ABSTRACT
The aim of this study was to examine the impact of
tax revenue collected by federal government on the economic growth of Nigeria,
while looking at the specific objectives which include: assess the impact of
companies’ income tax on economic growth of Nigeria; ascertain the influence of
Petroleum Profit Tax on economic growth of Nigeria; examine the impact of
custom and excise duties on economic growth of Nigeria and determine the impact
of VAT on the economic growth of Nigeria.
Ex -post facto and survey research designs was
adopted in the work to investigate reasons for consistent low tax contributions
to GDP in Nigeria over a period of 35 years. Secondary data were obtained from
FIRS and Bureau of Statistics for the purpose of this research. Method of analysis
include ordinary Least square regression model was estimated to examine the
individual effects of tax revenue proxies of Value Added Tax (VAT), Petroleum
Profit Tax (PPT), Customs and Excise Duties (CED), and Companies of Income tax
(CIT) on Gross Domestic Product (GDP), Autoregressive distributed lag (ARDL)
model was adopted to determine the combined effect of tax revenue proxies on
GDP of Nigeria.
The study revealed that the GDP is strongly impacted
upon by VAT, PPT, CED, and CIT. In summary, the simple regression analysis
shows that about 75% variations in GDP can be attributed to changes in PPT;
also, Value Added Tax (VAT) was discovered to be responsible for about 95%
changes in GDP. The average contribution of tax revenue to GDP for the thirty five
year period was computed at mere 7.8%, which is still far below the acceptable
global average of 20%. Although the
simple regression showed that CIT and CED individually has positive effect on
GDP, the multiple regression analysis through long run estimation indicated
that in the long run, CIT and CED have negative effects on GDP and PPT and VAT
have positive effects on GDP.
The study concluded that tax revenue combined have
significant effect on the economic growth of Nigeria, although Companies Income
Tax (CIT) and Custom Excise Duties (CED) have not contributed positively to
economic growth of this nation over the period of study, hence government need
to reposition the tax administrative system and sufficiently equip them to deal
with complexities of technological advancement in global commerce, enforce
compliance and track all taxable persons in order to generate sufficient
revenue needed to foster economic growth in Nigeria.
Keywords: Tax Revenue, Value Added Tax, Custom and Excise Duties,
Company Income Tax, Gross Domestic Product
Word
Count: 403
TABLE OF CONTENTS
Certification ii
Dedication
iii
Acknowledgements
iv
Abstract
v
Table
of Contents vi
List
of Tables xi
List
of Figures xiii
CHAPTER ONE: INTRODUCTION
1.1 Background
to the Study 1
1.2 Statement
of the Problem 6
1.3 Objective
of the Study 9
1.4 Research
Questions 10
1.5 Hypotheses
10
1.5.1
Rationale for Hypotheses 10
1.6 Significance
of the Study 12
1.7 Scope
of the Study 13
1.8 Operationalization of Variables 13
1.10 Operational Definition of Terms 15
CHAPTER TWO: REVIEW OF LITERATURE
2.1 Conceptual
Review 17
2.1.1
Historical Background of Taxation in Nigeria 17
2.1.2
Taxation 19
2.1.3
Nigerian Tax System 21
2.1.3.1
Relevant Tax Authorities 23
2.1.3.1.1 The Federal
Inland Revenue Service Board (FIRSB) 23
2.1.4
Nigeria National Tax Policy 24
2.1.5
Revenue Generation of Nigerian Government
25
2.1.6
Reasons for Insufficiencies of Tax Revenue 26
2.1.7
Problems of Tax Administration in Nigeria 27
2.1.8
Problems of Tax Collection in Nigeria 28
2.1.9 The Role of Taxation on Economic and Social
Development Sustainability 30
2.1.10
Tax reforms in Nigeria 30
2.1.11.
