenge against the British during the colonial era which was prompted by the introduction of taxation by Lord Lugard who was than the governor (Evans 2009). The women who felt oppressed took to arms and forcing the colonial master to withdraw the policy. This point to the fact that, the content and modus operadi of the tax system would determine whether the tax payer would evade or comply with the relevant tax laws.

According to (United Nation Secretariat 1975 P.58) Taxation not only can help to bridge the gap between savings and investment but can also be used as one of the instruments for resources allocation, redistribution of income and economic stabilization. The shortfall in revenue is thus largely a reflection of failure to tax the wealthier sectors of the country effectively. Though progressive income taxes and inheritance taxes exist on paper in most of the underdeveloped or semi-developed countries, except in few cases in which such taxes are effectively practice (Kaldor 1975,P.31).

If taxation is for public expenditure, public goods ought to have been consumed equally. The elites in the society have retinue of security men attached to them for protection especially in emergency cases but not the common man whose safety is just by implication even when they represent a higher percentage of the tax paying population. Since the use of most of the facilities for which the general tax revenue is raised is not equally felt among the cross-section of the populace, tax therefore remain a punitive levy on the deprived of these services. This is even worsening with the definition of Nightingale (2002) “…imposed by government while taxpayer may received nothing identifiable in return for their contribution…” Osunkoya (2009) on his part warned that, payment of tax does not mean that government must do something within the locality of the taxpayer.

This respected tax experts seems to forget that evidence of taxation seen in public goods encourage the taxpayer. This may account for the high evasion rate as tax is assumed exploitative instead of developmental.

The survival of any growth oriented nation in this 21st century will solely depend on how best it has leverage on its various channel of revenue comparative advantage over other developing nation in other to ameliorate the level of infrastructural challenges prevalent in the country to create an enabling environment for investment which will lead to overall economic growth and development.

Nigerian cannot grow into optimum economic capacity if we continue to rely on obsolete economic practice of mono -economic culture.

2.2     DEFINITION OF TAXATION

Tax is defined as a “levy imposed by the government against the income, profit or wealth of the individual, partnership, corporate organization”. Tax according to Black law Dictionary is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (for example, secessionist movement or revolutionary movements). Taxes consist of direct tax or indirect tax and may be paid in money or as its equivalent.

Taxation as defined by Ogundele (1999) is the process or machinery by which communities or groups of persons are made to contribute  in some agreed quantum and method for the purpose of the administration and development of the society.

Adebisi (2010) also defined taxation as the legal demand made by the Federal Government or State government for its citizen to pay money on income, goods and services. In Ola (2002) he viewed and defined taxation as a compulsory levy imposed on a subject or upon his property by the government to provide security, social amenities and create conditions for the economic well being of the society.

2.3     HISTORICAL AND LEGAL DEVELOPMENT OF

TAXATION IN NIGERIA

Tax Administrative structure operational in any country is dependant or a derivative of the history, economic structure and political economy of that country. Thus, in the case of Nigeria, her colonial history is particularly relevant.

In Nigeria, the history of taxation dated back to the era of the Sahara trade and the introduction of Islamic religion in Nigeria between 800 AD and 1400 AD. The rulers in the Northern Nigeria were known as “SAFAWA” which connote kings who grew rich due to gifts and levies paid to them by their subordinates as taxes on cattle and agricultural produce. Various forms of taxes was later introduce by the Islamic religion namely: Zakat, Kurdin Kasa, Shukka Shukka, Kharant, Jangalia e.t.c. the  Zakat was imposed  on educational and charitable purposes.

The Obas and Ezes in the southwest and southeast relied on tributes, arbitrary levies, special contributions at special festivals or events, fees, presents, all collected through the head of families. The first legal backing of taxation was in 1904 when Sir Fredrick Lugard introduced the Native Revenue Proclamation was further enhanced in 1906. The tax revenue proceeds was shared equally between the local or native authorities and the British or Central Government authority.

These enactments were followed by many other legislations which the colonial masters introduced during their era. After independence in 1960, the government enacted three major tax laws namely;

  • Federal Income Tax Act (FITA) 1961.
  • Income Tax Management Act (ITMA) 1961.
  • Companies Income Tax Act (ITA) 1961.

These enactments formed the bedrock of modern taxation in Nigeria. The Income Tax Management Act (ITMA) 1961 model for all the personal income tax laws operational in regions with amendments. However, in 1993 through Decree 104 the EGW enacted the Personal Income Tax Act 1993 to repeal all previous tax law on Personal Income Tax in Nigeria. The  Companies Income Tax Act (CITA) 1961 was applied to companies in Nigeria. The law was repealed and later replaced with the companies Income Tax Act (CITA) in 1979 with amendments in 1993.

2.4     CHARACTERISTICS OF TAXATION

Tax can be defined as “ a compulsory contribution to the support of government levies on persons, property, income, commodities, transaction e.t.c now at a fixed rate mostly proportionate to the amount on which the contribution is levied” (Crowder, 1998) as it  can equally be confirmed in (Tiley,1981).

Therefore from the above definition, Adebisi (2010) stated three major characteristics of taxation as follow;

  • Tax is a compulsory contribution imposed by the government on the people residing within the country. Since it is compulsory, it then means that persons who comes under a tax jurisdictions and refuses to pay is liable to punishment.
  • Tax is not a levy in return for any specific services rendered by the government to the taxpayer. An individual cannot ask any special benefit for the state in return for the tax paid by him.
  • Tax is a contribution to settle the cost incurred by the government of the state, the state uses the revenue collected from the taxes to provide goods and services such as hospital, school, public utility service and so on which benefit all the people.

2.5     OBJECTIVE OF TAXATION

In both developed and developing economies, the primary purpose of taxation is mainly to generate revenue to execute government financial obligations in terms of providing social amenities and welfare of the populace.

Taxation is most often used as a major instrument for economic growth and development. Naiyeju (1987) is of the opinion that the revenue role of taxation is still very relevant. This primary function of tax is vital in terms of mobilization of funds via savings or taxation into the other sectors of the economy. It may be difficult for the government to carryout all it’s developmental programmes needed for economic growth and wealth creation without a well structured tax system.

However, it is not the imposition of taxes that matters but their effectiveness in meeting certain fiscal, social and economic objectives. The objectives of taxation could be summarized as follows:

  • Economic growth and development via a well planned savings and  investments programmes.
  • Redistribution of income and wealth of the nation. A situation whereby, the rich pay more tax than the poor. This is achieved by the graduation or “progressiveness” of the rates at which the taxes are levied.
  • To discourage the consumption of harmful substances or goods such as alcohol, cigarette e.tc.
  • To raise money for the provision of services such as defence, health, services, education e.t.c
  • To harmonize diverse trade or economic objectives of different sector so as to provide for the free movement of goods and services, capital and people between member states.

