TAX REVENUE AND ECONOMIC DEVELOPMENT IN NIGERIA

 CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Taxation is one among other sources of revenue generation for any government to enable it to meet the needs of the citizens (Chinwe, 2013). It is also one of the oldest means by which the cost of providing essential services is funded for the generality of persons living in a given geographical area. The tax system is an opportunity for the government to collect additional revenue needed to discharge its pressuring obligation. A tax system offers itself as one of the most effective means of mobilizing a nation's internal resources and it lends itself to creating an environment conducive to the promotion of economic growth and development. The Human Development Index accurately measures the economic development of any country. It is a measure of a country's average achievements in three dimensions of human development namely; health, knowledge, and standard of living. Introduced by the U.N. in 1990, created an emphasis that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone by giving a more accurate measure of both the standard of living and quality of life in a country.

The very act of taxation has a profoundly beneficial effect in fostering a better and more accountable government (Abiahu & Amahalu, 2017). Dafionone (2013), noted, “that for the country to lay claim on growth and development through taxation, there must be an improvement of the quality of life of the citizens, as measured by the appropriate indices in economic social, political and environmental terms”. Presently, Nigeria being the number one economy in Africa cannot boast of a good education system like our sister country Ghana. Nigeria only functions as a resource provider to wealthy industrialized countries.

In Nigeria, it is known that there has been a reduction sequence in fiscal revenue due to declining oil revenue over the past decade. Still, the continued reliance on the volatile (downward-trend) oil revenue leaves tax revenue contributing little or nothing to the economy of the nation, thereby posing a threat to our fiscal sustainability. This is one fundamental issue Nigeria faces as regards tax administration, though not excluding the inadequate mechanism and procedures in implementing a good tax system; hence the increase in tax evasion and avoidance of self-employed individuals and organizations whose database is not captured in the relevant tax authorities data system, posing a great challenge and impediment to national economic growth (Angahar & Alfred, 2012). This, issue of tax evasion is borne from a complaint about a lack of accountability and transparency on the part of the government as taxpayers rarely see the benefit of their civic commitment (corruption and poor quality of services). Generally, tax evasion and avoidance have greatly reduced the amount that goes into the funding of the government budget every year. These practices erode moral values and build up inflationary pressure. The point can be buttressed with the fact that because of the evasion of tax, individuals and companies have a high take-home profit. The worth of tax evasion worldwide exceeds US$3.1 trillion or 5.1% of the global domestic product (Murphy, 2011).

The more citizens lacks knowledge or education about taxation in the country, the greater the desire and the opportunities for tax evasion, avoidance, and noncompliance with relevant tax laws (Adegbie & Fakile, 2011). In this respect, the country will be more adversely affected because of the absence of tax conscience on the part of individuals and companies and the failure of tax administrators to recognize the importance of communication and dialogue between the government and the citizens in matters relating to taxation. In light of this, this study seeks to investigate the effect of tax on the economic development in Nigeria.

1.2 Statement of Research Problem

Among many problems confronting tax mobilization and utilization in Nigeria, is how to ensure voluntary compliance on the part of the taxpayer. Usually, the research conducted on tax evasion and avoidance of economic development resulted either in a contradictory or inconclusive form, reporting positive and sometimes negative results.  Ellawule (2018) found that tax evasion has a significant effect on the economic development of a state. Fatoki (2014) found out that tax evasion has adversely affected economic growth and development in Nigeria and that lack of good governance and the unpatriotic act of taxpayers are the basis for tax evasion and avoidance. Based on these inconsistent results of prior studies in the exact literature concerning the impact of tax revenue on economic development spurs further investigation in this regard. It, therefore, shows a gap in knowledge that this study intends to solve by assessing the extent to which tax revenue affects economic development.