Economic growth 31
2.2
Theoretical Review 32
2.2.1 Deterrence Theory 32
2.2.2 Behavioural Economics 33
2.2.3 Risk Management Theory 33
2.2.4 Other Theories of Taxation 34
2.2.4.1
Benefit Received Theory 34
2.2.4.2
Cost of Service Theory 35
2.2.4.3
Responsive Regulation Theory 35
2.2.5
Theoretical Framework 37
2.3
Empirical Review 37
2.3.1 Tax
Reforms and Economic Growth in Nigeria 37
2.3.2 Tax
Revenue and Economic Growth in Nigeria 43
2.3.2.1 Company Income Tax and Customs and Excise
Duties and Economic Growth 43
2.3.2.2 Petroleum Profit Tax and Economic Growth in
Nigeria 44
2.3.2.3 VAT and Economic Development 46
2.3.2.4 Customs and
Excise Duties and Economic Development 47
2.4
Gaps in Literature 52
CHAPTER THREE: METHODOLOGY
3.1
Research Design 54
3.2
Population 54
3.3 Sample size and sampling Technique 54
3.4 Sources of Data 55
3.4.1 Validity of the Research Instrument 55
3.5 Model specification 56
3.6.
Method of Data Analysis 58
3.7
Model Estimation and Evaluation Technique 58
3.8
Apriori Expectation 59
3.9
Ethical Considerations 59
CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION OF FINDINGS
4.1
Descriptive Analysis 60
4.2
Empirical Analysis 63
4.2.1.
Correlation Analysis 63
4.2.2.
Regression Analysis 64
4.2.2.1.
Test of Hypothesis One (H01) 64
4.2.2.2.
Test of Hypothesis Two (H02) 66
4.2.2.3
Test of Hypothesis Three (H03) 67
4.2.2.4
Test of Hypothesis Four (H04) 69
4.2.3
The Main Model 70
4.2.3.1 Diagnostic Test 70
4.2.3.2 Regression Result 72
4.2.3.3 Post Estimation Test 75
4.3 Discussion of Findings 76
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1
Summary 83
5.1.1.
Summary of Findings 84
5.1.2
Implications of Findings 86
5.2
Conclusion 89
5.3
Recommendations 89
5.4
Contribution to Knowledge 90
5.5
Limitation of the Study 91
5.6
Suggestion for Further Studies 91
References
92
Appendix
I: Results 100
Appendix
II: Data Used 107
LIST OF TABLES
Table Page
2.3.1 Summary of Empirical Review 48
4.1.1 Descriptive analysis of the raw data of
variables in Naira (₦’Million) 61
4.1.2
Contribution of Tax Revenue to GDP 61
4.1.3 Descriptive analysis of the
Natural Logarithm of the variables under study 61
4.2.1.1
Pearson’s Correlation Result 63
4.2.2.1
Regression estimate 64
4.2.2.2
Regression Estimate 66
4.2.2.3
Regression Estimate 67
4.2.2.4
Regression Estimate 69
4.2.3.1a
Unit Root Test Results 71
4.2.3.1b
Summary of Unit Root Test Results 71
4.2.3.2a
Bounds Co-integration Tests Result 72
4.2.3.2b Auto
Regressive Distributed Lag (ARDL) Model 73
4.2.3.2c
Long Run Estimation 74
4.2.3.3
Post Estimation Tests Result 75
LIST OF FIGURES
|
Figure
|
Page
|
|
2.1 Compliance Model
|
36
|
|
2.2 Conceptual Model
|
53
|
CHAPTER ONE
INTRODUCTION
1.1
Background to 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
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
roads, maintenance of law and order, defence against external aggression,
regulation of trade and business to ensure social and economic maintenance
(Appah & Eze, 2013). 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 as
enunciated by (Okoye & Raymond, 2014).
According to Azubike (2009), 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. 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 (Uremadu & Ndulue 2011). 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 as noted
by (Nzotta, 2007). 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 poses a great challenge and
impediment to national economic growth as submitted by (Angahar & Alfred,
2012). In the findings of (Edemode 2009), the need for the government to
generate adequate revenue from internal sources has therefore become a matter
of extreme urgency and importance. The desire of any government to maximize
revenue from taxes collected from tax payers cannot be over- emphasized. This
is because, as it 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 (Leyira, Chukwuma & Asian 2012).
According to Ariwodola (2001), tax
is a compulsory levy imposed by the government authority through its agents on
its subjects or his property to achieve some goals. Tax is the transfer of
resources from the private sector to the public sector. Okezie (2012) noted
that tax is the price everyone must pay for an egalitarian society. The tax
administration in any country does not only encompass the procedures of
imposing these compulsory levies but also the establishment of tax laws and
ensuring its compliance. Despite the millennia that have passed and the quantum
of academic research work, Chandler (2013) opined that today's policymakers are
still grappling with the questions of effective tax administration leading to
adequate tax revenue.