 

 

2.6     STRUCTURE OF THE NIGERIA TAX SYSTEM

The structure of the tax system in Nigeria can be classified into two forms:

Under the first form of classification, Nigeria taxes are classified into

(i)      Proportional Tax System (Neutral)

This form of tax assess tax payer on tax on a fixed percentage. Under this system the tax is proportional to the tax base or income at a fixed rate. In another word, it does not take cognizance of the economic situation of the tax payer . For example, if the tax rate is fixed at 10% every tax payer will have to pay income tax at this rate as his /her income increases.

Tax Payer’s Income               Tax Rate              Tax Payable

N                                              %                         N

15,000                                     10                         1,500

30,000                                     10                         3,000

45,000                                     10                         4,500

 

From the table above, a taxpayer whose income doubles, pays double the amount of tax. That is , when the income was N15,000, the tax payable was  N1,500, but when the income increased to N30,000, the tax payable went up to N3,000.

The proportional tax system is impartial and does not need to disincentive to effort even though it does not provide incentive either. Its disadvantage are that it is insensitive to economic situation and it is ask against the spirit of social equity.

 (ii)    Progressive Tax System

This form of tax is graduated as it applies higher rates of tax as income increases. For instance, the progressive tax concept can be explained using the below illustration.

Personal income tax table

Taxable Income                      N                          Tax Rate

First                                        30,000                  5

Next                                       30,000                  10

Next                                        50,000                  15

Next                                         50,000                  20

Over                                        160,000                25

 

From the illustration above, it shows that progressive tax system has a main objective of redistributing the income of the rich to that of the poor in some ways. However, it may also lead to disincentive to effort as people pay exorbitant taxes on their additional income after certain level.

(iii) Regressive Tax System

Under this type of tax, the tax payable decrease as the taxpayer’s income increases. A high income person pays less tax than a low income person in a regressive tax system.

Regressive Tax Table

Tax Payer’s Income               Tax Rate              Tax Payable

N                                             %                         N

20,000                                     30                         6,000

40,000                                     20                         8,000

60,000                                     10                         6,000

80,000                                     5                           4,000

This system may not be suitable for developing countries as it yields low revenue and condone political and social reactions. However, it is not commonly applied even in developed countries.

The second form of tax classification is by incidence that is, who bears the burden of tax which is given as follows:

  • Direct Tax

This are taxes that are levied on the income, gains or profit of individuals and business firms, and which are actually paid by the person or persons on whom is legally imposed. This view was aptly  experienced by John Staurt Mill who define tax as one which is “demanded from the very person who  it is intended or desired should pay it. In Nigeria, direct taxes include the following;

  1. Personal Income Tax: This is a tax on the income of an employers, sole trader, partnership and personals.
  2. Company Income Tax: This applies to the profit or income of companies which are usually operate economic.
  • Capital Gain Tax: This affects companies, individuals and non-corporate bodies. It is tax on the gains arising from the disposal of items of capital nature.
  1. Petroleum Profit Tax: This is a tax payable by entity that engage prospecting for or the extraction and transporting of petroleum oil on natural gas.
  • Indirect Tax

An indirect tax is a tax imposed on employment of goods and services by individuals as well as cooperate persons. It is impose on one person, but paid partly or wholly by another, owning to “a consequential change in the terms of some contract or bargain between them “in Nigeria, examples of indirect tax are as follows;

  • Import Duties/Tariff
  • Stamp Duties
  • Custom Duties
  • Excise Duties
  • Value Added Tax (VAT) etc.

Indirect taxes may affect the cost of living, as they constitute taxation on expenditure.

2.7     PRINCIPLES OF TAXATION

A good tax system is easy to administer and shares the burden of taxation justly it should be well noted that a good tax system operates under a number of principle (Uremadu 2000). A good tax system must be  based on principles as thus explained.

  • Equity: Treatment of similarly situated tax payers or that people should pay tax according to their abilities to pay (Uremadu, 2000; Harvey,1982; Musgrave, 1987).
  • Certainty: The amount of tax to be paid , the time of payment and the manner of payment should be certain and clear to both tax payers and tax officials. As a matter of fact, a tax system should be simple, easily assessed. There exist two aspect of certainty in this perspective. That is (i) certainty in amount to pay and (ii) certainty in collection (Uremadu, 2006).
  • Convenience: A good tax system should be convenient in terms of time and mode of payment, to the tax payer. As a matter of fact, a tax system should be simple, easily assessed and understood and be collected at minimal costs (Uremadu, 2000).
  • Economy: According to Harvey (1982), the total cost of collection should be small when compared with the tax yield or amount realized from tax. Economical in this respect is seen in terms of costs or cost implication of the tax system adopted by the taxing body, authority or government in question.
  • Productive: A good tax system should be such that brings in sufficient revenue to the government. For example the U.S income tax and Nigeria Value Added Tax (VAT) are two different tax systems which has yielded huge revenue to government in recent times.
  • Simplicity: This is usually a good tax system when it is simple and not complex. It should be simple and well understood by both the tax payer’s and tax administrators.

2.8     SOURCES OF NIGERIAN TAX LAWS

The sources of Nigerian Tax laws are:

  1. Legislations such as Personal Income Tax Act (1979), companies Income Tax Act (1961), Petroleum Profit Tax Act (1959), Income Tax Management Act (1961) e.t.c.
  2. 1999 Federal Constitution and its amendments.
  • Court Judgments.
  1. Circulars and practices of Inland Revenue Officials.
  2. Opinion of Income Tax experts.
  3. Budget and Pronouncements of relevant ministries.

2.9     NIGERIAN TAX LAWS

The major legal framework regulating the collection of taxes in Nigeria are as follow:

  • Personal Income Tax Act (PITA) Cap. P8, LFN 2004:-

This enables the imposition of tax on incomes of individuals, sole traders and partnerships. For example, Pay-As-You- Earn (PAYE) by employees is covered by the provision of this Act.

  • Companies Incomes Tax Act (CITA) Cap. C21 LFN 2004:-

This imposes tax on the incomes of companies other than sole proprietorships and companies engaged in downstream petroleum operations. For example corporation tax whose rate fluctuates between 30%-45% depending on yearly fiscal policies by the federal government.

