IMPACT OF INDIRECT TAX ON ECONOMIC DEVELOPMENT OF NIGERIA

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No of Pages: 68

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ABSTRACT

This study examined the impact of Indirect tax on economic development of Nigeria. The Study adopted ex-post facto research design and therefore extracted data from 2000 – 2019 period of various taxes. The study used multiple regression analysis to estimate the relationship of the variables. The findings from data analyzed indicates   that the Value added tax has significant impact on gross domestic product growth rate in Nigeria, and that Custom and Excise duties has significant impact on gross domestic product growth rate in Nigeria Based on the findings above. I therefore recommends that the concept of taxation should be taken more serious in Nigeria now it has become obvious that crude oil alone can no longer maintain the economic well-being of the populace of this Country. Also the government on its part should account properly for the taxpayers funds by utilizing the funds in the provision of obvious basic amenities and public goods.





TABLE OF CONTENTS

Title page                                                                                                                                i

Declaration                                                                                                                             ii

Certification                                                                                                                           iii

Dedication                                                                                                                              iv

Acknowledgement                                                                                                                  v

List of Tables                                                                                                                          ix

Abstract                                                                                                                                  x

Chapter One: Introduction

1.1       Background to the Study                                                                                            1

1.2       Statement of problem                                                                                                 3

1.3       Objectives of the study                                                                                               3

1.4       Research questions                                                                                                     4

1.5       Research hypotheses                                                                                                  4

1.6       Scope of the study                                                                                                      4

1.7       Significance of the study                                                                                            5

Chapter Two: Review of Related Literature

2.1       Conceptual Review                                                                                                     6

2.1.1    The concept of tax                                                                                                      6

2.1.2    Historical Development of Taxation in Nigeria                                                         10

2.1.3    Introduction of Indirect Tax in Nigeria                                                                      13

2.1.4    Indirect Taxation and Economic Growth                                                                   14

2.1.5   Direct and Indirect                                                                                                        14

2.1.6   Structure of Nigeria Tax System                                                                                 15

2.1.7    Tax Policy Reforms and Institutional Development in Nigeria                                    15

2.1.8   Tax Reform in Nigeria                                                                                                18

2.1.9    Economic Growth                                                                                                      20

2.1.10 Value Added Tax and Economic Growth                                                                    20

2.1.11Custom and Exercise and Economic Growth                                                               22

2.2 Theoretical Framework                                                                                                    22

2.2.1 Classical Growth Theory                                                                                               26

2.2.2 Neo- Classical Growth Theory                                                                                      27

2.2.3 Keynesian Theory                                                                                                          28

2.2.4 Traditional Tax Handle Theory                                                                                     28

2.3    Empirical Literature Review                                                                                         29

2.4 Identified Gap in the Literature                                                                                        41

Chapter Three: Methodology

3.1       Research Design                                                                                                         42

3.2       Area of the study                                                                                                        42

3.3       Population of the study                                                                                               42

3.4       Sources of data                                                                                                           42

3.5       Method of data collection                                                                                          43

3.6       Technique of data analysis                                                                                         43

Chapter Four: Data Presentation, Analysis and Discussion of Results

4.1       Descriptive analyses of variables                                                                               45

4.2.     Test of Hypothesis                                                                                                       47

4.2.1    Hypothesis I                                                                                                                47

4.2.2     Hypothesis II                                                                                                             50

Chapter Five: Summary of Findings, Conclusion and Recommendations

5.1. Summary of Findings                                                                                                      52

5.2. Conclusion                                                                                                                       53

5.3. Recommendations                                                                                                           53

References                                                                                                                              64

APPENDIX A                                                                                                                        67

 

 

 

LIST OF TABLES

Table 1. Nigeria major taxes                                                                                                  15

Table 2: Results of Descriptive Analyses of Variables                                                          45

Table 3: Regression Analysis of Indirect Taxes on GDPgr                                                   48



 

CHAPTER ONE

INTRODUCTION


1.1       Background to the Study

The duties or responsibility shouldered by the government of any nation, particularly the developing nations, is enormous. The need to fulfill 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 persons living in a given geographical area is funded. Globally, governments are saddled with the responsibility of providing some basic infrastructures for their citizens. Functions or obligations the government may owe her citizens include but are not restricted to: stabilization of the economy, redistribution of income and provision of services in the form of public goods. (Abiola & Asiweh, 2012).

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 goods, maintenance of law and order, defense against external aggression, regulation of trade and business to ensure social and economic maintenance (Edame&Okoi, 2014). The primary function of a tax system is to raise enough revenue to finance essential expenditures on the goods and services provided by government; and tax remains one of the best instruments to boost the potential for public sector performance and repayment of public debt (Okoye&Ezejiofor, 2014). A system of tax avails itself as a veritable tool that mobilizes a nation’s internal resources and it lends itself to creating an environment that is conducive for the promotion of economic growth (Ayuba, 2014). Therefore, taxation plays a major role in assisting a country to meet its needs and promote self-reliance.