Empirical studies have shown that
the quantum of revenue available to any government needed to meet the social
and capital expenditure in a country depends on its ability to harness funds
from internal and external sources and channel it towards national development
and economic prosperity. Appah (2010), in his findings, stated that revenue
from taxation forms the bedrock of the revenue base of most governments all
over the world. The extent to which a government can provide social, economic
and infrastructural development is a function of the amount of funds at its
disposal.
It has been observed that in
Nigeria, the quantum of income generated from non-oil tax over the years by the
federal government is grossly insufficient in relation to the ever increasing
social, political and infrastructural developmental needs of the country. As
noted by Odusola (2006), Nigeria economy has thrived largely on oil revenue in
the past three decades. In essence, Nigeria runs a monolithic economy which is
subject to international oil price mechanism far beyond the control of the
government, thereby exposing the economy to global market fluctuations,
distorting budgetary projections, and renders meaningful developments
improbable. The current budget of borrowing in Nigeria is a fall out of the
dwindling oil revenue that has sank into abysmal low prices in the
international market and has thrown the Nigeria budget for 2016 into serious
crisis.
Appah (2010) further stated that
the economic growth and development of any nation depends on the amount of
revenue generated by the government for the provision of infrastructural
facilities. The highway of economic growth of most developed nations of the
world is paved with revenues derived from efficient taxation system as implied
by Enahoro and Olabisi, (2012). The provision of public services such as power,
roads, efficient transportation system, healthcare facilities, schools,
security of lives and properties and defence against internal and external
aggression, are the exclusive responsibility of governments all over the world. According to Worlu and Emeka (2012), to meet
these responsibilities, governments need to harness all sources of revenue
available to it nationally and internationally. Reliance on external sources of
revenue for developmental purposes has proved unproductive for many countries
over the years, and those countries which experienced rapid social and
infrastructural development around the world were found to have leveraged on
revenue from efficient tax system.
The International Monetary Fund
(2012), observed that the developing countries must be able to raise the
revenues required to finance the services demanded by their citizens and the
infrastructure (physical and social) that will enable them to move out of
poverty (economic growth). Tax Justice Network (2012), Stated that taxation is
expected to play an important role in this revenue mobilization. The structure
of tax must be strengthened rather than tax administration and geared towards
generating more revenue from existing tax sources by being more efficient and
effective according by Oloidi and Oluwalana (2014), who describe efficiency as
the ability to utilise available resources for optimal results while
effectiveness is the ability to be able to functionally produce expected
results.
From above, it can be deduced that
efficient taxation system capable of generating greater amount of the revenue
needed for social and infrastructural development purpose is of primary
importance in Nigeria. According to McPherson (2004), efficiency and
effectiveness is the benchmark for designing a good tax administrative system. In the opinion of Tanzi and Zee (2000)
efficient tax administration plays vital role to revenue collection of any
country. In the acclaimed study, they posited that the formation of tax policy
capable of raising sufficient revenue to meet the social an infrastructural
development of the citizen in equitable and minimum tax disincentives on the
polity is of great essence. Four critical areas which are inimical to the
formation of a national tax policy such as economic structure that makes the imposition and collection of
certain taxes impossible; limited capacity of tax administrators; paucity or
poor quality of data and the political
set up in developing countries. They further said that it is difficult to
create an efficient tax administration without a well-educated and well-trained
staff. Where money is lacking to pay good wages to tax officials and to
computerize the operation (or even to provide efficient telephone and mail
services), and where taxpayers have limited ability to keep accounts,
inefficiencies will definitely thrive. As a result, governments often take the
path of least resistance, developing tax systems that allow them to exploit
whatever options are available rather than establishing rational, modern, and
efficient tax systems. So tax administrations must be strengthened to accompany
the needed policy changes.
Aderibigbe and Zachariah (2014)
are of the opinion that tax system is an opportunity for the government to
collect additional revenue needed in discharging economic development and
creating a conducive business environment for its citizens, they also opined
that tax is a major source of government revenue all over the world. The
structure of Nigerian tax administration is in relation with the system of
government in operation. These include the three tier system comprising of 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 as noted by 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).
The history of Nigerian tax administration
can be traced to the British model tax administration since 1960 and has been
in operation until 1990 when the self-assessment scheme came into play which
seems similar to the American model of tax administration system (Enahoro and
Olabisi, 2012). They further commented that countries have encountered problems
on assessing how efficient tax administration is, against the quantum of tax
revenue collected. In other words, the process of tax collection is of great
importance to developing nations especially in an economy like Nigeria where
great reliance is place on one source of revenue. 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.