  • Petroleum Profit Tax Act (PPTA) Cap. P13, LFN 2004:

This imposes taxes on the profits of companies engaged in the upstream petroleum operation.

  • Value Added Tax Act (VAT) Cap. VI, LFN 2004; Which replaced sales tax in 1994. It imposes tax on the supply of goods and services by businesses that are not specifically exempted from the payment of such a tax.
  • Stamp Duties Act (SDA) Cap. 58, LFN 2004: These are changes on all contract documents listed in the Act.
  • Education Tax Act (ETA) Cap. E4, LFN 2004: This imposes education levy/tax on the assessable profits of all registered companies in Nigeria.
  • Capital Gain Tax Act (CGTA) Cap. C1, LFN 2004: This imposes tax on capital Gain arising from disposal of chargeable Assets listed in the Act.

2.10   ORGANS OF TAX ADMINISTRATION

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 Provision) Decree 1998, means “ the Federal Board of  Inland Revenue, the State Board of Internal Revenue or the Local Government Revenue Committee”.  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.

2.10.1 FEDERAL BOARD OF INLAND REVENUE (FBIR)

The administration of taxes on profit of all incorporated companies and income tax of the Armed Forces and residents of the Federal Capital Territory is vested in the FBIR whose operational arm is known as  the Federal Inland Revenue Service (FIRS). This is covered by section 1 (1) of CITA

COMPOSITION OF THE BOARD

The Board consist of:

  • Executive Chairman:- To be appointed by the president.
  • All FIRS Directors and Heads of Department
  • The Director of Planning, Research and Statistics in the Federal Ministry of Finance.
  • A Member of the Board of the National Revenue Mobilization Allocation and Fiscal Commission.
  • An officer from NNPC not below the rank of an Executive Director.
  • A Director from the National Planning Commission.
  • A Director from the Nigerian Customs Services.
  • Registrar General of the Corporate Affairs Commission
  • The legal adviser to the FIRS.
  • A secretary (can be an Ex-officio member) who shall be an employee of the FIRS.

Any seven (7) members of the Board shall constitute a quorum provided there is in attendance the chairman or a Director of a department of FIRS.

FUNCTION OF FBIR

The function of the board are:

  1. Administration of CITA and other tax Acts as may be vested in FBIR.
  2. Assessment and collection of companies Income Tax.
  3. Accounting for all amounts collected in a manner to be prescribed by the minister of finance.
  4. Issuing directives or guidelines on the interpretation of the provision of CITA and other tax laws.

The Technical Committee shall consider and make recommendations to the board on all tax matters that require professional and technical expertise.

2.10.2 STATE BOARD OF INTERNAL REVENUE(SBIR)

Section 87 of PITA provides for the setting up of a Board of Internal Revenue for each state whose operational aim is to be known as the state internal revenue service (SIRS).

COMPOSITION OF THE BOARD

The Board of Internal Revenue for each state and the FCT, Abuja consists of

  1. The chief executive of the state internal revenue service as chairman
  2. Directors and head of department.
  3. A director from the state ministry of finance.
  4. The legal adviser to the SIRS.
  5. Three other persons nominated by the commissioner for finance on their personal merit and
  6. A secretary ( an ex-officio member) who shall be an employee of the SIRS.

Any  five member of the state Board of internal revenue, of whom one shall be the chairman or a director, shall constitute a quorum.

FUNCTION OF THE SBIR

The State Board shall be responsible for;

  • Ensuring the effectiveness and optimum collection of all taxes and penalties due to the government under the relevant law.
  • Appoint, promote, transfer and discipline of employee of the state service.
  • General control of the management of the service on matters of policy subject to the provision of the law setting up the service.
  • Making recommendation where appropriate to the joint tax board on tax policy, tax reform, tax legislation, tax treaties and exemption as may be required from time to time.

In order to assist the SBIR in the performance of its duties, section 89 of PITA also provides for the establishment of a sub-committee of the Board known as “the Technical  Committee”.


2.10.3 LOCAL GOVERNMENT REVENUE COMMITTEE

This committee was established by the provision of section 90 of PITA. It states that each local government in Nigeria should have local government revenue committees (LGRC’s)

COMPOSITION OF LGRC’S

The committee shall consist of ;

  1. The supervisory councilor for finance as chairman.
  2. Three local Government Councilors as members, and
  3. Two other persons experienced in revenue matters to be nominated by the Chairman of the Local Government on their personal merits.

FUNCTIONS OF LGRC’S

The committee shall be responsible for the assessment , and collection of all taxes, fines and rates under its jurisdiction and shall account for all monies so collected in a manner to be prescribed by the chairman of the Local Government.

The Revenue Committee shall be autonomous of the Local Government Treasury Department and shall be responsible for the day-to-day administration of the Department which forms its operation aim.

2.10.4 JOINT TAX BOARD (JTB)

Section 86 of PITA provides for the establishment of the JTB which shall compose of the following:

  • The chairman of the FBIR, who shall also serve as the chairman.
  • One member from each SBIR, being a person experienced in income tax matters nominated either by name or office from time to time, by the commission charged with the responsibility of matters relating to income tax in the state in question.
  • The secretary, who is not a member of the Board, and is appointed by the federal civil service commission (FCSC).
  • The legal adviser of FIRS act as the legal adviser to the JTB.

Any seven members or their representatives shall constitute a quorum.

FUNCTION OF JTB

The Board shall

  1. Exercise the power or duties conferred on it by the PITA and other Acts
  2. Advise the federal Government on request in respect of double taxation arrangement with other country.
  3. Promote uniformity both in the application of PITA and in the incident of tax on individual throughout Nigeria.

2.10.5 JOINT STATE REVENUE COMMITTEE (JSRC)

Section 92 of PITA establishes the JSRC for each state of the federation.

COMPOSITION

The JSRC comprises of ;

  1. The chairman of the SIRS as the chairman.
  2. The chairman of each of the LGRC
  3. A representative of the Bureau for Local Government Affairs not below the rank of a Director.
  4. A representative of the revenue mobilization Allocation and Fiscal Commission (RMAFC), as an observer.
  5. The state sector commander of the Federal Road Safety Commission (FRSC), as an observer
  6. The legal adviser of the SIRS.
  7. The secretary of the committee who shall be a staff of the SIRS.

FUNCTION OF JSRC

  1. Implementing the decision of JTB
  2. Advising the JTB and the State and Local Governments on revenue matters.
  3. Harmonizing tax administration in the state.
  4. Carryout such other functions as may be assigned to it by JTB.

