Impact Of Taxation As An Aid To Economic Development
(A Case Study Of Oji River Local Government Area, Enugu State, Nigeria)
Taxation plays a crucial role in fostering economic development by generating revenue for government expenditure on public goods and services, thus facilitating infrastructure development, education, and healthcare systems. Moreover, well-designed tax policies can incentivize investment, innovation, and entrepreneurship, contributing to economic growth and job creation. Progressive taxation can address income inequality by redistributing wealth and funding social welfare programs, enhancing social cohesion and stability. However, excessive taxation or inefficient tax systems may hinder economic progress by disincentivizing productive activities, stifling investment, and impeding business expansion. Therefore, striking a balance between revenue generation and promoting economic activities is essential for leveraging taxation as a tool for sustainable development.
The research work will discuss in detail the impact of taxation as an aid to Economic Development in Enugu State. It will also take cognizance of the aims and objectives of taxation and its impact on the economic developments of Nigeria. It also aimed at identifying problems that inhibit the efficient and effective administration of the Nigeria tax’s system.
The chapter one of this work is going to discuss in brief, the introduction, statement of the problem, purpose of the study, significance of the study, scope of the study, limitations of the study, assumptions of the study, formulation of hypothesis and definition of terms.
In chapter two, the researcher will deliberate on: Definition of Tax and types, incidence of taxation, principles of taxation, element of taxation, importance of taxation, structure and administration of Nigerian Tax system, appraisal of some tax legislation and taxation functions and problems.
Chapter three will consider design and methodology, selection of data: primary data, secondary data, population, sampling technique, sample size and problems of data collection.
Chapter four will deliberate on the data presentation and analysis, interpretation of result and test of hypothesis.
Conclusively, chapter five will centre on the summary of the findings, conclusion from the study, recommendation and suggestion for further research.
The purpose of this study is to find out if actually there is an impact of taxation as aid to economic development and my study is based on the survey of Enugu State, using Oji River as a case study. This research also became necessary in order to bring to the proper understanding of the enquirer the best ways to solve such problems connected with the taxation especially: what is taxable, which system of tax is acceptable, the rate of tax evasion and avoidance and the assessment of Nigeria tax system.
The primary function of every government is to make provision for its citizens in terms of infrastructural facilities. The provision of this enormous work cannot be carried out adequately by the government due to its limited resources therefore, there is the imposition of tax on all citizens, companies to augment government financial position. Government have always enacted various tax laws and reformed to stand the taste of time.
Title page
Approval page
Dedication
Acknowledgement
Abstract
Table of Contents
CHAPTER ONE
1.0 Introduction
1.1 Background of the study
1.2 Statement of the problem
1.3 Objectives of the study
1.4 Significance of the study
1.5 Scope and Limitations of the study
1.6 Assumptions of the study
1.7 Formulation of Hypothesis
1.8 Definition of Terms
CHAPTER TWO
2.0 Review of Related Literature
2.1 Introduction
2.2 Definition of Tax and Types
2.3 Incidence of Taxation
2.4 Principles of Taxation
2.5 Element of Taxation
2.6 The Importance of Taxation
2.7 Appraisal of some tax legislation
2.8 Structure of Administration of Nigeria Tax System
2.9 The problems of taxation and its function
CHAPTER THREE
3.0 Design and Methodology
3.1 Primary Sources of Data
3.1.1 Personal/Oral Interview
3.1.2 Questionnaire Method
3.2 Secondary Sources of Data
3.3 Population and Sample Size Determination
3.4 Methods of Data Collection
3.5 Method of Validating the instrument
3.6 Method of Data Analysis
3.7 Problems of data collection
CHAPTER FOUR
4.0 Presentation of Analysis of Data
4.1 Presentation of related data
4.2 Analysis of Data
4.3 Test of Hypothesis
4.4 Interpretation of Result
CHAPTER FIVE
5.0 Summary of findings
5.1 Conclusions
5.2 Recommendations
Bibliography
Questionnaire
1.0 INTRODUCTION:
1.1 BACKGROUND OF THE STUDY:
One of the major functions of any government especially developing countries such as Nigeria is the provision of infrastructural services such as electricity, pipe-borne water, hospitals, schools, good roads and as well as ensure a rise in per capita income, poverty alleviation to mention a few.
For these services to be adequately provided, government should have enough revenue to finance them. The task of financing these enormous responsibilities is one of the major problems facing the government. Based on the limited resources of government, there is need to carry the citizens (governed) along hence the imposition of tax on all taxable individuals and companies to augment government financial position. To this end, government have always enacted various tax laws and reformed existing ones to stand the taste of time. They include: Income Tax Management Act (ITMA), Companies Income Tax Decree (CIID), Joint Tax Board (JIB) etc.