A good tax administrative system
should have efficiency and effectiveness as its watch word. According to Kiabel
and Nwoka (2009), the administration of tax is the responsibility of various
tax authorities as established by relevant tax laws. However in Nigeria, the
inefficiencies of tax administration as highlighted above have led to various
tax issues. Abiola and Asiweh (2012) observed that those working in the
informal sector of Nigerian economy do not see the need to pay tax whereas they
dominate the economy leading to tax evasion and tax avoidance. From the above
purview, this study sets out to critically examine the impact of tax
administration and revenue on the economic development of Nigeria.
The whole essence of tax
administration is to generate sufficient revenue to advance the welfare of the
people of a nation with focus on promoting economic growth and development of a
country through the provision of basic amenities for improved public services
via efficient administrative system, and structures. Tax revenue plays a
crucial role in promoting economic activity growth and development. Through tax
revenue, government ensures that resources are channeled towards important
projects in the society, while giving succor to the weak. The role of tax revenue
in promoting economic activity and growth may not be felt if poorly
administered. For business to thrive and compete globally, infrastructural
amenities such as power, roads, telecommunication, water and quality health
facilities are essential, as this will reduce the overhead cost of business
owners and give room for expansion thereby creating wealth for the prosperity
of all citizenries. The provision of these amenities is the primary duty of
government and requires huge capital outlay. Efficient tax administration will
enhance the total revenue available to the government to carry out its role.
This calls for a need for proper examination of the relationship between
revenue generated from taxes and the economy, to enable proper policy
formulation and strategy towards its efficiency.
According to Olashore (1999), the
Nigerian economy has remained in a deep slumber with macroeconomic indicators
reflecting an economy in dire need of rejuvenation, revival and indeed radical
reform. Oni (1998), is also of the opinion that there is the need for tax
administration to be refurbished and refunds of taxes as well as duty drawbacks
administration are inefficient.
1.2 Statement of the Problem
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 required in
fostering economic growth and development in the country. In the opinion of
Ayua (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 to 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
Nigeria 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, as
noted by, (Leyira, Chukwuma, and Asian 2012). All these have impeded the
economic growth of Nigeria; which has resulted to her current state of economic
recession with the resultant effect of companies closing down, hence, reducing
the tax revenue of the Government.
In most countries, tax system is
seen as an embodiment of contention and controversy whether in its policy
formulation, legislation or administration as observed by (Bariyama &
Gladson 2009). For example Nigeria government is contemplating to raise Value
Added Tax rate, while the organised private sector is resisting that attempt
and would rather have government bring more companies and individuals into the
tax net as noted by (Alli, 2009). According to Enahoro and Olabisi (2012) there
is a huge scale of corrupt practices prevalent in Nigeria tax administrative
system, this tells to a reasonable extent that the economy is at a disadvantage
position. Ahmad (2005) pointed out that the objectives of tax system are
multi-dimensional in nature, which includes revenue generation, resources
allocation, a fiscal tool for stimulating economic growth and development and
Social functions, like redressing the rural-urban population drift, and making
everybody to be responsible. Taxes, and tax systems, are fundamental components
of any attempt to build any nations economic growth, and this is particularly
the case in developing or transitional nations like Nigeria. However, given the
ever increasing social and infrastructural expenditure needs of government,
greater tax revenue will be needed to execute or sustain the required level of
spending that can trigger economic growth.
These shortcomings may be more evident where government’s financing
relies heavily on more “distortionary” taxes (e.g. direct taxes) and where
public expenditure focuses on “unproductive” activities. Ayua (1996) pointed
out that the major problem lies in the procedures, machinery and approaches
adopted in collection, assessment and compliance practices of tax, however,
this study seeks to ascertain the effect of poor tax administration system and
assess its impact on economic growth of Nigeria.
The problems associated with the
major tax reforms in Nigeria can be attributed to its inability to achieve its
set objectives towards which it was focused. Ogbonna and Ebimobowei (2012)
identified some of the problems to include the increasing cost of tax
administration by the Federal Government of Nigeria in relation to the tax
revenue collections as evidenced by scholars, which is a major indication of
high level of inefficiency in the tax operations of the country contrary to the
canons of taxation enunciated by Adam Smith. Furthermore, the prevailing
distortions in the tax system have jeopardized some of the purpose of the
Nigerian tax reform agenda resulting in an ineffective tax system.