2.10.6 BODY OF APPEAL COMMISSIONERS

The minister or a state commissioner of finance may by notice in the Gazette establish a body of appeal commissioners. An appeal commissioner

  • Shall be appointed from among person’s appearing to the state commissioner to have had experience and shown capacity in the management of a substantial trade or business or the exercise of a profession of trade or business or the exercise of a profession of law, accountancy or taxation in Nigeria.
  • Shall hold office for a period of three years from date of his appointment.
  • May at anytime resign as an appeal commissioner by notice in writing addressed to the minister or state commissioner.

2.11   SOURCE OF REVENUE TO THE NIGERIAN

GOVERNMENT

A responsible government caters for her citizens in terms of employment, standard of living and other welfare service (Olaoye, 2008). In other to cope with the high demand for infrastructure needed for economic growth, there is need for reliable source of income. The Nigeria state practice federalism, consisting of  3 tiers. Their various sources of income shall be discussed below;

2.11.1 SOURCE OF REVENUE TO FEDERAL GOVERNMENT

Federal government revenue is categorized into two major sources;

  • Revenue from oil sector- Rent, Royalties, petroleum profit tax.
  • Revenue from non-oil sector – Borrowing (internal and external), grant and aids, taxes (Direct and indirect) earning and sales, mining and so on.

2.11.2 SOURCE OF REVENUE TO STATE GOVERNMENT

The state Government just as the federal have various sources of revenue. Two states may not have the same sources of income but there may be some similar source. Some of the source of funds to state government are:

  • Taxes:- PAYE of resident of the state, entertainment tax, produce sales tax and so on.
  • Fines and fees:- stamp duties, penalties, court fees and so on.
  • Statutory allocation.
  • Borrowing both internal and external, grant, aids and so on.

2.11.3 SOURCE OF REVENUE TO LOCAL GOVERNMENT

Local government in Nigeria are the most poorly financed out of the tiers of government. The following are some of the sources of revenue opened to local government which are:-

  • Statutory Allocation
  • Grant in Aid (Federal and State).
  • Internally generated revenue:- Radio and TV lincences fees, rates, fees and fines, registration and licences fees and so on.

2.12 TAX JURISDICTIONS

A list of taxes and levies for collection by the three tiers of government has been approved by government and published by the joint tax board (JTB).

2.12.1 TAXES TO BE COLLECTED BY THE FEDERAL GOVERNMENT

  • Companies income tax
  • Withholding tax on companies
  • Petroleum profit tax
  • Value added tax
  • Education tax
  • Capital gain tax – Abuja residents and corporate bodies
  • Stamp duties: involving a corporate entity.
  • Personal income tax in respect of police personnel, armed forces personnel, resident of Abuja FCT, External Affairs Officer and non-residents.

2.12.2 TAXES AND LEVIES TO BE COLLECTED BY THE STATE

GOVERNMENT

The SBIR shall have the power to assess and collect the following categories of taxes and levies;

  1. Personal Income Tax:

i         Pay-as-You –Earn (PAYE)

ii        Direct (Self and government) Assessment

iii       Withholding Tax (individual only)

  1. Capital Gain Tax
  2. Stamp duties (Instruments executed by individuals)
  3. Pools betting, lotteries, gambling and casino taxes.
  4. Road taxes.
  5. Parking space tax
  6. Business premises registration and renewal levy;

i         Urban areas (as defined by each state) maximum of N100,000 for registration and N 5,000 for the renewal per annum.

ii        Rural areas: registration N 2,000 per annum.

Renewal  N 1,000 per annum.

  1. Development levy ( individuals only) not more than N 100 per annum on all taxable individuals.
  2. Naming of street registration fee in state capitals.
  3. Right of occupancy fees in state capitals.
  4. Rates in market where state finances are involved.

2.12.3 TAXES AND LEVIES TO BE COLLECTED BY THE LOCAL GOVERNMENTS

The following taxes and levies are collectable at the local government level;

  1. Shops, Kiosks rate and tenant rates.
  2. On and off liquor licence fees.
  3. Marriage, birth and death registration fees.
  4. Naming of street, right of occupancy fees for towns and lands in rural areas.
  5. Market and motor park levies.
  6. Domestic animal license fees and cattle tax.
  7. Merriment and road closure levy.
  8. Radio and television license fees.
  9. Wrong parking charges.
  10. Customary burial grounds permit fees.
  11. Religious places establishment permit fees
  12. Signboard and advertisement permit fees.

2.13 TAX EXEMPTIONS

In Nigeria, there are some types of income that are completely exempted from tax imposition. Their incomes are those from:

Social Clubs

Cooperative society

Mosque and churches

Profit of trade unions

Fund raised by local government

Federal government endowment

Contribution to approved institution e.g. pension and national providence funds.

2.14 PROBLEMS OF TAXATION IN NIGERIA

According to Lawal (1982) posits that the following are the problems of tax collection in Nigeria.

  • Lack of voluntary compliance from the taxpayers: This attitude of the taxpayer’s cause tax avoidance, tax evasion and delinquency which results in low revenue generation.
  • Poor accounting records: Most businessmen, traders, professionals do not keep proper records of their income expenditure.
  • Mismanagement and embezzlement of tax revenue: Revenue generated from tax are often mismanaged and utilized for a different purpose. Tax revenue are most times unaccounted for due to embezzlement by highly connected individuals in the society.
  • Bribery and corruption: Tax collectors personal interest most times precede their official obligation to the nation. As a result, there is high corruption practices and bribery activity among tax collectors.
  • Inadequate facilities: There are short supply of facilities and infrastructure that would have increase the revenue generated from tax. Facilities like parking space for vehicles, a formidable tax administrative building with a well computerized data of all residence in that state, etc.
  • Inadequate staff: Lack of adequate staff or manpower to carryout the assignment efficiently has contributed to the low level of revenue generated in the country.

 

 

 

 

 


END OF CHAPTER REFERENCES

Alvin, R. (1987) “Taxation , Economic Growth and Liberty” Cato Journal 7( Spring Summer 1987),  page 121-48.

 

Akanle, J. (1991) “The Government the Constitution and the Taxpayer in Tax Law and Tax Administration in Nigeria” ed M.A  Ajomo, NIALS, pg 1

 

James, A. et al (2012) “Impact Of Tax Administration On Government Revenue In A Developing Economy” Leicester Business School International Journal of  Business and Social Sciences; Vol. 3 No. 8 pg 1 and 2.

 

Ola, C.S. (2002) “Widening  the Revenue Base of Ekiti State” University of Ado- Ekiti International Journal of Accounting Vol.1, No. 1, page 1.