1.3 Objectives of the Study

Specifically, the objectives are as follows:

1) To investigate the relationship between petroleum profit tax and the human development index

2) To determine the relationship between company income tax and the human development index

3) To ascertain if value-added tax relates to the human development index

1.4 Research Questions

The following questions will guide the study:

1) How does the petroleum profit tax affect the human development index?

2) To what extent does company income tax affect the human development index?

3) How does value-added tax affect the human development index?

1.5 Research Hypotheses

In line with the research questions, the following hypotheses were formulated and they took the null form;

Ho₁: Petroleum profit tax has no significant effect on the human development index.

Ho₂: Company income tax has no significant effect on the human development index.

Ho₃: Value-added tax has no significant effect on the human development index.

1.6 Scope of Study

This study focuses on tax revenue and economic development in Nigeria from (2013 to 2022) for ten years. Data will be compiled from both the Federal Inland Revenue Service (FIRS) and the Central Bank of Nigeria.

1.7 Significance of the Study

This study is of significant importance to;

1.7.1 Policymakers

This can help policymakers in designing effective policies to promote economic growth in the country. By knowing which tax revenues are positively or negatively associated with economic development, policymakers can focus their efforts on improving the collection and management of those taxes that have a positive impact. Also, it will enable them to identify areas of the economy that require more attention in terms of investment and infrastructure development. For example, if the study shows that tax revenue from a particular sector, such as oil or agriculture, is strongly associated with economic development, policymakers can prioritize investments in that sector to stimulate growth and generate more tax revenue.

1.7.2 Taxpayers/General Public

The findings of the study can help increase the general public's understanding of how tax works and the importance of their contributions to economic development. This will help them as taxpayers to willingly and regularly pay their taxes and also help taxpayers hold policymakers accountable for the proper management of tax revenue. If they know that their taxes are being utilized appropriately for the development of the economy, they are likely to become more willing to pay taxes, leading to increased revenue generation for the government.

1.7.3 Tax Authorities

The study can help provide insight into the effectiveness of current tax policies and revenue collection strategies. It will enable tax authorities to determine if they are meeting their objectives and if any adjustments are necessary. This will also help them design tax incentives and exemptions for specific sectors of the economy, especially those with the potential to contribute significantly to economic growth. For example, tax incentives can be provided to encourage investment in critical sectors such as infrastructure, agriculture, and manufacturing.

The study can also help tax authorities better communicate the benefits of taxation to the general public. They can educate the public on how their tax payments contribute to the provision of public goods and services, and ultimately lead to a better quality of life for all citizens.

1.7.4 Researchers and Scholars

The study provides a more comprehensive analysis of this relationship, which can be used as a reference point for future research. The findings can be used by scholars and researchers to evaluate the impact of different tax policies on economic development and to make recommendations for improving the tax system in Nigeria. It also highlights the importance of tax compliance in achieving economic development in Nigeria.

This can serve as a basis for further research on the factors that influence tax compliance among individuals and businesses in Nigeria. Also, it contributes to the broader discourse on the role of taxation in economic development, which is a topic of interest to researchers and scholars in many other countries.

1.8 Organization of the Project Report

In this particular study, the following are outlined in an orderly fashion; Chapter one talks about the background of the study, statement of the research problem, objectives of the Study, research questions, research hypotheses, scope of the study, the significance of the study, and organization of the project report. Chapter Two detailed on literature review, conceptual clarifications, related theories, review of the empirical literature, and theoretical framework. Chapter three divulges the methodology, research design, population of the study, sample and sampling techniques, method of data collection, measurement of variables, reliability and validity of the research instrument, model specification, method of data analysis, and limitations of the study. Moving to chapter four, data presentation, analysis, and discussion of findings were discussed. Under this we have, characteristics of the sample, presentation of data and test of hypotheses relating to objective, presentation of data and test of hypotheses relating to objective, presentation of data and test of hypotheses relating to objective, and discussion of findings. Lastly, Chapter Five dwelled on the summary of findings, conclusions, and recommendations.

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