Companies Income Tax administration
in Nigeria does not measure up to appropriate standards. If good old test of
equity, certainty, convenience and administrative efficiency are applied,
Nigeria will score low as a result of tax evasion and inadequate monitoring.
Non compliance with tax laws and regulations by tax payers is deep in the
system because of weak control, poor tax administration, poor tax education,
inconsistent government policies, lack of adequate statistical data and
corruption among tax officials (Azubuike 2009).
Adegbie and Fakile (2011) found
out that fraud and financial malpractices have negative impact on the
contribution of Customs and Excise duties to Nigerian economic development. The
Nigerian customs service is much criticized for corruption and inefficiency and
its upper echelon is often driven with intrigue and infighting. All these need
to change if the Nigerian dream of economic development is to be achieved.
Value Added Tax rate in Nigeria is one of the factors contributing to the
collapse of the real economy (Odusola 2006). This is because it disrupts the
manufacturing sector by accelerating astronomical increase in the prices of
goods and services. Hence it increases the volume of unsold goods thereby
reducing capacity utilization, increasing poverty levels, increasing
unemployment, discouraging local and foreign investors and subjects the country
to economic volatility.
Although the Petroleum Profit Tax
serves as the instrument of redistribution between the industrialized economies
who own the technology and the emerging economies from where the petroleum
resources are extracted, most of the objectives of Petroleum Profit Tax in
Nigeria are not achieved (Uremadu and Ndulue 2011). This is because of several
challenges such as lack of adequate trained tax inspectors and officials;
inadequate application of technology; poor assessment of tax payers; tax
evasion and avoidance and ineffective tax laws and regulations
Likewise, the problem associated
with tax justice in Nigeria was addressed as against economic growth in
Nigeria. The tax administration system is seen as a central pillar of any
national development strategy, Action Aid (2013) defined tax justice as a
transparent, accountable and efficient set of arrangements that raises
substantial revenue for needed public services, development and government
infrastructure through a broad tax base, with the proportionally largest
contributions coming from those with the greatest wealth and income. Corruption
and corrupt practices have eaten deep into this nation; therefore, the Nigerian
tax justice is tainted with lack of transparency, unaccountability and
inefficient administration system, which on the other hand has a negative
effect on the economic growth of our nation. Globally , a tax contribution of 20% to a nation’s Gross Domestic Product is
acceptable ,however in Nigeria , tax contribution to Gross Domestic Product is about 0.7% as submitted by
Okonjo Iweala (2013).
This is quite unacceptable.
Therefore this research work was 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 work 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 vision 20 2020 would be realized.
1.3 Objective
of the Study
The main objective of this work was
to examine the impact of tax revenue collected by federal government on the
economic growth of Nigeria. The specific objectives are to:
i.
assess the impact of companies’ income tax on
economic growth of Nigeria;
ii.
ascertain the influence of Petroleum Profit Tax
on economic growth of Nigeria;
iii.
examine the impact of custom and excise duties
on economic growth of Nigeria and
iv.
determine the impact of VAT on the economic
growth of Nigeria.
1.4 Research Questions
Research questions were employed to
pilot this research, testing for the efficiency and effectiveness of tax
revenue to produce the desired economic growth. The following questions were
developed:
i. What is the impact of
companies’ income tax on economic growth of Nigeria? ii. What is the influence of Petroleum Profit Tax on economic
growth of Nigeria? iii. In what ways has
custom and excise duties impacted the economic growth in Nigeria? iv. To what extent does VAT impact
the economic growth of Nigeria?
1.5 Hypotheses
The following hypotheses were tested at 5% level of
significance in this study:
|
Ho1:
|
Companies income tax has no
significant impact on the economic growth of Nigeria.
|
|
Ho2:
|
Petroleum Profit Tax has no
influence on the economic growth of Nigeria.
|
|
Ho3:
|
Custom and excise duties have no significant impact on the
economic growth of Nigeria.
|
|
Ho4:
|
VAT has no significant
impact on the economic growth of Nigeria.
|
1.5.1 Rationale for Hypotheses
The role and strategic importance
of the petroleum industry to the Nigerian economy cannot be over-emphasized, as
it is the main fulcrum around which the entire economy revolves. Petroleum
Profit Tax is payable by companies which are engaged in petroleum operations.