In Nigeria, tax revenue has accounted for a small proportion of total government revenue over the years compared with the bulk of revenue needed for development purposes that is derived from oil (Out & Adejumo, 2013). The serious decline in the prices of oil in recent times has led to a decrease in the funds available for distribution to the federal, state and local governments (Afuberoh & Okoye, 2014). Consequently, dependence on oil as a particular or main source of revenue in Nigeria has become risky and not beneficial for sustainable economic growth. It is worse for Nigeria where there are fluctuations in prices in the oil market; thereby creating concerns amongst Nigerians and indeed the Nigerian government on the need to diversify the economy.

Naturally, and globally, there is a paradigm shift to taxation revenue as an alternative source of revenue. Nigeria is not an exception. The machinery and procedures for implementing a good tax system in Nigeria are inadequate; hence tax evasion and avoidance of the self-employed individuals and organizations whose data base is not captured in the relevant tax authority’s data system (Fasoranti, 2013). The need for the government to generate adequate revenue from internal sources has therefore become a matter of extreme urgency and importance (Afuberoh & Okoye, 2014).The desire of any government to maximize revenue from taxes collected from tax payers cannot be overemphasized.

This is because, as is well-known, the importance of tax lies in its ability to generate revenue for the government, influence the consumption trends and grow and regulate economy through its influence on vital aggregate economic variables (Fasoranti, 2013).

In the light of the above, and in broad spectrum, this paper examines the impact of indirect taxes on economic growth in Nigeria. This topic is formed and informed against the backdrop of the need for a paradigm shift to indirect taxation in the face of the dwindling oil prices and the relative paucity of studies, using inflation-factored GDP in Nigeria.

 

1.2       Statement of the Problem

The Nigerian people, especially the rich and the elites, deliberately evades their civic responsibility of paying tax and sometimes employ the services of tax specialists in order to pay less tax. This is also the problem of falsification of ages and the number of children and defendants one has in order to reduce the amount of tax payable. Emanating from the above factors, the states and local governments contends that their currently assigned taxes are poor in terms of their bases and therefore, accruable revenues are not enough to meet their expenditure targets. Also the statutory allocation from the federation account has been grossly inadequate as a result of a fall on gross domestic product. This invariably reduces their overall performance, considering their expenditure profiles.

Taiwo (2008), observed that the distribution of government revenue is skewed in favor of one tax base or the other (Journal of Accounting (2016), in Nigeria. Nevertheless, the overwhelming evidence of positive impact of oil revenue on economic growth in Nigeria cannot be overemphasized (Odusola, 2006). However, the question is, are other forms of taxes not important for considerations? Emanating from the above therefore, there are some questions to ask (1) what relationship exists between Nigerian’s tax revenue from personal income by tax payers and economic development of the nation? (2) What is the contribution of other tax bases such as value added tax and customs and exercise duties to the overall tax revenue of Nigeria? It is against these backdrops, that this research is carried out with a view to finding out the causes and proffer solution(s).

1.3       Objective of the Study

The main objective of this study is to determine the impact of indirect tax on economic development of Nigeria, while the specific objectives include:

  1. To determine the impact of value added tax(VAT) on gross domestic product growth rate of Nigeria.
  2. To ascertain the impact of custom and excise duties on gross domestic product growth rate of Nigeria.

1.4       Research Questions

The following questions have been formulated in line with the objectives of the study.

  1. How does value added tax impact on gross domestic product growth rate of Nigeria?
  2. To what extent has custom and excise duties impacted on gross domestic product growth rate of Nigeria?

 

1.5       Research Hypotheses

The following hypotheses have been formulated:

Ho1: Value added tax has no significant impact on gross domestic product growth rate of Nigeria

Ho2: Custom and excise duties has no significant impact on gross domestic product growth rate of Nigeria.


1.6       Scope of the Study

The study is on the impact of indirect tax on the economic development of Nigeria covering the period of 19 years, that is, between 2000 and 2019, the concentration was focused on Personal income tax, value added tax and custom and exercise duties mainly.


1.7 Significance of the Study

This research work will be an invaluable source of literature for researchers, and related field who might be interest in knowing much about the concept of ― value added tax (VAT) custom and exercise duties.

It‘s general contribution to economic development of Nigeria were mentioned. It will also help the government in her policy formulation to suggest alternative strategies that can aid effective administration and monitoring of the VAT process and procedures.

The list of vatable goods and services will also be mentioned in subsequent chapter together with the countries that had practiced this system of taxation with the date of adoption. All these will contribute immensely to the knowledge previously had by some of the beneficiaries mentioned above. 


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