TAXATION AND ITS EFFECT ON THE NIGERIAN ECONOMY (A CASE STUDY OF ENUGU STATE TAX SYSTEM).
The Nigerian Tax System has undergone significant changes in recent times. The Tax Laws are being reviewed with the aim of repelling obsolete provisions and simplifying the main ones. Under current Nigerian law, tax revenue is enforced by the 3 tiers of Government, which are Federal, State, and Local Government with each having its sphere clearly spelt out in the Taxes and Levies Act, 1998. The whole essence of tax revenue is to generate revenue to advance the welfare of the people of a nation with focus on promoting economic growth and
development of a country through the provision of basic amenities for improved public services via proper administrative system, and structures. Tax revenue plays a crucial role in promoting economic activity growth and development. Through tax revenue, government ensures that resources are channeled towards important projects in the society, while giving succor to the weak. The role of tax revenue in promoting economic activity and growth may not be felt if poorly administered. This calls for a need for proper examination of the relationship between revenue generated from taxes and the economy, to enable proper policy formulation and strategy towards its efficiency. According to Olashore (1999), the Nigerian economy has remained in a deep slumber
with macroeconomic indicators reflecting an economy in dire need of rejuvenation, revival and indeed radical reform. Also in the view of Oni (1998), tax administration needs to be revamped and refunds of taxes as well as duty drawbacks administration are inefficient. A critical challenge before tax administration in the 21st century Nigeria is to advance the frontiers of professionalism, accountability and awareness of the general public on the imperatives and benefits of tax revenue in our personal and business lives which include: promoting economic activity; facilitating savings and investment; and generating strategic competitive advantage. If tax administration does not for any reason meet the above challenges, then there is a desperate need for reform in the area of the tax regime, and in the administration of taxes.
A country‘s tax system is a major determinant of other macroeconomic indexes, specifically, for both developed and developing economies; there exists a relationship between tax structure and the level of economic growth and development. Indeed, it has been argued that the level of economic growth has a very strong impact on a country‘‘s tax base (Kiabel, 2009, and Vincent, 2001), and tax policy objectives vary with the stages of development. Similarly, the economic criteria by which a tax structure is to be judged and the relative importance of each tax source vary over time (Vincent, 2001). For example, during the colonial era and immediately aer
the Nigeria‘‘s political independence in 1960, the sole objective of tax revenue was to raise revenue. Later on,
emphasis shied to the infant industries protection and income redistribution objectives. In his discussion of the relationship between tax structure and economic development, (Vincent, 2001) divided the period of economic development into two, the early period when an economy is relatively underdeveloped and the later period when the economy is developed. During the early period, there is limited scope for the use of direct taxes because the
majority of the populace resides in the rural areas and is engaged in subsistence agriculture. Because their incomes are difficult to estimate, tax assessment at this stage is based on presumptions prone to wide margins of error