ABSTRACT
The study examined the effects of taxation on the economic wellbeing of rural dwellers in Akwa Ibom State. It sought to assess the impacts of taxation on the standard of living of the rural dwellers, evaluate the effect that taxation has on the level of employment in the rural areas and to examine the relationship between taxation and healthcare services in the rural communities. A review of related literature was drawn, questionnaires developed and administered on the taxpayers using the Taro Yamani formula in determining the sample size which was 180. The data collected from the survey were presented, analyzed using simple percentage and correlation analysis. All hypotheses formulated were tested at 5% level of significance. The research findings disclosed that empirically, taxation has no significant impact on the standard of living of the rural dwellers, taxation has a positive and significant relationship with the level of employment and with healthcare services in the rural communities. The researcher therefore concludes and recommends that, efforts should be geared toward improved tax revenue collection and utilization for wealth creation and material comfort of the rural dwellers, the tax system be restructured to expand the local government frontiers in terms of tax jurisdiction, effort should be made to strengthen the tax administration machineries and to block the loopholes as these among others will bring about an increased level of employment and affordable healthcare services in the rural communities.
TABLE
OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication
iv
Acknowledgements v
Table of Contents vi
List of Tables vii
Abstract
viii
CHAPTER
1: INTRODUCTION
1.1
Background of the Study 1
1.2
Statement of Problems 4
1.3
Objectives of the Study 5
1.4
Research Questions 5
1.5
Research Hypothesis 5
1.6
Significance of the Study
6
1.7
Scope of the Study 6
1.8
Operational Definition of
Terms used in the Study 6
CHAPTER
2: REVIEW OF RELATED LITERATURE
2.1 Conceptual
Framework 9
2.1.1 Meaning
of local government 9
2.1.2 Tax
Administration in Nigeria 10
2.1.3 Federalism
and revenue allocation in Nigeria 12
2.1.4 Revenue
allocation to local government areas 14
2.1.5 Historical
background of taxation 17
2.1.6 Principles/cannons
of taxation 19
2.1.7 Economic implication / effect of taxation 19
2.1.8 Problems
of local government tax mobilization effort 22
2.1.9 Prospects
of local government tax mobilization effort 26
2.2 Theoretical
Framework - 29
2.2.1 Socio-political
theory 30
2.2.2 Expediency
theory 30
2.2.3 Benefits
received theory 30
2.2.4. Cost of service theory 31
2.2.5
Ability to pay theory 31
2.3 Empirical
Studies 32
CHAPTER
3: METHODOLOGY
3.1 Research
Design 37
3.2 Population
of the Study 37
3.3 Sample
Size 38
3.4 Method
of Data Collection 38
3.5 Method
of Data Analysis 39
CHAPTER
4: DATA PRESENTATION AND RESULT
4.1 Presentation
of Data 40
4.2 Test
of Hypothesis 42
4.3 Discussion
of Results/Findings 44
CHAPTER 5: SUMMARY
OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
of Findings 45
5.2 Conclusion 45
5.3 Recommendations 46
References 47
Appendices 49
LIST
OF TABLES
Page
2.1.1: Revenue
allocation among the three tiers of government,
2014-2018
(N’Billion) 15
2.1.2: Comparison
between direct allocation and internally generated fund at
local
government councils (N’Billion) 16
4.1.1: Frequency
table: effect of taxation on standard of living 40
4.1.2 Frequency table: effect of taxation on the
level of employment 41
4.1.3
Frequency table: effect of
taxation on healthcare services 41
4.1.4 Correlation
matrix 42
CHAPTER
1
INTRODUCTION
1.1 BACKGROUND INFORMATION OF THE STUDY
The Nigerian tax policy (2016)
defines tax as a “compulsory payment to government imposed by law without
direct benefits or returns of value on a service whether it is called a tax or
not”. Payment of tax is regarded as a civic and patriotic responsibility of
citizens which provides a regular major source of fund for government to defray
its expenditure on social amenities, provision of infrastructure, security and
safety of lives and properties within and outside the country (Adedeye, 2013).
The above is in line with views of
the Presidential Committee on National Tax Policy (2008) which states that
"the central objective of Nigerian tax system is to contribute to the
well-being of all Nigerians directly through improved policy formulation and
indirectly through appropriate utilization of tax revenue generated for the
benefits of the people". Whether this well outlined intention of
government is achieved especially at the Local Government Area is a different
thing entirely owing to myriads of problems affecting the third tier of
government in Nigeria. One of the problems of the three-tier system is the
dwindling revenue generation as characterized by annual budget deficits and
insufficient fund for meaningful growth and viable development projects. Local
governments are the nearest government to the people at the grassroots in
Nigeria. They are strategically located to play a pivotal role in nation
building. Since they are responsible for the governance of about seventy
percent (70%) of the population of Nigeria, they are in a vantage position to
articulate the needs of the majority of Nigerians and formulate strategies for
their realization (Etuk, 2013).