All these are aimed at ensuring adherence to tax payment and discouraging tax evasion and avoidance. For the purpose of this study, the researcher would be concerned with the impact of taxation as an aid to the economic development of Enugu State (Nigeria).
1.2 STATEMENT OF THE PROBLEM:
The first need of any modern government is to generate enough revenuewhich is indeed “the breath of its nostril”. Thus taxation is by far the most significant source of revenue for the government. Nigerians regard payment of tax as a means whereby government raises revenue on herself at the expense of their sweat.
It is good to note that no tax succeeds without the taxpayer’s co-operation. Here, we can ask some thought-provoking questions such as: what makes taxation such a difficult issue? Why do people feel cheated when it comes to tax? Is government making judicious use of taxpayer’s money? In view of these questions above, this study is going to be carried out to offer solution to them.
We shall also look at the following issues and offer recommendations.
1. Problems affecting the successful operation of tax system in Nigeria.
2. How to determine the Assessable income.
3. Process of tax administration in Nigeria.
1.3 OBJECTIVE OF THE STUDY:
The general objective of the study is to assess the contribution of taxes towards the growth of the Enugu State Economy.
However, the specific objective of the study includes:
1. To examine the relevance of taxation in Enugu State.
2. To determine why people feel cheated when it comes to tax.
3. To determine the extent government has been using revenue generated from tax.
4. To examine how tax rate affects the rate of investment in the economy.
5. To know general desirability of firms to invest as a result of tax incentive measures.
Generally, the work is done to find out if tax constitutes the bulk of government revenue and to erase the erroneous that it is an exploitation by government for their selfish interest.
1.4 SIGNIFICANCE OF THE STUDY:
One of the most frequently discussed issues in Nigeria is how to solve the economic hardship in the country and how to create an industrial base that can be guarantee self sustaining economic development. Also one wonders why a country which is richly endowed with the necessary human and material resources and which the people pay tax has been turned a heavily indebted country.
The study will afford us the opportunity to know the roles taxation play in the Enugu State economy such roles includes:
1. Taxation is a major source of revenue to the government.
2. Revenue generated from tax enables government performs its functions effectively.
3. Taxation acts as an instrument of fiscal policy.
4. The impact of tax on small business in the state.
5. The study will in addition reveal if there are other better sources of government funding.
1.5.1 SCOPE OF THE STUDY:
The scope of this study covers critical examinations on the impact of taxation on Enugu State economic development. It will also analyse other related issues such as structure and administrative machinery of tax in Enugu State and their associated problems. The essence of this digression is to possibly find out the obstacles if any, that hinder the effective collection and administration of tax in the State.
1.5.2 LIMITATION OF THE STUDY:
It can be seen from all indications that a research such as this cannot be carried out in one semester. There are constraints that limit the work of the researcher. Among these are:
– Inadequate Time: The time available is very limited, as a result of this, the researcher is restricted to some places for interviews and questioning during the collection of data.
– Insufficient Fund: The funds available to the researcher is not sufficient to carry out this research work. As a result of high economic hardship as well as high cost of transportation.
– The inability of some government officials to disclose certain reliable information which they considered confidential may also limit the study.
– There is also scarcity of current textbooks on tax because tax laws are constantly changed and so many textbooks are obsolete for this topic.
Finally, the academic workload on the campus is one of the limiting factors on this research work. Despite all these constraints, the researcher is able to carry out a fair and effective study on this topic.
1.6 ASSUMPTIONS OF THE STUDY:
The researcher in carrying out this study will make the following assumptions:
1. That the data that will be used are true and fair figures of taxes actually collected by the Federal Government in each year of assessment.
2. That the data will be authentic and can be relied on for further research work on the topic.
3. That the data is going to form the basis of the research work.
1.7 FORMULATION OF HYPOTHESIS:
To enable the researcher test if there exist any correlation between revenue generated from tax and its impact on the Enugu State economy, some statistical model will be used based on the response from the oral interview carried out and the questionnaire distributed, the data gathered from here will be used to test the following hypothetical statement (assumption).
HYPOTHESIS I:
The Null Hypothesis (Ho): Revenue generated from tax does not make any impact on the economic development of Enugu State
The Alternative Hypothesis (HA): Revenue generated from tax has a positive impact on the economic development of Enugu State.
HYPOTHESIS II:
The Null Hypothesis (HO): That tax evasion and avoidance do not affect tax revenue.
The Alternative Hypothesis (HA): that tax evasion and avoidance do affect tax revenue.
HYPOTHESIS III:
The Null Hypothesis (HO): That revenue generated from tax is so merger compared to revenue from other sources as such, government can do with tax.