The fundamental objectives of petroleum taxation is to ensure a fair share of
wealth accruing from the extraction of the petroleum resource, while also
providing sufficient incentives to encourage investment and optimal economic
recovery of the hydrocarbon resource (Sanni, 2011).
Value Added tax has become one of
the major sources of tax revenue for financing government expenditure. However,
there are several issues emanating from the operation of VAT in the country, which
has made many analysts to submit that the operation of VAT is far from what is
desirable. Firstly, VAT rate in Nigeria is one of the factors contributing to
the collapse of the real sector of the economy, because it disrupts the
manufacturing sector by accelerating astronomical increase in the prices of
goods and services. This is in addition to other teething problems already
plaguing the sector such as inadequate power supply, poor transportation
network, multiple taxation, etc. If consumption among individuals and companies
is reduced, this could have a knock-on effect on economic growth, profitability
and employment, leading to less personal income taxes (Oyedele, 2011).
Furthermore, the operation of VAT in Nigeria is capable of causing inflation because
VAT is a consumption tax and as such increases the prices of goods and
services. The real income of the final consumers is reduced leading to low
purchasing power and further compound the poverty situation in the country.
Companies Income Tax has significant
impact on the economy of any nation because it serves as a stimulus to economic
growth in the areas of fiscal and monetary policies. But the Nigerian case is
difference because the revenue derived from CIT has been grossly understated as
a result of several challenges. The factors responsible for the poor
performance of CIT revenue in Nigeria include: high rate of tax evasion and
avoidance by companies, poor tax administration, poor taxpayers education,
inconsistent government policies, and lack of adequate statistical data,
inadequate manpower and corruption among tax officials.
Customs and excise duties are the
country's highest yielding indirect tax and are administered by the Nigerian
Custom Service. Like PIT, CIT and PIT, the operation of custom duties in
Nigeria is characterized by multidimensional challenges. These include; porous
borders, problem of smuggling, security challenges, poor custom duty
administration, inadequate data, shortage of adequately trained personnel, etc.
these factors have contributed to the slow rate of growth of custom duties in
Nigeria and has therefore affected the economy negatively.
Consequently, it becomes imperative
to examine the effect of federal government tax revenue on Economic growth of
Nigeria.
1.6 Significance
of the Study
The aim of the study was to
empirically review the effect of tax revenue on the economic growth of Nigeria.
The result of this study provides empirical evidence and contributes to the
body of existing literature.
Specifically it assists the
Federal Government of Nigeria in the light of dwindling oil revenue in Nigeria.
This study would assist the government to block revenue leakages, harness
greater revenue sources, evolve an effective policy framework which would
guarantee quality tax administration and foster economic prosperity on the
citizenry. So this research gives useful opinion to the government on how to
generate more income from tax so as to be less dependent on income from the
unstable oil sector alone. Nigeria oil which had been the main source of
revenue earner for Nigeria government over the years has suffered serious price
decline in the global market with adverse effect on Nigeria budget for year
2016 which has led the government to make huge provisions for borrowing with
the attendant borrowing costs, which is inimical to development. The government
would therefore greatly benefit from this research project through a more
efficient and effective tax administration.
Also, the findings of this study
serve as bedrock to the general public in order to discourage tax evasion as it
provides empirical evidence of the percentage contribution of tax revenue to
GDP below the normal threshold of 20%. This study educates tax payers on the
benefit of remitting tax especially in the area of economic benefit of tax
revenue, not failing to advice on the negative effect of evading tax on both
the tax payer and on the economy in general.
The study also provides a holistic
approach to tax administration in the country; therefore assisting the tax
administrators by shedding light on existing loopholes that tax evaders
explore. In addition, researchers and academic community would also draw
inspiration from the in-depth analysis and articulation of the research work. Finally, the study provides necessary
information to Joint Tax Board and Federal Board of Inland Revenue concerning
effective tax administration strategies that could be employed to reduce the
number of tax evaders and secure tax payers loyalty to their constitutional duty
and civic responsibility, thereby increasing the tax revenue generated.
1.7
Scope of the Study
This study focused on the
examination of the effect of tax revenue on economic growth of Nigeria as such,
the scope of this study is defined from three dimensions namely, geographical
area of coverage, time period and the data. The geographical scope of this
study is Nigeria which represents both the study’s population and sample size.
