CHAPTER ONE

INTRODUCTION

1. BACKGROUND OF THE STUDY

The Nigerian Tax system has undergone significant changes in recent times. The tax laws are being reviewed with the aim of repelling obsolete provision and simplifying the main ones. Under current Nigerian law, tax revenue is enforced by the 3 tiers of government, which are federal, state and local government with each having its sphere clearly spelt out in the taxes and levies Act, 1998. The whole essence of tax revenue, according to Akwe (2014) is to generate revenue to advance the welfare of the people of a nation with focus on promoting economic growth and development of a country through the provision of basic amenities for improved public services via proper administrative system and structures.

Tax revenue plays a crucial role in promoting economic activity, growth and development. Adereti, Sanni and Adesina (2011) state that through tax revenue, government ensures that resources are channeled towards important projects in the society, while giving succor to the weak. The role of tax revenue in promoting economic activity and growth may not be felt if poorly administered. This calls for a need for proper examination of the relationship between revenue generated from taxes and the economy, to enable proper policy formulation and strategy towards its efficiency.

Adegbie and Fakile (2011) state that the Nigerian economy has remained in a deep slumber with macroeconomic indicators reflecting an economy in dire need of rejuvenation, revival and indeed radical reform; also, in the view of Adedeji and Oboh (2010), tax administration needs to be revamped and refunds of taxes as well as duty drawbacks administration are inefficient.

A critical challenge before tax administration in the 21st century Nigeria is to advance the frontiers of professionalism, accountability and awareness of the general public on the imperatives and benefits of tax revenue in our personal and business lives which include; promoting economic activity, facilitating savings and investment and generating strategic competitive advantage. If tax administration does not for any reason meet the above challenges, then there is a desperate need for reform in the area of the tax regime, and in the administration of taxes. Emekekwue (2009) defines taxation as the collection of a share of individual and organization income and wealth by the government under the authority of the law. A country’s tax system is a major determinant of other macroeconomic indexes, specifically, for both developed and developing economies; there exists a relationship between tax structure and the level of economic growth and development.

1.2 STATEMENT OF THE PROBLEM

The revenue generated from taxes pays a significant role in the economic development of any nation (developed and underdeveloped). In Nigeria today despite the over dependence on the oil sector; taxes generated from various public and private sectors have great contribution to the economic development in Nigeria. These days in Nigeria, the revenue derived from taxes has been very low and no physical development actually took place, hence the impact on the poor is not being felt. Inadequate tax personnel, fraudulent activities of tax collectors and lack of understanding of the importance to pay tax by tax payers are some of the problems of this study. Lastly there have been series of studies on taxation but not even a single a single study has been carried out the impact of taxes on economic development of Nigeria; hence a need for the study.

1.4 RESEARCH QUESTIONS

The following research questions guide the objectives of the study;

1. What is the relationship between taxes and economic development of Nigeria?
2. What are the types of taxes and how they affect the economic development of Nigeria?
3. What are the sources of taxes in Nigeria?
4. What is the structure of the Nigeria tax system?
5. What is the solution to the above state problem?

1.3 AIM AND OBJECTIVES OF THE STUDY

The main aim of the research work is to determine the impact of taxes on economic development of Nigeria. The specific objectives of the study are to:

1. determine the relationship between taxes and economic development of Nigeria
2. determine the types of taxes and how they affect the economic development of Nigeria
3. determine the source of taxes in Nigeria
4.  look at the structure of the Nigeria tax system
5. proffer solution to the above state problem

1.5 STATEMENT OF THE HYPOTHESIS

H0: there is no significant relationship between tax revenue and economic development of Nigeria

H1: there is significant relationship between tax revenue and economic development of Nigeria

1.6 SIGNIFICANCE OF THE STUDY

The study on the impact of taxes on economic development of Nigeria will be of immense benefit to the Nigeria public sector such as federal Inland Revenue service (FIRS). The study will assist the federal government of Nigeria to restructure the tax system and policies so as to favour economic development in Nigeria. The findings of the study will educate policy makers on the determinant of the economic growth that need more funding so as to channel more tax revenue to this section of the public sectors in Nigeria. The study will service as a repository of information to other researchers that desire to carry out similar research on the above topic. Finally the study will contribute to the body of the existing literature on the impact of taxes on economic development of Nigeria.

1.7 SCOPE OF THE STUDY

 The study covers on the impact of taxes on economic development of Nigeria from 1990-2018. The period is adequate enough to generalized findings on the impact of taxes on economic development of Nigeria with focus on petroleum profit tax, VAT, and company income tax.

1.8 LIMITATION OF THE STUDY

The main limitation of the study is that not all taxes were considered in generalizing the impact of taxes on GDP this is to save time and resource in determining the impact of taxation on economic development in Nigeria.

1.9 DEFINITION OF TERMS

TAXE: A tax is a compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law. 

ECONOMIC DEVELOPMENT: Economic development, as a public sector term, is the process by which the economic well-being and quality of life of a nation, region or local community are improved according to targeted goals and objectives