CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Taxation constitutes the major source of internal revenue to Nigerian government.

The provision of basic amenities, securities among others is the responsibility of
any government to her citizens. In other to provide the above mentioned
government need revenue from various source such as internal sources which
constitutes majorly income from taxation. The importance of taxation in promoting
economic growth and development of any nations cannot be overemphasized.
Through it, government ensures that resources are channeled towards important
projects in the society.

Tax administration is the framework upon which Nigeria tax system is based. It
deals with the powers and duties of relevant tax authorities as contained in the tax
laws. Tax administration involves the procedures, principles and strategies adopted
by any government in order to achieve effective tax planning, compulsory levying
of tax, easy collection and proper accounting and utilization of the revenue
collected (Aguolu, 2004; Appah and Oyadonghan, 2011; Appah, 2014).

Taxation is a dynamic subject which grows with the constant changes in the
economic environment in which it operates, hence the need to examine the
relevance of this subject to the economic advancement of Nigeria. According to
Appah (2014), the development of any nation depends on the amount of revenue
generated for the provision of infrastructural facilities for the common good of all.
One major source of generating this revenue is [Link] (2005), reports
that the government has certain functions to perform for the benefit of its citizens.
The scope of these functions depends, inter alia, on the political and economic
orientation of the people, their needs and aspirations as well as their willingness to
pay tax. Tax is a compulsory payment made by a citizen for which there is no
immediate commensurate return. It is a burden which every citizen must bear to
sustain his government (Nwezeaku, 2005). Tax, thus, becomes a burden that
everyone must bear to support the government.
 Governments uses tax revenue to perform their functions. According to Aguolu
(2004), a tax is a levy by a government or its agencies on individuals, companies
and (or) on goods and services, homemade, imported, exported and so on. Bhartia
(2004) argue that a tax is a generalized exaction, which may be levied on one or
more criteria upon individuals, or other legal entities. However, Nzotta (2007)
gave a more embracing meaning of tax. A tax is a compulsory levy contribution
made by the citizens to the state or even an alien, subject to the jurisdiction of the
government, for reasons of residence or property and this contribution is for
general common use.

1.2 Statement of the problem

It has been observed over the years that tax revenue has generally been grossly
understated due to improper tax administration arising from under assessment and
inefficient machinery for collection (Chigbu & Njoku, 2015). In Nigeria revenue
derived from income has been grossly understated due to improper tax
administration, assessment and collection (Ola, 2001; Adegbie & Fakile, 2011).
Persons and companies are known to routinely evade and avoid taxes due to
corrupt practices and the existence of various loopholes in the tax laws. According
to Oluba (2008), the success or failure of any tax system depends on the extent to
which it is properly managed; the extent to which the tax law is properly
interpreted and implemented.

According to Iweala, (2013), about 75% of registered firms were not in the tax
system and 65% of them had not filed their tax returns for 3years (2010-2012).
Over ₦80billion was lost monthly from these companies, estimating the total
Company Income Tax leakages in that period to about $250 million.

According to Fowler (2018), there are 6,772 number of billionaire tax defaulters
and they are of three categories: those that have Tax Identification Number (TIN),
those that do not have TIN and of course no TIN no pay and those that have not
even paid anything. On a minimum, every company or business included here over
the period three years (2015-2017) have had a banking turnover of N3 billion and
above while some of them have had banking turnover of over N5 billion and have
not paid one kobo in taxes.

Illiyas and Siddiqi (2008), observed that in Nigeria, the quantum of income
generated from non-oil tax over the years by the federal government is grossly
insufficient in relation to the ever increasing social, political and infrastructural
developmental needs of the country. As noted by Odusola (2006), Nigeria
economy has thrived largely on oil revenue in the past decades. In essence, Nigeria
runs a monolithic economy which is subject to international oil price mechanism
far beyond the control of the government, thereby exposing the economy to global
market fluctuations, slant budgetary protrusions, and renders meaningful
developments unapt. The current budget of borrowing in Nigeria is a fall out of the
dwindling oil revenue that has sank into abysmal low prices in the international
market and has thrown the Nigeria budget in recent years into serious crisis.

