research work was undertaken to examine the tax and economic performance in
Nigeria. The study is aimed at putting together those factors that constitute
those variables which the government uses to manipulate the economy. The result
of the research shows that in this country, a great proportion of government
revenue, which should have been generated from taxation, are lost through an
ineffective system of tax administration. Hence, making it difficult for
taxation to be used as a tool of fiscal policies, effective tax
administration should be put in place to
ensure that everybody is brought to the tax net. They should be transparency in
the part of the government in providing the social amenities to the populate to
encourage people to pay their tax. Tax is of immense importance in the
pursuance of government policies. The
level of government expenditure is more or less dependent on the ability of the
tax system to place the required and sufficient revenue at the reach of
government. Based on the above findings and conclusion, it recommends that tax
system should be restructured and taxation law in Nigeria should be constantly
reviewed and updated to meet with socio-economic needs, public enlightenment
campaign on tax matters should be done twice in a year at the federal level but
also at the states and local levels, government should install a strong and
vibrant tax administration, so that they can establish their own tax authorities
in accordance with relevant tax laws.
CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND OF THE STUDY 1
OF THE PROBLEM 4
1.3 OBJECTIVES OF THE STUDY 5
RESEARCH QUESTIONS 5
OF THE STUDY 6
OF THE STUDY 7
1.8 DEFINTION OF
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 TAX THEORY 12
THE OBJECTIVES AND IMPORTANCE OF
AND ECONOMIC POLICY 17
2.3 IMPOSITION OF TAXES AND INCOMES CHARGEABLE
UNDER TAX LAWS AND ACTS
AND THE RELEVANT
TAX AUTHORITY. 20
2.4 ASCERTAINMENT OF INCOME FOR TAX PURPOSES 29
2.5 TYPES OF TAXATION: DIRECT TAXES AND ITS FORMS 32
2.6 TAX EFFECTS ON THE ECONOMY 35
2.7 TAXES EFFECTS ON PRODUCTION AND DISTRBUTION. 37
2.8 TAX EFFECTS ON CONSUMPTION AND SAVINGS 38
2.9 TAX EFFECTS ON INVESTMENTS AND EFFICIENCY 39
2.10 TAX EVASION AND AVOIDANCE 41
CURRENT CHARGES IN PERSONAL INCOME
2.12 OVERVIEW OF TAX SYSTEM IN NIGERIA 42
2.13 OVERVIEW OF THE NIGERIA ECONOMY 45
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 INTRODUCTION 49
3.3 RESEARCH INSTRUMENT AND INSTRUMENTATION 50
AND SAMPLING TECHNIQUE 50
3.5 VALIDITY OF INSTRUMENT 50
3.6 RELIABILITY OF INSTRUMENT 50
3.7 PROCEDURE FOR DATA ANALYSIS 51
3.8 METHOD OF DATA ANALYSIS 51
LIMITATIONS OF THE STUDY 52
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 INTRODUCTION 53
4.2 DEMOGRAPHIC CHARACTERISTICS OF RESPONDENTS 53
OF HYPOTHESES 59
4.4 FINDINGS 65
OUTLINE OF REVENUE ALLOCATION FORMULAS
CHAPTER FIVE: SUMMARY, CONCLUSION AND
5.1 INTRODUCTION 64
5.2 SUMMARY OF FINDINGS 64
1(Hypothesis one) 70
(Hypothesis two) 71
1.1 BACKGROUND OF THE STUDY
Tax is the
system of raising money in form of taxes paid by the citizens of the country in
return for the services rendered by the government.
The present tax
laws in Nigeria emanated from the Raismais commission in 1957. Before this time
we only had what was called the income tax ordinance for the colonies and which
was rather common in all the colonies and the provisions were very similar.