 

Olatunji, L.A., Olaleye, M.O. and Adesina, O.T. (2001)  “Principles of taxation in Nigeria” Mighty Barbs Productions, Ibadan.

 

Olaoye, C.O. (2008) “Concept of Taxation in Nigeria” Clemart Publishing, Kwara State.

 

Oluwakayode, E.F. (2006)  “Taxation  as a means of Generating Huge Revenue for the Government” The Past and the Present Day Experience in Western Nigeria, Nigeria Journal  of Management Research, Vol. 2, Page 71 & 72.

 

Ogundele, A.E. (1999) “Elements of Taxation” Libri Services, Lagos.

 

Soyede, .L. and Sunday, O.K. (2006) “Taxation Principles and Practice in Nigeria” Silicon Publishing, Ibadan.
CHAPTER THREE

  • RESEARCH METHODOLOGY

3.1     RESEARCH FOCUS

This research work focus on the critical appraisal of taxation as an instrument of economic growth in Nigeria.

Research methodology according to Iwarere (2007) are the procedure by which the research assignment are to be carried out in order to obtain solution to a given identified problem.

For the purpose of this chapter, research instruments, research question and hypotheses, population sample and sampling procedure, source of data, method of data analysis and description of tools of analysis in order to outline the general procedure are employed in acquiring information for the conduct of this research work.

3.2     RESEARCH INSTRUMENT

For the purpose of this study, the research instrument to be used shall be the secondary data in the form of observation data from secondary sources.

Research instrument as defined by Oladele (2007) is a predetermined set of questions used to generate response.

 

3.3       RESTATEMENT OF RESEARCH QUESTION/HYPOTHESIS RESEARCH   QUESTION

  • Does taxation have any impact on the level of revenue generated?
  • Does the income of taxable persons have any effect on the total revenue generated?
  • Has tax laws promulgated help to reduce tax evasion and avoidance?
  • Has revenue generated from tax impacted positively on th overall economic growth?
  • Has tax been able to redistribute wealth and income to promote welfare and equity among the citizen?

 

HYPOTHESIS I

Ho:    Taxation does not have any effect on the economic growth of

Nigeria

Hi:     Taxation has  an effect on the economic growth of Nigeria.


HYPOTHESIS II

Ho:    Taxation does not have any effect on the revenue generated in

Nigeria.

Hi:     Taxation has an effect on the revenue generated in Nigeria.

3.4   DESCRIPTION OF THE POPULATION AND SAMPLE

OF THE STUDY

For the purpose of this study, the targeted population is the Nigerian economy with particular reference to Gross Domestic Product(Real) in Nigeria, summary of government finances at the three tiers of government and summary of government taxes.

SAMPLE OF THE STUDY

Oladele (2007) define a sample as that selected portion, part, section or subset of the study population which has been selected through a sampling process for the purpose of research.

The sample of the study is ten years of the  Nigerian economy ranging from 2002-2011 of the gross domestic product (GDP) , revenue generated in Nigeria. The sampling procedure adopted for this research work is the  Area/cluster sampling technique.

A cluster sampling technique is a sample method in which groups or cluster, of individual items of a universe form sample units. Iwarere (2007).

3.5 SOURCES OF DATA COLLECTION

Data collection is the process of obtaining unprocess facts and figures from the sample population for an analysis. For the purpose of this study, sources of data for this research work is mainly secondary.

Necessary information that bothers on the Nigerian economy shall be obtained from different publication of the Central Bank of Nigeria annual reports for various years, report of the Accountant General of the Federation and State including the FCT and also the Local Government, the Federal Ministry of Finance and Federal Bureau of Statistics.

3.6     METHOD OF DATA ANALYSIS AND DESCRIPTION OF TOOL OF ANALYSIS

For the purpose of this study which attempts to estimate the above relationships, that is, if there is a meaningful  relationship between them, our estimation techniques will make use of Ordinary Least Square (OLS) method.

This will be used in estimating parameters of regression model. This technique will be applied and appropriate due to its BLUE properties, that is , BEST, LINEAR UNBIASED ESTIMATOR.

The model for the two sector is

GDP = f (Tax)

GDP = α1 + α2 TAX

The model for the relationship between Gross Domestic Product and Tax.

REV = f (Tax)

REV = β1 + β2 Tax

The model signifies the relationship between Revenue and Tax.

α1,  α2,  β1,  β2 are regression parameters.

T-TEST

This is used to test for significance for estimates of parameters using a specific significance level.

F-TEST

This is used to test the statistical validity and reliability of a regression model, that is, F-test is used to test for overall significance of the model in order to give accurate economic forecast into the future.

Ho: = α1, = α2

Hi: ≠ α1,  ≠ α2

F-TEST =

Coefficient of determination (r2)

It measures ‘goodness of fit’ i.e. how much of the changes in one set of variables is brought about by the changes in other set. It helps us determine how much of changes in total cost is brought about by changes in output.

Coefficient of determination = r2

DURBIN WATSON “DW” STATISTICS

The “d” statistics is an econometric criterion used in evaluation of the result of the estimates. It is used to test for autocorrelation in the variables of small samples. The test compares the empirical d* value, calculated from the regression residual, with the dL and du in the Durbin Watson tables and with their transform (4-dL) and (4-du). The comparison using dL and du investigate the possibility of negative autocorrelation.

The decision rules include

  • If 0 < d* < dL = there is positive auto correlation
  • If dL < d* < dU = the test is inconclusive for positive autocorrelation.
  • If dU < d* < 4-dU = There is no autocorrelation in the model.
  • If 4 – dU < d* < 4-dL = The test is inconclusive for negative autocorrelation.
  • If 4 – dL < d* < 4 = There is negative autocorrelation.


END OF CHAPTER REFERENCES

Iwarere, H.T. (2007) “Guides on Research Methods” Bhotti International Publishing, Kogi State.

 

Oladele, .O. (2007) “Introduction to Research Methodology”  Niyak Print and Publishing, Lagos.

 

Olaoye, .D. (2008) “Concept and Practice of Public Sector Accounting in Nigeria” Aseda Publishing, Ibadan,

 


CHAPTER FOUR

4.0     DATA PRESENTATION AND INTERPRETATION OF RESULT

4.1     INTRODUCTION

This chapter seeks to enumerate and analyze the collected data in order to achieve the aim of the study. For the purpose of this study, the regressands (explained variables) are Gross Domestic Product (GDP) and Government Revenue while the repressors (explanatory variables) Tax rate.

It begins with descriptive analysis and presentation of Ordinary Least Square (OLS) regression result for the period spanning from 2002 through 2011 followed by the discussion and policy implication of findings.

