CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Nigeria as a nation has the vision of becoming one among the world’s twenty biggest economies in the year 2020; this obviously, is the brain behind the priority attention the present administration is directing at infrastructural development which is essential for economic growth and development. A developed economy is one with the ingredient to stimulate investment and create wealth, this by implication offers an atmosphere that is favorable for business and has the potentials to realize its vision for 2020. The desired outcome requires a lot of money and resources to put the economy in a position that stimulates investment, therefore, tax policies need to attract potential investors, and the revenue from tax should be sufficient enough to meet the infrastructural expenditures of the government.
Tosun and Abizadeh (2005) acknowledged that taxes are used as proxy for fiscal policy. They outlined five possible mechanisms by which taxes can affect economic growth, first, taxes can inhibit investment rate through such taxes as corporate and personal income, capital gains tax, second, taxes can slow down growth in labour supply by disposing labour leisure choice in favor of leisure. Third, tax policy can have effect on research and development expenditure; fourth, taxes can lead to a flow of resources to other sectors that may have lower productivity. Finally, high taxes on labour supply can distort the efficient use of human capital high tax burdens even though they have high social productivity.
Governments in all parts of the world and at all points in history have faced similar challenges when it comes to finding their ambitions. We do not believe that government in the past nor in today’s developing world are any less rational compared to those in today’s developed world.
But important as it is, economic development does not mechanically translate into more uses in the tax take. Even in fast growing economies, such as India and China, decisions by the state are needed to yield a dividend in the form of a higher tax share in GDP.
Sustainable economic development is one of the fundamental objectives which every government mostly in developing economy seeks to achieve. The pursuit of this goal underlines the rationale behind the identification of ways of raising revenue. Nigeria just like every numerous countries through which revenue is sourced in order to finance developmental projects in the economy.
As the Nigerian economy is in recession period, there are inconsistencies in our tax laws which had made it difficult for the tax body to administer and even for the tax payer to follow. The federal government had the intension to maintain a uniform tax system but the economic condition of each state has given room for divergence system. The most important thing one should have in mind is that taxation is supposed to be an instrument of social change which is not answering as much as it should be doing presently in Nigeria. The purpose of this study is to evaluate taxation as a tool for economic growth and development in Nigeria.
1.2. STATEMENT OF PROBLEM
In developing countries, the government has to play an active role in promoting economic growth and development because private initiative and capital are limited. Fiscal policy or budget has become an important instrument in promoting growth and development in such economies.
Taxation is an important part of fiscal policy which can be used effectively by government and developing economies. Taxation play a vital role in the economic development and growth of a country which include: resources mobilization, reduction in inequalities of income, improvement in social welfare, foreign exchange, regional development, control inflation.
According to the classical economist, the only objective of taxation was to raise government revenue. But with the change in circumstances and ideologies, the aim of taxes has also been changed. These days apart from the objectives of raising the public revenue, taxes level affect consumption, production and distribution with a view to ensuring the social welfare through the economic development of a country, tax can be used as an important tool in the following manner: optimum allocation of available resources, raising government revenue, encouraging savings and investment, acceleration of economic growth, price stability, control mechanism and others. One of the major problems to be addressed is “the poor fiscal discipline in the allocation of resources and the operations of an ineffective tax regime in Nigeria”. Therefore, this study examines whether taxation can serve as a tool for economic growth and development in Nigeria.
1.3. OBJECTIVES OF THE STUDY
This study generally seeks to identify the extent to which taxation can be used as an instrument for economic growth and development in Nigeria. While the specific objectives are as follows:
- To investigate, the extent to which taxation has relationship with the Gross domestic product in Nigeria.
- To examine, the role of taxation on employment in Nigeria.
1.4. RESEARCH QUESTIONS
- Has taxation related with the Gross domestic product in Nigeria.
- Does taxation play any role on employment in Nigeria.
1.5. RESEARCH HYPOTHESES
Hypothesis 1:
H0; Taxation has no significant relationship with the Gross Domestic Product (GDP) in Nigeria.
H1; Taxation has significant relationship with the Gross Domestic Product (GDP) in Nigeria.
Hypothesis II:
H0; Taxation does not have positive significant relationship with employment in Nigeria.
H1; Taxation has a positive significant relationship with employment in Nigeria.
1.6. SIGNIFICANCE OF THE STUDY Government: This study is of immense significance at all levels of government including both the federal, state and local governments, as it depicts the relationships and impacts of taxation on economic growth and development of Nigeria.
Relevance of Tax Collection: The essence of this research work is to evaluate taxation as a tool for economic growth and development in Nigeria. Thus, this study will at a wide range be beneficial to the federal, state and local governments as well as international communities, as it will highlight the relevance of taxation in the society.
Granting more experience on Tax Payments: This study would also be of immense benefit to employees of Federal Inland Revenue Service (FIRS), who has been at the fore front of experiencing incorporation of tax payers by paying their taxes promptly.
Encouraging Tax Remittance: This study would be beneficial to the public, private sectors, individuals, business owners will find it necessary by encouraging them to comply by remitting their taxes.
Further Studies: It would also be of huge benefits to students of higher institutions who may wish to carry out further research on similar topics.
1.7. SCOPE OF THE STUDY