Local administration in Nigeria could
be traced to the colonial period. Available records show that the first local
government administration ordinance was the Native Administration Ordinance
No.4 of 1916 which was designed to evolve for Nigeria the form of rules based
on the people’s habits, norms and customs (Bellolmam, 2011).
In 1926, a centralized budget system
was introduced. Following the creation of Northern Western and Eastern regions
in 1946, decentralized public revenue structure began to emerge. The first
revenue commission was set up in 1946. During the colonial period, four revenue
commissions were created. The principles, criteria and allocation formulas
recommended by the commissions are well documented (Etuk, 2013).
It was the Macpherson constitution of
1946 that initiated some remarkable changes, the regions introduced some reforms
in their local administrations in the 1950s aimed at enhancing performance. The
reforms gave local administration the rights to collect rates and levies, pool
taxes, incomes taxes etc. to finance their activities. These regions have
overall control of these taxes. Local government administration in the country
experienced fundamental changes in 1976. The 1976 local government reforms
created for the first time, a single-tier structure of local government in
place of the different structures in the various states. Our interest in 1976
reforms hinge on the restructuring of the financial system. The reform
instituted statutory allocation of revenue from the federation account with the
intention of giving local government fixed proportions of both the federation
account and each state’s revenue. This allocation to local government became
mandatory and was entrenched in the Abayade Revenue Commission of 1977.
The 1979 constitution empowers the
National Assembly to determine what proportion of the federation account and
revenue from a state to allocate to local government. In 1981, the National
Assembly fixed this proportion at 10 percent of the federation account and 10
percent of the total revenue of states. In 1985, local government proportion
from the federation account was adjusted to 20 percent. It was further
increased to 25 percent with the argument that local governments are expected
to take on larger development responsibilities. The revenue allocation has
continued to vary in proportion overtime. At present, Local Councils receives
26.72 percent of the federation account. In addition, proceeds from the Value
Added Tax (VAT) are also allocated to them. The introduction of Value Added Tax
(VAT) in 1996 has also diversified sources of fund to the third tier of
government. The formula adopted for the allocation of VAT fund (vertically)
since the 1997 fiscal year was:
Federal Government - 35%
State Government - 40%
Local Government - 25%
100%
This formula currently stands as
below:
Federal Government - 15%
State Government - 50%
Local Government - 35%
100%
The 1976 local government reforms
clearly specified the internal revenue sources of local government to include:
- Rates:
This includes property rates, educational rate and street lighting.
- Taxes:
Community, flat rate and pool tax
- Fine
and Fees: Court finds, license fees, registration of birth, death etc.
The taxing right of local
government has been expanded as contained in the Taxes and Levies (Approved
List for collection) Act Cap T2 LFN 2004 (as amended).
Despite this clear demarcation,
States and Local Government still clash over sources of internal revenue. This
to some extent has hampered the developmental effort of most local government
including Nsit Atai, Nsit Ubium and Ibesikpo Asutan Local Government Areas of
Akwa Ibom State. Development is usually associated with fund, much revenue is
needed to plan, execute and maintain infrastructures for the benefit of the
rural dwellers. The needed revenue for these developmental projects such as
construction of roads, bridges, building of public schools, provision of pipe
borne water, electricity among others are mainly generated from taxes among other
sources of revenue. Thus the local government areas cannot embark on these
projects and carry out other responsibilities without adequate tax collection.
This is the basic reason why development is not visible in most Local
Government Areas.
1.2 STATEMENT OF PROBLEM
Undeveloped economies are faced with
dwindling revenue in the face of rising public expenditure. One major problem
faced by Nigeria authorities in the three levels of government in terms of tax
administration is tax evasion and avoidance. In addition, tax authorities
especially at local government levels face problems of manpower shortage, poor
facilities and general apathy of the citizens towards taxation. Taxpayers on
the other hand are faced with problems of economic hardship in terms of low
income, no access roads, hospitals, electricity, good drinking water, etc, a
good percentage cannot afford three square meals a day, neither do they have
fund to send their wards to school and pay their medical bills (Etuk, 2013).
As a result of these observations and
experiences, the researcher finds it necessary to carry out this study to find
out the relationship between taxation and redistribution service function of
government in terms of income, rural infrastructure and development and
suggests possible solutions.