As earlier stated, the primary aim of this study is to critically appraise the effect of taxation as an instrument of economic growth in Nigeria between the periods 2002 – 2011, this thus necessitates efforts to synthesis various approaches to empirically analyze the impact of fiscal policy on the growth of Nigeria economy. The data for this research work are presented explicitly in the appendix.

 

4.2     DATA PRESENTATION

OBS GDP TAX REVENUE
2002 6,912,381.25 52,632.0 669,817.7
2003 8,487,031.57 65,887.6 854,997.1
2004 11,411,066.91 96,195.6 1,113,943.7
2005 14,572,239.12 87,449.8 1,419,637.0
2006 18,564,594.73 110,566.8 1 ,543,770.1
2007 20,657,317.67 144,372.8 2,065,406.0
2008 24,296,329.29 198,056.80 2,852,134.7
2009 24,794,238.66 229,323.2 2,590,673.2
2010 23,249,295.20 190,584.26 2,502,737.96
2011 24,113,287.72 205,988.08 2,648,515.27

Source: Central Bank of Nigeria Statistical Bulletin.


4.3 ANALYSIS OF TABLES

4.3.1   DESCRIPTIVE ANALYSIS (GROSS DOMESTIC PRODUCT)

  GDP TAX
Mean 17705778 138105.7
Median 19610956 127469.8
Maximum 24794239 229323.2
Minimum 6912381. 52632.00
Std. Dev. 6878652. 64046.98
Probability 0.576535 0.613823
Observations 10 10

Source; Computed from Central Bank of Nigeria figure (2011).

4.3.2 DESCRIPTIVE ANALYSIS ( GOVERNMENT REVENUE)

  GREV TAX
Mean 1826163. 138105.7
Median 1804588. 127469.8
Maximum 2852135. 229323.2
Minimum 669817.7 52632.00
Std. Dev. 806977.3 64046.98
Probability 0.611918 0.613823
Observations 10 10

Source; Computed from Central Bank of Nigeria figure (2011).

Looking at the descriptive statistics of the data series employed in the study, Gross domestic product in table 4.3.1 averaged 17705778 and varies from a minimum of 6912381 to a maximum of 2479239 Tax has a  mean of 138105.7 and ranges from a minimum of 52632.00 to a maximum of 229323.2 respectively.

Also in table 4.3.2, Government revenue averaged 1826163 and varies from a minimum of 669817.7 to a maximum of 2852135 Tax has a mean of 138105.7 and ranges from a minimum of 52632.00 to a maximum of 229323.2 respectively.


4.4 TEST OF HYPOTHESIS

HYPOTHESIS I

ANALYSIS OF EMPIRICAL RESULT  PRESENTATION

Table: Extract from Regression Result (2002-2011)

    Dependent Variable: GDP
    Method: Least Squares

TABLE A

Variable Coefficient Std. Error t-Statistic Prob.
C 3590461. 1760033. 2.039997 0.0757
TAX 102.2066 11.66506 8.761775 0.0000
R-squared 0.905626 Mean dependent var 17705778
Adjusted R-squared 0.893829 S.D. dependent var 6878652.
S.E. of regression 2241335. Akaike info criterion 32.25990
Sum squared resid 4.02E+13 Schwarz criterion 32.32042
Log likelihood -159.2995 F-statistic 76.76869
Durbin-Watson stat 0.947043 Prob(F-statistic) 0.000023

Source; Computed from Central Bank of Nigeria figure (2011).

The regression equation is presented below:

GDP=359046.1 + 102.2066 TAX

 

4.4.2  ANALYSIS OF THE REGRESSION COEFFICIENTS

A look at the regression coefficient on Table 4.3.1 shows that Tax rate (TAX) is positively related to Gross domestic product  which serve as a proxy to growth of the Nigeria economy.

However, at zero level of the explanatory variables, gross domestic product will increase by about 359046.1. The estimated parameters (slopes) of taxation (TAX), is 102.2066.

T-Test ANALYSIS OF T-STATISTICS (T-TEST)

The t-test expressed as the ratio of the estimated parameter to its standard error is used to test for the individual significance of individual estimated parameter. The t-statistic shown in the regression result is known as t-calculated, this value will be compared with the table value (t-tabulated) using 5 percent level of significance. For the tabulated value at 5% level of significance, t – tabulated at 0.05 level is 1.960. The decision rule states that; if t-calculated is greater than t-tabulated (t-cal>t-tab), the parameter estimate is statistically significant, vice versa. The insignificance of the parameters estimated presupposes that the variable with such parameter do not have significant effect on the Gross domestic product which serve as the proxy of Nigeria economy growth.

The hypothesis of this study can be restated as follows:

Ho:    Taxation does not have any effect on the economic growth of

Nigeria.

Hi:     Taxation has an effect on the economic growth of Nigeria.

However, from the regression result, the constant term is statistically significant at 0.05 level since the t-calculated value each is greater than the t-tabulated value.  In the same vein, TAX is significant statistically at the level of significance (0.05) given the same justification as above. That is, a unit increase in TAX will bring about an increase in the Gross domestic product  (GDP) by over 100%. The t-test is thus presented on the table below.

Variable t-calculated t-tabulated Decision
TAX 2.039997 1.960 Reject H0

Source; Computed from Central Bank of Nigeria figure (2011).

 

 

 

ANALYSIS OF THE COEFFICIENT OF DETERMINATION (r2)

The coefficient of determination measures the proportion of total variation in the dependent variable that is explained by the variation in the explanatory variables. From the regression result shown in Table A, the r2 is about 0.905626. This infers that about 90% of the total variation in Gross domestic product is accounted for by the variation in Taxation.

TEST FOR THE OVERALL SIGNIFICANCE (F-TEST)

The f-test is used to test for the overall significance of the model and to test the hypothesis that the estimated parameters are simultaneously equal to zero.

The hypothesis is stated as follows:

H0:   a1 = a2 = a3 = 0                        (Not significant)

H1:   a1 a2 a3 ≠ 0                          (Significant)

F – calculated       = 76.76869

F – tabulated        =  5.32

Since F – cal> F – tab, hence, we reject H0 and conclude that the overall model is statistically significant at 0.05 level of significance.

 

ANALYSIS OF THE DURBIN – WATSON (DW) TEST FOR AUTO-CORRELATION 

The OLS technique assumes that there should be no serial correlation among the error term in a model, that is, error terms must not be correlated. When this assumption fails to hold, we have the problem of auto-correlation.

