CHAPTER ONE

INTRODUCTION

1. BACKGROUND OF THE STUDY

Tax is a compulsory levy paid by individuals in Nigeria. Apere (2003) notes that taxation is a microeconomic and fiscal policy instrument; it involves the transfer of resources from the private to the public sector for the accomplishment of economic and social goals. It is an instrument the government uses to measure, access and control the informal sector that dominate developing economies of the world (Wambai and Hanga, 2013). The collection of taxes is very important in the growth and development of Nigeria. All levels of governments in Nigeria no longer perform their responsibilities simply because of financial crisis experienced from internally generating revenue. This bad financial situation is further aggravated by the prevailing inflationary situation in this country which erodes the value of funds available to render essential social service to the people. Okafor, (2012) and Sanni (2007) advocated the use of tax as an instrument of social engineering, to stimulate general and/or sectoral economic growth. In that regard, taxation could have a positive or negative effect on both the individual and the government.

In Nigeria, tax revenue has accounted for a small proportion of total government revenue over the years. This is because the bulk of revenue needed for development purposes is derived from oil. Crude oil export has continued to account for over 80% of the total federal government revenue, while the remaining 20% is contributed by nonoil sector in previous years. (Outsole 2006) Economic growth specifically means an increase in the value of goods and services produced by a country over a period, and the economists use this increase in country's GDP to measure it. Thus, it is possible to have economic growth without economic development in short or medium term (Hadjimichael, Kemenyy & Lanahan, 2014).

Ihendinihu, Ebieri and Amaps Ibanichuka, (2014) mentioned two main sources of federal government revenue exist namely; oil and non-oil revenue. Oil revenue is revenue from crude oil and gas local sales and exports, receipts from petroleum profits tax and royalties, while non oil revenue includes revenue from Companies income tax (CIT), Custom and Excise Duties, (CED), Valued Added Tax, Education Tax, Personal Income Tax (PIT), Levies, public debt, grants, aids amongst others.

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.

1.3 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:

1. to determine the relationship between taxes and economic development of Nigeria from 1990-2018
2. to determine the types of taxes and how they affect the economic development of Nigeria from 1990-2018
3. to determine the source of taxes in Nigeria from 1990-2018
4. to look at the structure of the Nigeria tax system from 1990-2018
5. to proffer solution to the above state problem

1.4 RESEARCH QUESTIONS

The study came up with research questions so as to ascertain the above stated objectives of the study. The following research questions guide the objectives of the study;

1. What is the relationship between taxes and economic development of Nigeria from 1990-2018?
2. What are the types of taxes and how they affect the economic development of Nigeria from 1990-2018?
3. What are the source of taxes in Nigeria from 1990-2018?
4. What is the structure of the Nigeria tax system from 1990-2018?
5. What is the solution to the above state problem?

1.5 STATEMENT OF THE HYPOTHESIS

H0: there is no significant relationship between taxes and economic development of Nigeria from 1990-2018

H1: there is significant relationship between taxes and economic development of Nigeria from 1990-2018

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 will cover 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.

1.8 LIMITATION OF THE STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work

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