Raim’s recommendation was the basis of provision in the Nigerian constitution
order council of 1960 section 70(1) which conferred an exclusive power upon the
parliament to make laws for Nigeria or any part thereof with certain uniform
principles in respect of personnel income tax.
when Nigeria became a republic, the mid-western region was created out of the
western region and they adopted the western region tax law accordingly with the
amendments, the position under the republican constitution of 1963 and that the
regions (now divided into states) assumed jurisdiction over the income tax of
person other than companies. While the federal government assumed jurisdiction
over the taxation of companies, the uniform principles under the income tax
management act and the regional taxes in the federal territory of Lagos.
The Nigerian economy has been and is
currently being characterized by a reasonable degree of openness, hence its
performance can be improve through the development of the external sector. The
Nigerian external sector has always been dominated by primary commodities which
have the well known basic characteristic of low price and income elasticity of
demand, low growth of demand, terms of trade and instability of export earnings
(Lakan, 2006). This mono-culture situation brought untold hardship on the
people of the country. For instance, from 1970 to date, oil exporting has
constituted on the average of 90% of the total foreign exchange earnings. The
adversity of the fluctuation in oil price has in no small measure stalled the
developmental efforts of the various governments. For instance, fiscal
operations of the government was disrupted in 2009 as the federally-collected
revenue declined by 38.4% (CBN, 2009) in the year due largely to lower oil
prices in the international market caused by the global economic meltdown This
has made the Nigerian economy to swing from the “oil boom era”, as exemplified
by the buoyant economy of the period with massive infrastructural development
and the Udoji award followed by the “oil doom” period which arose from oil glut
in the world oil market since 1981 only led to the neglect of the non-oil
export productive base. This has led to panic measures by successive
governments from the economic stabilization Act of 1982, Counter trade policy
of Buhari/Idiagbon regime and the introduction of Structural Adjustment
Programmes (SAP) by the Babangida Administration. Furthermore, in the wake of
the recent global economic crisis, the government had to adopt policy measures
to address the problems and prevent the crisis from throwing the economy into
recession. The policy measures adopted were mainly on three broad fronts,
namely monetary easing, fiscal easing, and trade policy.
No matter the
nature of the type of government a country practices, it is clear that
government clearly identifies its sources of revenue and how to allocate
mobilized funds to various expenditure centres and projects that will
positively impact on the lives of its people (Shah and Shah, 2006; Ola and
Offiong, 1999). Sources of government revenue contain elements of compulsion
and voluntary. However, the major sources of revenue open to a local government
include: 1) tax income; 2) administrative revenues (for example fees, licenses,
fines, tax on profits of certain activities of the private sectors); 3) public
debts or loans, and 4) Commercial revenues (or income from investments in
municipal bonds and receipts from government business enterprises). As a matter
of fact, taxes are part of the measures through which governments cause the
public to pay for its services (Ola and Offiong, 1999). Taxes are compulsory
payments levied by government on individuals and corporate bodies in the form
of personal income tax, corporate income tax, excise duties, import duties,
value added tax (VAT), and so forth. Direct taxes are compulsory in the sense
that they are deducted at source, from the income of employees. In this case,
tax evasion becomes impossible. Now, it has become a problem that every year
billions of naira are lost due to tax evasion and avoidance by the
self-employed people in Nigeria. Both the federal and state governments have
previously applied various measures to checkmate this challenge, but all to no
This can be
looked at or ascertained from the annual tax revenue generated or mobilized,
over the years, from the self-employed people in the Federal Capital Territory
of Nigeria, Abuja. Statistics have revealed that the amount of tax revenue
generated over the years from the self- employed people (otherwise called the
private sector) has been below expectations (Ndulue, 2005). The prevalence of
tax evasion and avoidance especially among the self-employed people has forced
some state governments to engage the services of tax contractors in a bid to
generate the much needed income. This hardly yielded any appreciable fruits
because of the nefarious activities of these contractors which are detrimental
to the economy.
1.2 STATEMENT OF THE PROBLEM
There is high
incidence of tax evasion and avoidance by tax payers. This may affect the
economic performance and amount of revenue collectible by the government for
the running of administration.