The Durbin – Watson test is therefore used to check for the presence of first order serial auto-correlation in the model.

In this research study, the Durbin Watson coefficient (d*) is 0.947043.

The hypothesis is stated as follows:

H0:       (No Auto-Correlation)

H1:      (There is presence of Auto-Correlation)

At 0.05 level of significance with N = 10 (no of observations) and K = 1(number of explanatory variables).

The lower limit (dL) and the upper limit (dU) of the DW tabulated coefficient with N=10 and K=1 are 1.077 and 1.361 respectively.

 

 

 

+ ve

Autocorrelation

Inconclusive

Region

Inconclusive

Region

– ve

Autocorrelation

No Autocorrelation

 

 

 

 

 

 

 

0 d*= 0.94   dL                dU                                         2                                          4-dU       4 – dL              4                    1.077            1.361                                                                                  2.639          2.923

Therefore, since the coefficient of DW lies before dl and du, this implies that the DW statistics fall under the region of positive autocorrelation.

HYPOTHESIS II

The second regression analysis is aimed at testing the effect of taxation on the government revenue in Nigeria in which the descriptive analysis is given below;

 

 

 

 

 

Dependent Variable  (GREV)

Method: Least Squares

   TABLE  B

Variable Coefficient Std. Error t-Statistic Prob.
C 138043.0 163053.4 0.846612 0.4218
TAX 12.22339 1.080677 11.31086 0.0000
R-squared 0.941149     Mean dependent var 1826163.
Adjusted R-squared 0.933792     S.D. dependent var 806977.3
S.E. of regression 207642.4     Akaike info criterion 27.50188
Sum squared resid 3.45E+11     Schwarz criterion 27.56240
Log likelihood -135.5094     F-statistic 127.9356
Durbin-Watson stat 2.324755     Prob(F-statistic) 0.000003

         

Source; Computed from Central Bank of Nigeria figure (2011).

The regression equation is presented below:

GREV=138043.0 + 12.22339 TAX


TEST OF HYPOTHESIS

Ho:    Taxation does not have any effect on the revenue generated in

Nigeria

Hi:     Taxation has an effect on the revenue generated in Nigeria

Consequently, from the above result, the constant term is statistically  not significant at 0.05 level since the t-calculated value is less than the t-tabulated value.  In the same vein, TAX is significant statistically at the  level of significance (0.05). However, this shows that, a unit increase in both TAX will bring about an increase in the Government revenue (GREV) by over 100%. The t-test decision rule is therefore presented in the table below;

Variable t-calculated t-tabulated Decision
TAX       11.31086 1.960     Reject H0

Source; Computed from Central Bank of Nigeria figure (2011)

ANALYSIS OF THE COEFFICIENT OF DETERMINATION  (r2)

From the regression result shown in Table 4.5, the r2 is calculated as 0.941149. This implies that about 94% of the total variation in Government revenue is accounted for by the variation in Taxation.

 TEST FOR THE OVERALL SIGNIFICANCE (F-TEST)

The  F- statistics hypothesis is stated as follows:

H0:   a1 = a2 = a3 = 0                        (Not significant)

H1:   a1 a2 a3 ≠ 0                          (Significant)

F – calculated       = 127.9356

F – tabulated        =  5.32

Since F – cal> F – tab, hence, we reject H0 and conclude that the overall model is statistically significant at 0.05 level of significance.

ANALYSIS OF THE DURBIN – WATSON (DW) TEST

FOR AUTO-CORRELATION 

The Durbin Watson coefficient (d*) is 2.324755.

The hypothesis is stated as follows:

H0:       (No Auto-Correlation)

H1:      (There is presence of Auto-Correlation)

At 0.05 level of significance with N = 10 (no of observations) and K = 1(number of explanatory variables).

The lower limit (dL) and the upper limit (dU) of the DW tabulated coefficient with N=10 and K=1 are 1.077 and 1.361 respectively.

 

 

+ ve

Autocorrelation

Inconclusive

Region

Inconclusive

Region

– ve

Autocorrelation

No Autocorrelation

 

 

 

 

 

 

0 d*= 0.94   dL                dU                                         2                                                4-dU        4 – dL        4                    1.077            1.361                                        d*=  2.324755                  2.639         2.923

Therefore, since the coefficient of DW lies between du and 4-du, this implies that the DW statistics fall under the region of No autocorrelation.

 


END OF CHAPTER REFERENCES

CBN  Statistical Bulletin (2011) “ Central  Bank of Nigeria”

National Bureau of Statistical (2011) “Gross Domestic Product Comprehensive Analysis


CHAPTER FIVE

5.0   SUMMARY, CONCLUSION, RECOMMENDATIONS    AND SUGGESTIONS FOR FURTHER STUDIES

5.1     SUMMARY

Taxation which is the cardinal point of our discuss, could be seen as a veritable tool needed by any growth oriented government to create a measurable stability in the economy.

From our analysis in the previous chapter, we could construe that, tax shows a positive significant effect on the GDP (Gross Domestic Product) in which , increase in taxation will bring about an increase in government revenue which will automatically commensurate with the government expenditure.

Tax is one of the main source of government revenue as reveal in the second regression where tax levies on income, goods and services has a significant effect on government revenue. The apriori expectation has been achieved in the sense that taxation will increase the revenue of government.

From the summation, the following findings were recorded that:

  • Tax is instrumental to any growth oriented government in other to ameliorate the level of infrastructure needed for economic growth.
  • Taxation will increase the revenue and which will also have a positive impact on the economy.
  • Taxpayer’s will pay if money accrued from tax are judiciously expended on project that will yield a better returns on government investment.
  • Taxation is progressive and as a result, the administrator must be experts in the field in other to help curb tax evasion and avoidance.
  • Enabling tax laws should constantly be reviewed to enhance greater tax revenue generation in the country.

5.2 CONCLUSION

Taxation is a relevant instrument mostly use by the develop world to generate revenue and in return make necessary amenities available for her populace. Larger percentage of the income generated yearly in UK, Canada and other power house nation are tax based.

However, there is a massive improvement on the level of tax management in some states in Nigeria in which Lagos State is a typical example. The sudden mega city status of Lagos state was  brought about by a well planned tax structure which has improve the annual accruable revenue base of the state and make funds available for the provision of public amenities and return improve the level of  investment and also  the overall growth of Lagos economy.

5.3     RECOMMENDATIONS

Taxation is a dynamic issue that changes with the economic environment in which it operates. As a result, there is need for continuous overhauling of tax system.

The following recommendations are therefore made towards improved tax revenue generation.