The Alternative Hypothesis (HA): That tax is a major source of government revenue and as such government cannot do without tax.
1.8 DEFINITION OF TERMS:
TAX: A compulsory levy by the government on its citizen for the provision of public goods and services.
TAX BASE: The object which is taxed for instance personal income, company profit.
TAX RATE: The rate at which tax is charged.
TAX INCIDENCE: It offers to the effect of and where the burden is finally rested.
FBIRS: Federal Board of Inland Revenue Services. It is an operational arm of Federal Board of Inland Revenue which is responsible for the Federal Tax matters.
CITA: Company Income Tax Act (CITA) is a federal law operated by the FIRS, which deals with the taxation of all limited liability companies in Nigeria with the exception of those engaged in petroleum operations.
JTB: Joint Tax Board (JTB) is established under Section 85(1) of Decree 104 of 1993 to arbitrate on tax disputes between one state tax authority and another.
VAT: Value Added Tax is a multistage tax levied and collected on transactions at all stages of sales and distribution.
CGTA: Capital Gain Tax Act is an act that stipulates that all capital gains arising on disposal of asset of individual partnership and limited companies should be taxed.
PPTA: Petroleum Profit Tax Act is an act that regulates the petroleum profit tax and also specifies how profit from petroleum will be taxed.
WITHHOLDING TAX: This is tax charged on investment income namely: rents, interest, royalties and dividends, presently it is charged as the tax offset.
PROGRESSIVE TAX: This is a tax incidence that increases as the size of income increases.
REGRESSIVE TAX: A tax is regressive when its tax rate decreases as the income increases.
EXCISE DUTIES: These are taxes on some goods manufactured within a country.
PERSONS: It includes all taxable persons whether it be individual or corporate bodies.
Impact Of Taxation As An Aid To Economic Development:
Taxation plays a significant role in promoting economic development and growth within a country. When designed and implemented effectively, taxation can contribute to various aspects of economic development. Here are some ways in which taxation can act as an aid to economic development:
- Revenue Generation: Taxation is a primary source of government revenue, which is essential for funding public goods and services such as infrastructure, education, healthcare, and social welfare programs. Adequate funding for these areas can enhance human capital and create an environment conducive to economic growth.
- Infrastructure Investment: Tax revenue can be used to finance critical infrastructure projects like roads, bridges, ports, and energy systems. Developing and maintaining robust infrastructure can improve transportation, communication, and access to markets, thereby facilitating economic activities and attracting investment.
- Redistribution of Wealth: Progressive taxation, where higher-income individuals or businesses pay a larger proportion of their income in taxes, can help reduce income inequality. By redistributing wealth and providing a safety net for the less fortunate, taxation contributes to social stability and a more inclusive economic environment.
- Public Services and Education: Tax revenue enables governments to invest in education and skill development programs. A well-educated and skilled workforce is essential for fostering innovation, entrepreneurship, and overall economic productivity.
- Healthcare and Social Welfare: Adequate funding from taxation can support healthcare systems and social welfare programs, ensuring that citizens have access to healthcare services and a basic standard of living. Healthy and secure populations are more likely to participate actively in economic activities.
- Macroeconomic Stability: Taxation helps governments manage their fiscal policy by controlling the amount of money circulating in the economy. Appropriate taxation can help control inflation, manage deficits, and stabilize the overall economic environment.
- Foreign Investment: A transparent and efficient tax system can attract foreign direct investment (FDI). Foreign investors are more likely to consider countries with clear and consistent tax policies, as well as well-functioning tax administration systems.
- Encouraging Savings and Investment: Tax incentives, such as reduced rates on capital gains or investment income, can encourage individuals and businesses to save and invest, which can lead to increased capital formation and economic growth.
- Innovation and Research: Governments can use tax incentives to promote research and development (R&D) activities. These incentives encourage businesses to invest in innovation, which can lead to technological advancements and improved productivity.
- Environmental Protection: Environmental taxes, such as carbon taxes or taxes on pollution, can encourage sustainable practices and discourage harmful activities. These taxes can promote cleaner technologies and contribute to long-term economic and environmental sustainability.
However, it’s important to note that the impact of taxation on economic development depends on several factors, including the structure of the tax system, its efficiency, transparency, and the overall economic context of the country. Poorly designed or excessively burdensome taxes can have negative effects on economic growth by discouraging investment, hindering entrepreneurship, and promoting tax evasion.
In conclusion, taxation can serve as a powerful tool for economic development when implemented strategically and fairly. A well-balanced tax system that considers the needs of both the government and the private sector can contribute to sustainable economic growth, improved living standards, and reduced inequality.