Taxation As An Instrument Of Fiscal Policy

1.1 INTRODUCTION
The economy of any county regardless of its structure is normally regulated by certain policies developed by the government of such a country. Among these policies there are economic policies, social policies etc.
However, the economic policies are more fundamental in that it serves as a foundation for the success of other policies of the government. The constituent elements of these economic policies need to be manipulated, and most of them simultaneously for the desired result. One of the essential arms of economic policies, the fiscal policy, is related to government tax and expenditure. In another way around form, Baumel, W.J. and Blinder A.S., (1979) in the book “Economic principles and policy” defines fiscal policy as governments plan for spending and taxation. It serves as a means of planning, controlling and co-ordinating the tempo of activities in the economy.
Taxation is one of the courses of action of fiscal policy. According to Olanifan I.F. (1994) it is the compulsory transfer of resources from the private sector to the public of the economy of the nation. The direction of taxes is seen in its potential effects on the determinants of growth. This is done by way of;
i. Altering the determinants of economic development e.g. capital formation, technological change, factor supplies etc.
ii. Permitting the financing of government activities or government financed privated investment without the undesirable effects of other methods of financing. It could also be seen in its potential effects upon the rate of growth such as the level of governmental expenditure: on the branch of stability; on resources allocation; also on distribution of income and wealth.
This important aspect of the fiscal policy has been a major sources of revenue generation in Nigeria roughly this around the turn of this century. Apart from serving this important purpose, it has also been a major policy instrument that the government has consistently used in planning, controlling and co-ordinating the various economic activities of the country gear towards economic growth.
The tax system being a principal fiscal tool, when effectively executed, is capable of helping the nation out of the state of economic recession which is the main problem of distributing the standard of living of individuals in the country.
Therefore, it is the main objective of this study to take critical examination and evaluation of the tax system as all instruments of fiscal policy. And after the analysis, the researcher is deemed to suggest welling planning solution as to the pervading problems of this tax system.

1.2 OBJECTIVES OF THE STUDY
The aim of this research work is to examine how the use of taxation as a fiscal instrument in Nigeria has affected the nation’s socio-economic life. These objectives are as follows:
1. Identification of taxation as to how it is used in income and wealth redistribution, solving the problem of inequalities.
2. It also sets out to establishing raw taxation has been an instrument of control on inflation.
3. To identify taxation as all instrument of economic stability and growth e.g. in the setting of the level of composition of taxes so that aggregate demand does not exceed productive capability of the economy.
4. Furthermore, the research objectives also set out to show how it is used in the allocation of resources in the economy by the government.
5. Finally, the research work aims to suggest and recommending possible ways of improving the efficiency of the tax system and its indented prospects for its reformation.

1.3 SIGNIFICANT OF THE STUDY
The awareness of the role of taxation as an instrument of fiscal policy in the development of this economy and its effect on the economy is essential for all the economic units. Individuals, business organizations etc. the degree of industrialization indirectly show the stage an economy is in. for example, for production to be worthwhile, the government has to set up a tax structure that is conducive for potential; investors. Company tax, custom and excise duties, import duties, on raw materials and equipment’s that can be source locally, from the sets of fundamental issue that need to be addressed to make investment, attractive example high company tax and excise make production unattractive.
The course of this study will also go a long way in addressing the issue of economic stability by way of estimating the level of national income that can be reached without generating inflation or excessive balance of payments, deficits by selling the desired allocation of national income among the uses of consumption investment. Finally, setting the level of composition of taxes so that aggregate demand does not exceed the productive capacity of the economy or aggregate supply.
Other areas of importance are related in ways in which it helps in redistribution of income in order to check inequality: how it protects infant industries in the country against older and well established foreign industries: also in the simulation of economic recovery.