Direct taxes are compulsory in the sense that they are deducted at source, from
the income of employees. In this case, tax evasion becomes impossible. Now, it
has become a problem that every year billions of naira are lost due to tax
evasion and avoidance by the self-employed people in Nigeria and it is hoped
that people were wrongly assessed and the assessment sometimes result to
1.3 OBJECTIVES OF THE STUDY
This study will therefore aim at ascertaining the key causes
of tax and economic performance in Nigeria. The objectives of this study
include the following:
To examine the causes
and reasons for high tax evasion on economic performance of Nigeria.
evaluate government revenue generation to financing ever-increasing economic
needs of the state.
To assess economic growth and development in Nigerian.
examine the effect on economy and high rate of tax evasion and avoidance.
To resolve adequate tax incentives and taxpayer
education in the state
what extent does high tax evasion or avoidance affect economic performance in
the implementation of tax revenue generate finance for ever-increasing economic
performance in Nigeria?
Government sustain economic growth and
development in the emerging Nigerian economy?
the prevalence of tax evasion and avoidance engage the services of tax
contractors in a bid to generate income?
H0 That there is no significant relationship between
tax evasion, avoidance and economic performance in Nigeria
H1: That there is significant relationship
between tax evasion, avoidance and economic performance in Nigeria
revenue do not generate finance for ever-increasing economic performance in the
H1: Tax revenue generate finance for
ever-increasing economic performance in the state
1.6 SIGNIFICANCE OF THE STUDY
This study will
review and assist tax and economy performance in Nigeria, it will educate the
entire public on how the federation could encourage economic development and
also how a reduced tax could promote the standard of living of the tax payer
and increases his capital formation and investment thereby, resulting in a
higher gross National Product (GNP) of the economy(country) and also promote
the industrial development of the nation and Lagos state in particular.
The study will
be of immense benefit to the following group of persons.
(a) Government of the federation of Nigeria,
especially the Lagos State Government.
(b) The business community for the purpose of
companies income tax.
(c) The tax experts especially the practicing
(d) Lagos state university community.
Nigerian Institute of Management and Nigerian Statisticians.
(f) The economist and financial analysts or
(g) The students of Accountancy profession and
other allied professions.
(h) The tax-payers, especially the employers of
labour and the employees of various organisations.
(i) Tax researchers.
1.7 SCOPE OF THE STUDY
This research is
intended to analyze the tax and growth and the level of economic performance in
1.8 DEFINTION OF
TAX: Is a financial charge or other levy
impose upon a taxpayer by a state or the functional equivalent of a state such
that failure to pay is punishable
PERFORMANCE: The accomplishment of a given task measure
against preset known standards of accuracy completeness, cost and speed.
social science that studies how individuals governments, firms and nations make
choices on allocating scarce resources to satisfy their unlimited wants
I.T.M.A: Income tax management Act of 1961, which deals
with chargeable income and how they are administered.
C.I.T.A: Companies income tax Acts of 1979 which deals
with profit chargeable in respects to companies.
P.I.T.D: Personal income tax degree/Act of 1993 as
amended deals with profit chargeable in respect of individuals.
HYPOTHESIS: It is an idea or suggestion put forward
for reasoning or explanation .subject to confirmation or rejection.
LAW OF TERRITORY: This means any
enforce in a particular territory example, state, or country.
METHODOLOGY: It is the
science or study of methods or ways to be adopted in a given direction.
TAX EVASION: This means
trying to escape tax liability by an individual.
DIRECT TAXES: This means
that taxes are levied on income and property of individuals or group of
individuals who bears their full burden.
INDIRECT TAXES: These are the taxes levied on goods and
services and are paid by individuals by virtue of their associating with the
goods and services.
EARNED INCOME: It is the income which the tax payer actually
earned, which may require mental and physical exercise such as salaries, wages,
e t c.
UNEARNED INCOME: This income
accrue whether or not the tax payer is there or not, example, rent, interest,
royalties, and dividends.
OTHER INCOMES: It is the
income which comes once in a while and they are not regular, thereby
undetermined example, gift of windfall income, lottery winnings e t c.