IMPACT OF TAX REVENUE ON ECONOMIC GROWTH IN NIGRIA FROM 1999 TO 2020

Abstract

This study was on impact of tax revenue on economic growth in Nigeria from 1999 to 2020. Four objectives were raised which included; To ascertain the influence of Petroleum Profit Tax on economic growth in Nigeria, to assess the impact of companies’ income tax on economic growth in Nigeria, to examine the impact of customs and excise duties on economic growth in Nigeria and to determine the impact of VAT on the economic growth. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN. Hypothesis was tested using Chi-Square statistical tool (SPSS).

Chapter one

Introduction

1.1Background of the study

Effective tax administration is an issue as old as taxation itself. The balancing act between maximizing tax revenues and minimizing the impact on the populace in which the state must engage, was evident as early as 2350 BC. The responsibility shouldered by the government of any nation, particularly the developing nations, is enormous. The need to fulfil these responsibilities largely depends on the amount of revenue generated by the government through various means. Taxation is one of the oldest means by which the cost of providing essential services for the generality of people living in a given geographical area is funded. Globally, governments are saddled with the responsibility of providing some basic infrastructures for their citizens. Taxation is a major source of government revenue all over the world and governments use tax proceeds to render their traditional functions, such as: the provision of roads, maintenance of law and order, defence against external aggression, regulation of trade and business to ensure social and economic stability (Appah & Eze, 2013).

The structure of Nigeria tax administration is in line with the system of government in operation. These include the three-tier system comprising the local government, state government and federal government structures. Each of these tiers of government is constitutionally saddled with administration of specific taxes, while the joint tax board oversees the whole system and resolve disputes (Akintoye and Dada, 2013). The Board of Inland Revenue administers the federally collected taxes through the Federal Inland Revenue Service (FIRS), while the board of State Internal Revenue Service administers the taxes collectible by the state government and the revenue committee administers taxes and levies collectible by the local governments (James and Moses, 2012).

Some of the challenges of Nigerian tax administration as highlighted by McPherson (2004) are; paucity of tax statistics, unethical practices (corruption), non-prioritization of tax efforts, poor administrative processes, multiplicity of taxes, economic structural problems which hinders effective implementation of taxes and the challenge of underground economy. This study is therefore intended to examine the impact of tax revenue on the growth of Nigerian economy The revenue accruing to the federal government of Nigeria from taxation over the years has remained grossly insufficient to meet the expanding social and public spending requirements in the country. In the opinion of Ayuba (1996), the tax system is grossly inefficient as it is characterized by tax evasion, avoidance and record falsifications, which have led to consistent low tax revenue inflow. Gross inefficiency and leakages have hampered the amount of revenue realized from tax sources over the years, which has been affecting the economy negatively. The inability of the Federal Inland Revenue Service Board to ensure total compliance with tax rules by companies and bring all operational companies into the tax net has significantly limited the contribution of tax revenue to economic growth.

According to James and Moses (2012), the prevalence of tax evasion in the Nigerian tax system, has curtailed the amount of revenue collected from tax income, this in no doubt has effect on the government expenditure and inflation in the economy. Moreover, the revenue generation capacity of the nation’s present tax administrative system is hampered by challenges such as paucity of data, inefficient monitoring and enforcement system, and corrupt practices (Leyira, Chukwuma, and Asian, 2012). These challenges have impeded the economic growth in Nigeria and accentuated by the resultant effect of companies closing down, hence, reducing the tax revenue of the Government.

Statement of the problem

In this case, this research is designed to unravel the problem of low tax yield to Nigeria’s economy and proffer immediate solutions. The problem of poor economic growth due to insufficient revenue collection from the non-oil tax sector and inefficient administrative framework by Federal Government of Nigeria were the major issues this research investigated. The immediate and remote causes or reasons for poor/little tax revenue contribution to economic growth (below expected), in Nigeria is therefore a fundamental problem that must be solved if the Economic Recovery and Growth Plan (ERGP) 2020 would be realized.

Objective of the study

The objectives of the study are;

1. To ascertain the influence of Petroleum Profit Tax on economic growth in Nigeria
2. To assess the impact of companies’ income tax on economic growth in Nigeria
3. To examine the impact of customs and excise duties on economic growth in Nigeria
4. To determine the impact of VAT on the economic growth

Research hypotheses

H0: there is no influence of Petroleum Profit Tax on economic growth in Nigeria

H1: there is influence of Petroleum Profit Tax on economic growth in Nigeria

H0: there is no impact of customs and excise duties on economic growth in Nigeria.

H2: there is impact of customs and excise duties on economic growth in Nigeria.

Significance of the study

The study will be of benefits to students and Nigeria government. The study will give a clear insight on impact of tax revenue on economic growth in Nigeria from 1999 to 2020. The study will serve as a reference to other researcher that will embark on the related topic

Scope and limitation of the study

The scope of the study covers impact of tax revenue on economic growth in Nigeria from 1999 to 2020.

The researcher encounters some constraints which limit the scope of the study namely:

The research material available to the researcher is insufficient, thereby limiting the study

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

1.8 Definition of terms

Tax revenue: Tax revenue is the income that is collected by governments through taxation. Taxation is the primary source of government revenue. Revenue may be extracted from sources such as individuals, public enterprises, trade, royalties on natural resources and/or foreign aid

Economic growth: Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy over time. Statisticians conventionally measure such growth as the percent rate of increase in the real gross domestic product, or real GDP.

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