The time period is thirty-five years (19812015). This period is considered
reasonable to establish the consistency and effectiveness of tax revenue
generated on the economic growth of Nigeria. This study is restricted to
secondary data which were obtained from the statistical bulletin from Central
Bank of Nigeria (CBN) and reports of Federal Inland Revenue Service (FIRS).
This provided data that was used to measure the tax revenue (independent
variable) and economic growth (dependent variable) of Nigeria. The tax revenue
was measured by Companies Income Tax (CIT), Petroleum Profit Tax (PPT), Custom,
Excise Duties (CED) and Value Added Tax (VAT) and Gross Domestic Product (GDP)
was used as a proxy for economic growth over the period of study. Using data
from these sources enhanced the reliability and validity of data used in this
study. Ordinary Least Square was the statistical tool used in this research.
1.8 Operationalization of Variables
The purpose of this study was to
examine the impact of tax revenue collected by Federal Government on economic
growth in Nigeria.
To achieve this, two variables were
identified in the study, these are: independent and dependent variables. The
independent variables are the Tax Revenue generated in Nigeria in the following
dimensions as surrogates: Companies Income Tax (CIT), Petroleum Profit Tax
(PPT), Custom, Excise Duties (CED) and Value Added Tax (VAT). The dependent
variable on the other hand is Economic Growth (EG) measured by Gross Domestic
Product (GDP) of Nigeria for the period under study (1981—2015).
The following model has been adopted.
Y = f(X)
Y = y1
X = x1, x2, x3, x4
Where;
Y=
Economic Growth (EG) y1 = Gross Domestic Product (GDP) X = Tax
Revenue (TAR) x1= Companies
Income Tax (CIT) x2 =
Petroleum Profit Tax (PPT) x3=
Custom and Excise Duties (CED) x4= Value Added Tax (VAT)
Functional Relationships
GDP = f(CIT) ...............................................1
GDP = f(PPT) ...............................................2
GDP = f(CED) ..............................................3
GDP = f(VAT) ..............................................4
GDP = f(CIT,
PPT, CED, VAT) ..............................................4 it is
expected that β1-8 > 0.
The above functional relationships
are the underlying functions of effects of tax revenue on economic growth of
Nigeria for the period of study. This functional relationship shows that
economic growth is a function of tax revenue, which likewise is a function of
company income tax, petroleum profit tax, customs and excise, value added tax.
Associated regression models were
developed in chapter three under methodology of the study and employed in
chapter four to investigate the effects.
1.9 Operational Definition of Terms
Nigeria Tax Authorities: This refers to the revenue collection agencies
of the Federal Government of Nigeria represented by the Federal Inland Revenue
Service (FIRS), State Internal Revenue Service (SIRS) and Local Government
Revenue Committee.
Joint Tax Board (JTB): This
is the supervisory and regulatory body that defines the scope of operation and
administrative system between the various tiers of tax authorities.
Revenue: Implies resources or pool of funds available to the
Federal Government of Nigeria from internal and external sources.
Tax: Obligatory transfer of financial resources from the private
organisation to the public sector for common pool
Tax Administration: Refers to tax management process and procedures
for the effective and efficient transfer of financial resources from the
private organisation to the public pool.
Board:
This refers to the Federal Board of Inland Revenue (FBIR)
Service:
This refers to the Federal Inland Revenue Service (FIRS)
Tax Justice:
This refers to the tax administration transparency issues in Nigeria.
Tax Reform Policies: These are policies established by the Federal
Government in Nigeria on tax administration and implementation.
Tax Consultants: These are firms employed by the Federal Government
of Nigeria charged with the duties of tax administration and collection.
Tax Evasion: This refers to the deliberate failure to pay taxes
usually by making false reports. It is using
illegal means to avoid paying taxes. Typically, tax evasion schemes involve an individual or corporation
misrepresenting their income to the Inland Revenue Service.
Tax Avoidance: This refers to the minimization of tax liability by
tax payers through lawful methods. This is the
legal usage of the tax regime to one's own advantage to reduce the amount of tax that is payable by means that are
within the law.
Oil Revenue:
This is revenue generated through oil exploration and production in Nigeria.
Non-oil Revenue: This is
revenue generated from other sources apart from oil sector in Nigeria. An
example is tax.
Thin
Capitalization: This is a situation where firms are heavily financed
through debt with the aim to pay less tax since interest on debt is an
allowable expense under tax laws
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