1.3 OBJECTIVES OF THE STUDY
The broad objective of this study is
to examine the effect of taxation on the economic wellbeing of rural dwellers
of Akwa Ibom state. The specific objectives of the study were to:
(1)
Assess the impact of taxation
on the standard of living of the rural dwellers.
(2)
Evaluate the effect that
taxation has on the level of employment in the rural areas.
(3)
Examine the relationship
between taxation and affordable healthcare services in the rural areas.
1.4 RESEARCH QUESTIONS
The following are research questions
developed to achieve the objectives of the study:
(1) How
does taxation affect the standard of living of the rural dwellers?
(2) What
is the effect of taxation on the level of employment in the rural areas?
(3) To
what extent does taxation allow for affordable healthcare services in the rural
areas?
1.5 RESEARCH HYPOTHESES
In order to execute the study and to
realize the objectives, the following null hypothesis where formulated:
Ho1: Taxation is not an effective means for an
enhanced standard of living.
Ho2: There is no significant relationship between
taxation and the
level of employment in the
rural areas
Ho3: There is no significant relationship between
taxation and
affordable healthcare services
in the rural areas.
1.6 SIGNIFICANCE OF THE STUDY
Although this research work is
primarily meant to fulfill the award of postgraduate Diploma on the researcher,
the findings will be beneficial to the following individuals/ groups:
Government:
The study will enable the government to place its priorities right in terms of
redistribution of social amenities. It will also help the government in the
area of policy formulation and tax legislation with a view to tackling the
problems of tax administration.
Tax
administrators: It will help in putting
administrative and policy measures to enhance their tax generation effort and
to change negative tendencies among the tax administrators.
Taxpayers:
The research will highlight the extent to
which taxpayers could increase their standard of living by voluntarily carrying
out their civic obligation of tax payments. It will enable them to see the need
and justification for tax payment as they will enjoy optimum social benefits
for every naira spent.
Students:
The students of management sciences especially accounting will find this study
useful as it will give them an in-depth knowledge of tax administration in
Nigeria. The findings of this study will also be used by students for further
studies.
1.7 SCOPE OF THE STUDY
The study is restricted to the Effect
of Taxation on the Economic wellbeing of Rural Dwellers, a case study of
Ibisikpo/Asutan, Nsit Ibom and Nsit Atai
local government areas of Akwa Ibom State.
1.8 OPERATIONAL DEFINITION OF TERMS
Some concepts require proper
explanation to enhance our understanding of the terms. The researcher will also
give some fundamental definition of terms.
E-Taxation:
E- taxation is the deploying of computer
system and network in the process of levying and payment of taxes. It employs
the application of computer techniques in the process of filling of tax
returns, tax assessment, collection as well as general tax administration.
Voluntary
assets and income declaration scheme (VAIDS):
Voluntary Assets and Income
Declaration Scheme (VAIDS) is a scheme that was launched in June, 2017 by
Nigerian government. It was meant to create a window through which taxpayers
will be allowed to pay their outstanding tax liabilities from 2011 to 2016.This
period of tax amnesty program of the Nigerian government was further extended
to 29th June, 2019.
Tax
identification number: Tax Identification
Number (TIN) is a nine digit number assigned to taxpayers, businesses and other
entities for identification, reporting and record keeping purposes. The TIN
helps the tax authority to keep track of these entities and manage their tax
accounts.
Revenue:
Revenue is the product of an enterprise
measured in terms of the current exchange price. It includes any income or
return accruing to or derived by the government from any source as provided for
by the law. It includes rates, fees, royalties, rents and other receipts by the
government or its agents.
Statutory
allocation: This consists of financial
allocations approved by the constitution to the different tiers of government
from the federation account and share of the state government that is allocated
to the local government.
Rural
dweller: A rural dweller is an inhabitant or
someone who lives in a rural area. Rural area encompasses all population,
territories not included within the urban centre.
Local
government: Local government is the third tier of
government closer to the grassroots. It is a form of public administration
which exists at the lowest tier of administration in the state.
Standard
of living: standard of living connotes the degree
of wealth and material comfort of a person or community. It refers to the
necessities, comforts and luxuries a person is accustomed to enjoy.
Level
of employment: Employment level here has to do with
the number of people in the rural areas that are engaged in productive
activities. It measures the extent to which the people who are available to
work are being engaged in different works.
Affordable
healthcare: Affordable healthcare services here have
to do with how the cost of accessing basic healthcare services within the rural
community could be within the reach of an average rural dweller. Healthcare service is affordable when
majority of the rural populace can access it at minimal cost.
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