Therefore the problems of poor economic growth, insufficient revenue collection

and inefficient administrative framework by federal government of Nigeria were
the major issues this study investigated. The main objective of this study is to
examine the influence of tax revenue collected on the economic growth of Nigeria.
The specific objectives were raised

1.3 Objectives of the Study

The main objective of this study is to access the impact of taxation on economic
growth in Nigeria

Other specific objectives include

i. To investigate the effect of company income tax on the economic growth and
development in Nigeria

ii. To access the effect of petroleum profit tax on the economic growth and
development in Nigeria

iii. To establish the effect of custom and exercise duties on economic growth and
developmentin Nigeria
iv. To ascertain the relevance of value added on the economic growth and
development in Nigeria

1.4 Research Question

To realize the objective of this work ,the following research questions were raised
.The study would provide answer to the following questions

i. To what extent has company income tax affected the economic growth and
development in Nigeria?

ii. How has petroleum profit tax affected the Nigeria economic growth and
development?

iii. What is the effect of custom and exercise duties on economic growth and
development in Nigeria?

iv. What is the effectiveness of value added tax on the economic growth and
development in Nigeria?

1.5 Research Hypotheses

The following hypothesis, stated in null formed were tested in the course of this
study

From the objectives of this study, the following hypotheses have been formulated:

1.H01: Company income Tax has no significant impact on economic growth and
development in Nigeria

2.H02: petroleum profit Tax has no significant impact on economic growth and
development in Nigeria

3 H03: Custom and Excise Duties have no significant impact on economic growth
and development in Nigeria

4 .H04: Value Added Tax has no significant impact on economic growth and

development in Nigeria
1.6 Significance of the Study

The research work would be of importance to policy makers at both state and
federal level in the country as they formulate and implement tax and revenue
policies. This will provide an insight on how to ensure that taxation meets the
purpose it intended to achieve. Policy makers, especially the Federal Inland
Revenue Service will use the outcome of the study to gauge its performance, and
determine the level of input it would realize to influence positively to the Nigerian
economy.

This study will also be of great important to students at various level of learning
especially those that intend to carry out further research on this topic. It will help
students to understand the present effect of Capital Gain Tax revenue on the total
revenue of the government of Nigerian and on the economic growth and
development. Also this study will be of great importance to other researchers,
scholars and academicians will find the literature arising from the research work to
be of great value as it will be added to the existing literature.

1.7 Scope of the Study

The scope of this study covers the effect of taxation on the Nigerian economic
growth and development over a period of 20 years (from 1998 to 2019). The trend
of Company Income Tax, Petroleum Profit Tax, Customs and Excise Duty and
Value Added Tax are examined for the period to determine their correlation with
the Nigerian economy growth and development which will be captured as Gross
Domestic Product (GDP). The focus will be based on data obtained at the Federal
Inland Revenue Service (FIRS) and State Revenue Service.

1.8 Limitations of the Study

The numerical data used in this research work were limited to the data sourced
from the publications of the Central Bank of Nigeria, specifically the Central Bank
Annual Reports and statistical bulletin.

1.9 Definition of Terms

1.9.1Taxation:

This is a process whereby charges are imposed on the incomes of individualand

organizations by the government and her agencies to raise funds for public
purposes.

1.9.2 Revenue generation:

This is a tool for receiving money from members of the public by the government
to finance its projects and to render essential services like roads, electricity, and
bridges in return to the taxpayers.

1.9.3 Tax system:

This is a legal system for assessing and receiving tax from individuals, and
cooperate organizations of a country.

1.9.4 Tax evasion:

Tax evasion is an illegal practice where a person, organization or cooperation

intentionally avoids paying his/her/ true tax liability to the government.

1.9.5 Tax avoidance:

Tax avoidance is the use of legal methods and platforms to modify an individual’s
financial situation in order to lower the amount of income tax owed.

1.9.6 Economic Growth:

It is described as a measure of increase in the value of outputs(goods and services)

in terms of Gross Domestic Product (GDP)

1.9.7 Tax Authorities:

These are the bodies scheduled with the administration an implementation of tax
laws and principles in relation to specific jurisdictions.

1.9.8 Value Added Tax:

this is described as a type of indirect tax levied on goods and services purchased
by individuals and organizations.

1.9.9 Petroleum Profit Tax:

This is a type of tax paid by organizations that are involved in the extraction
(downstream) and the marketing of petroleum (upstream) in Nigeria.

1.9.10 Personal Income tax:

This is a type of tax levied on the income of individuals such as civil servants,
self-employed people etc.

1.9.11Custom Duty:

It is a type of tax levied on imported and exported good in Nigeria.