  1. The Nigerian enabling tax laws must be reviewed constantly.
  2. Procedure should be put in place free communication system between taxpayers and tax authority.
  3. There is need for creation of monitoring teams that would handle cases of defaulters without harassment.
  4. Government should intensify greater effort in accelerating tax revenue programme to enhance higher productivity.
  5. Funds accrued from taxation should be expended on productive venture that will lead to growth.
  6. Proper mechanism should be put in place to combat double taxation which discourage taxpayer’s commitment towards the payment of tax.

5.4     SUGGESTION FOR FURTHER STUDIES

Further studies should be carried out on how tax revenue can be increased and sustained through the various types of tax revenue structure in the system.

Also proper study of the relationship between tax and revenue should be researched into due to its positive impact on the overall economic growth and development.

Finally, for proper understanding of the topic of our discuss, more research should be carried out on GDP (REAL) , Government non-tax revenue and tax index rate.

 

 

 

END OF CHAPTER REFERENCES

Alvin,  R. (1987) “Taxation , Economic Growth and Liberty” ; Cato Journal 7( Spring Summer 1987),  page 121-48.

 

Ola, C.S. (2002) “Widening the Revenue Base of Ekiti State” University of Ado-Ekiti International Journal of Accounting Vol.1, No. 1, page 1.


 

BIBLIOGRAPHY

Alvin, R. (1987) “Taxation , Economic Growth and Liberty” Cato Journal 7( Spring Summer 1987),  page 121-48.

 

Akanle, J. (1991) “The Government the Constitution and the Taxpayer in Tax Law and Tax Administration in Nigeria” ed M.A  Ajomo, NIALS, pg 1

 

Bakare, I.A.O. et al (1999) Principles and Practice of Economic” Ramson Printing Services, Lagos.

 

CBN  Statistical Bulletin (2011) “ Central  Bank of Nigeria”

 

Iwarere, H.T. (2007) “Guides on Research Methods” Bhotti International Publishing, Kogi State.

 

James, A. (2012) “Impact of Tax Administration on Government Revenue in a Developing Economy” Leicester Business School International Journal of Business and Social Sciences, Vol. 3 No. 8, Page 1 and 2.

 

National Bureau of Statistical (2011) “Gross Domestic Product Comprehensive Analysis

 

Ogundele, A.E. (1999) “Elements of Taxation” Libri Services, Lagos.

 

Ola, C.S. (2002) “Widening  the Revenue Base of Ekiti State” University of Ado- Ekiti International Journal of Accounting Vol.1, No. 1, page 1.

 

Oladele, .O. (2007) “Introduction to Research Methodology”  Niyak Print and Publishing, Lagos.

 

Olaoye, .C.O. (2008) “Concept of Taxation in Nigeria” Clemart Publishing, Kwara State.

 

Olaoye, .D. (2008) “Concept and Practice of Public Sector Accounting in Nigeria” Aseda Publishing, Ibadan,

 

Olatunji, L.A., Olaleye, M.O. and Adesina, O.T. (2001)  “Principles of taxation in Nigeria” Mighty Barbs Productions, Ibadan.

 

 

Oluwakayode, E.F. (2006)  “Taxation  as a means of Generating Huge Revenue for the Government” The Past and the Present Day Experience in Western Nigeria, Nigeria Journal  of Management Research, Vol. 2, Page 71 & 72.

 

Soyede, .L. and Sunday, O.K. (2006) “Taxation Principles and Practice in Nigeria” Silicon Publishing, Ibadan.

 

 

 

 


APPENDICES

APPENDIX A: Data Analysis Variable (2002-2011)

OBS GDP TAX REVENUE
2002 6,912,381.25 52,632.0 669,817.7
2003 8,487,031.57 65,887.6 854,997.1
2004 11,411,066.91 96,195.6 1,113,943.7
2005 14,572,239.12 87,449.8 1,419,637.0
2006 18,564,594.73 110,566.8 1 ,543,770.1
2007 20,657,317.67 144,372.8 2,065,406.0
2008 24,296,329.29 198,056.80 2,852,134.7
2009 24,794,238.66 229,323.2 2,590,673.2
2010 23,249,295.20 190,584.26 2,502,737.96
2011 24,113,287.72 205,988.08 2,648,515.27

Source: Central Bank of Nigeria Statistical Bulletin.

 


APPENDIX B: Descriptive Analysis ( Gross Domestic Product)

  GDP TAX
 Mean 17705778 138105.7
 Median 19610956 127469.8
 Maximum 24794239 229323.2
 Minimum 6912381. 52632.00
 Std. Dev. 6878652. 64046.98
 Probability 0.576535 0.613823
 Observations 10 10

Source; Computed from Central Bank of Nigeria figure (2011).

APPENDIX C: Descriptive Analysis ( Government Revenue)

  GREV TAX
Mean 1826163. 138105.7
Median 1804588. 127469.8
Maximum 2852135. 229323.2
Minimum 669817.7 52632.00
Std. Dev. 806977.3 64046.98
Probability 0.611918 0.613823
Observations 10 10

Source; Computed from Central Bank of Nigeria figure (2011).

 

APPENDIX D: Analysis of Empirical Result Presentation ( GDP)

Variable Coefficient Std. Error t-Statistic Prob.
C 3590461. 1760033. 2.039997 0.0757
TAX 102.2066 11.66506 8.761775 0.0000
R-squared 0.905626     Mean dependent var 17705778
Adjusted R-squared 0.893829     S.D. dependent var 6878652.
S.E. of regression 2241335.     Akaike info criterion 32.25990
Sum squared resid 4.02E+13     Schwarz criterion 32.32042
Log likelihood -159.2995     F-statistic 76.76869
Durbin-Watson stat 0.947043     Prob(F-statistic) 0.000023

Source; Computed from Central Bank of Nigeria figure (2011).


APPENDIX E: Analysis of Empirical Result Presentation ( GREV)

Variable Coefficient Std. Error t-Statistic Prob. 
 C

TAX

138043.0 163053.4 0.846612 0.4218
12.22339 1.080677 11.31086 0.0000
R-squared 0.941149     Mean dependent var 1826163.
Adjusted R-squared 0.933792     S.D. dependent var 806977.3
S.E. of regression 207642.4     Akaike info criterion 27.50188
Sum squared resid 3.45E+11     Schwarz criterion 27.56240
Log likelihood -135.5094     F-statistic 127.9356
Durbin-Watson stat 2.324755     Prob(F-statistic) 0.000003

 

Source; Computed from Central Bank of Nigeria figure (2011).

 

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