1.4 STATEMENT OF PROBLEM
Taxation from time immemorial has been a useful fiscal instrument in effecting revenue generation and other important economic variables example maintenance of price stability, income distribution, economic growth etc. in the nation. Nevertheless, there are various problems associated with the nations tax system. Most of those problems are enunciated below;
There are some of the existing problems of achieving stability by way of estimating national income level that can be reached without generating inflation at the same time. Government has consistently reduced tax rate on individual in order to increase their disposal income. In achieving this, the possibility of also bringing about inflation as a result of more money being released into the economy cannot be ruled out.
Also, another aspect is that of harmonization of policies on taxation problem which relates to government policies and conflicts in objectives. Assuming government wants more revenue by way of increasing import duties while at the same time, this increase in import duties that has other objectives like protection of infant industries and conserving foreign exchange. Each of these objectives will increase propensity to smuggle.
Furthermore, the multi-tax system problem also exists in the Nigeria tax system. This is a situation whereby a particular tax being levied at the federal level is also levied at the state or local government level. An example of this is the education tax been collected from companies.
It should be noted that while the tax system remains inefficient, the question on inequality continues to reign and those endowed and blessed with more factors of production (resources) becomes richer while those with little or no resource become poorer and poorer, hence the unabridged gap widens. Other problems could be those of tax evasion and avoidance; mismanagement of tax revenues, lack of skilled adequate manpower etc. the problem above necessitate the need for the researcher to embark on this research work in order to finding solution to them. It is hoped that adequate solutions would emerge by the end of this research work.

1.5 HYPOTHESIS FORMULATIONS
The researcher formulated the following hypothesis.
Hypothesis 1
Ho: The shifting of tax burden from production to consumption since the introduction of VAT has not been able to reduce inflation.
H1: the shifting of tax burden from production to consumption since the introduction of VAT has been able to reduce inflation.
Hypothesis 2
Ho: Savings of individuals has not increased for investment purposes inspite of tax rate reduction and tax relief given over the years.
H1: Savings of individuals has increased from investment purposes inspite of tax rate reduction and tax relief given over the years.
Hypothesis 3
Ho: The imposition of high import duties / tariffs has not protected infant industries from competition by foreign counterparts.
H1: The imposition of high import duties / tariffs has protected infant industries from competition by foreign counterparts.
Hypothesis 4
Ho: Tax levied on harmful products such as tobacco and alcohol has not reduced their production and consumption.
H1: Tax levied on harmful products such as tobacco and alcohol has not reduced their production and consumption.

1.6 SCOPE AND LIMITATION OF THE STUDY
The scope of this research work is expected to cover the periods starting from the year 1991 to 2000 Nigeria fiscal years. These periods were chosen in order to be able to make adequate comparison between them as to how taxation has affected the current trend of changes / developments in the economy of the nation.
LIMITATION
In the course of the study, a lot of problems were encountered which consequently led to the confinement of the research result to the final outcome.
Most of these problems are as follows:
1. The researcher encountered the problem of getting adequate literature materials as it relates to fiscal policy in Nigeria.
2. The lack of full co-operation by tax officers in given information in respect to revenue amount generated from major taxes in Nigeria annually was also a limitation.
3. Most academic institution restricted the use of the library during academic periods.
4. The financing of the research work at a stage posed a problem to researcher, as the research required adequate money and of course, time to enable her visit necessary places for the collection of various data needed.

1.7 DEFINITION OF TERMS
1. Tax Administration: – Tax administration in this research would mean all the machinery and procedures employed by the federal board of inland revenue in Enugu state to ensure the effective assessment and collection of tax in the state. It will also include the organizational structure of the board and specification of responsibilities and function to ensure maximum efficiency in the boards operation.
2. Tax Authority: – Means a person or body of persons who are responsible under the law to impose tax on the income of persons for the administration of that law for example state board of internal revenue and federal board of inland revenue.
3. Income: – The tax act themselves do not design what income is but income includes those revenues, receipts arising from various sources of employment, profession, vocation, trading, rents, interest, dividends and so on. This excludes capital receipts.
4. Income Tax: – therefore tax on income that is on revenue receipts.
5. Assessable Income: – refers to the income of our individual from source of his income for the year immediately preceding the year of assessment not withstanding that he may have ceased to process any such source or that any such source may have ceased to.