This research work was undertaken to examine the impact of taxation as a
tool of fiscal policy. The study is aimed at putting together those factors
that constitute those variables which the government uses to manipulate the
economy. The source of data to this research work are both from gathered from Secondary data, which is from various text books,
internet materials and primary data through the use of questionnaires that was filled
by various respondent. The result of the research shows that in this country, a
great proportion of government revenue, which should have been 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.
TABLE OF CONTENTS
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
BACKGROUND TO THE STUDY 1
1.1 SIGNIFICANCE AND JUSTIFICATION FOR THE STUDY 4
1.1 STATEMENT OF THE PROBLEM 5
OBJECTIVES OF THE STUDY 5
OF THE STUDY 5
OF THE STUDY 5
OF TERMS 6
CHAPTER TWO: LITERATURE
2.1. HISTORY OF TAXATION 9
2.1.1 TAX SYSTEM IN NIGERIA 12
2.1.2 HISTORY OF TAXATION IN NIGERIA 12
MEANING OF TAXATION 14
2.2.1 IMPORTANCE OF TAXATION 16
2.2.2 PROBLEMS OF TAX
SYSTEM DESIGN 20
2.2.3 CRITERIA FOR AND PRINCIPLE OF TAXATION
FOR TAXES 21
2.2.2 THE INCIDENCE OF TAXATION 29
2.3 FISCAL POLICY AND STABILITY 31
2.3.1 IMPACT OF TAXATION AS A
FISCAL POLICY TOOL ON
EMPLOYMENT AND PRICE LEVEL. 39
IMPACT OF TAXATION ON OUTPUT AND PRICE AT LESS
IMPACT OF TAXATION ON OUTPUT AND PRICE IN PERIOD OF
MORE THAN FULL EMPLOYMENT
(OR EXCESSIVE DEMAND)42
IMPACT ON GROWTH 43
IMPACT OF THE 2008 FISCAL POLICIES IN NIGERIA ON
CHAPTER THREE: RESEARCH METHODOLOGY
METHOD OF DATA COLLECTION 53
3.1.1 QUESTIONNAIRE METHOD 53
3.1.2 LIBRARY 55
3.2.1 SAMPLING PROCEDURE 55
SAMPLING TECHNIQUES 55
RANDOM SAMPLING 55
PREFERENTIAL SAMPLING 55
DESIGNING / FRAMING OF QUESTIONS 55
COLLECTION AND RECORDING DATA 56
PROCESSING AND ANALYSIS OF DATA 56
CHAPTER FOUR: DATA
PRESENTATION AND ANALYSIS
4.1.0 DATA PRESENTATION
ACCORDING TO RESEARCH
BIODATA OF RESPONDENTS 57
CLASSIFICATION BY GENDER 57
CHAPTER FIVE: SUMMARY,
CONCLUSION AND RECOMMENDATION
5.1 SUMMARY 66
5.3 RECOMMENDATION 68
TO THE STUDY
Fiscal policy is the means by which a
government adjusts its levels of spending in order to monitor and influence a
nation's economy. It is the sister strategy to monetary policy with which a
central bank influences a nation's money supply. These two policies are used in
various combinations in an effort to direct a country's economic goals. Here we
take a look at how fiscal policy works, how it must be monitored and how its
implementation may affect different people in an economy.
Fiscal policy is based on the theories
of British economist John Maynard Keynes. Also known as Keynesian economics,
this theory basically states that governments can influence macroeconomic
productivity levels by increasing or decreasing tax levels and public spending.
This influence, in turn, curbs inflation (generally considered to be healthy
when at a level between 2-3%), increases employment and maintains a healthy
value of money. Ezejelue,
The idea, however, is to find a balance
in exercising these influences. For example, stimulating a stagnant economy
runs the risk of rising inflation. This is because an increase in the supply of
money followed by an increase in consumer demand can result in a decrease in
the value of money - meaning that it will take more money to buy something that
has not changed in value.
Let's say that an economy has slowed
down. Unemployment levels are up, consumer spending is down and businesses are
not making any money. A government thus decides to fuel the economy's engine by
decreasing taxation, giving consumers more spending money while increasing
government spending in the form of buying services from the market (such as
building roads or schools). By paying for such services, the government creates
jobs and wages that are in turn pumped into the economy. Pumping money into the
economy is also known as "pump priming". In the meantime, overall
unemployment levels will fall. Orojo, (2009).
With more money in the economy and less
taxes to pay, consumer demand for goods and services increases. This in turn
rekindles businesses and turns the cycle around from stagnant to active.
If, however, there are no reins on this
process, the increase in economic productivity can cross over a very fine line
and lead to too much money in the market. This excess in supply decreases the
value of money, while pushing up prices (because of the increase in demand for
consumer products). Hence, inflation occurs. Stafford (2009).
For this reason, fine tuning the
economy through fiscal policy alone can be a difficult, if not improbable,
means to reach economic goals. If not closely monitored, the line between an
economy that is productive and one that is infected by inflation can be easily
When inflation is too strong, the
economy may need a slow down. In such a situation, a government can use fiscal
policy to increase taxes in order to suck money out of the economy. Fiscal
policy could also dictate a decrease in government spending and thereby
decrease the money in circulation. Of course, the possible negative effects of
such a policy in the long run could be a sluggish economy and high unemployment
levels. Nonetheless, the process continues as the government uses its fiscal
policy to fine tune spending and taxation levels, with the goal of evening out
the business cycles.
Unfortunately, the effects of any
fiscal policy are not the same on everyone. Depending on the political
orientations and goals of the policymakers, a tax cut could affect only the
middle class, which is typically the largest economic group. In times of
economic decline and rising taxation, it is this same group that may have to
pay more taxes than the wealthier upper class.
Similarly, when a government decides to
adjust its spending, its policy may affect only a specific group of people. A
decision to build a new bridge, for example, will give work and more income to
hundreds of construction workers. A decision to spend money on building a new
space shuttle, on the other hand, benefits only a small, specialized pool of
experts, which would not do much to increase aggregate employment levels.
One of the biggest obstacles facing
policymakers is deciding how much involvement the government should have in the
economy. Indeed, there have been various degrees of interference by the
government over the years. But for the most part, it is accepted that a degree
of government involvement is necessary to sustain a vibrant economy, on which
the economic well being of the population depends
Taxation in Nigeria has been in existence as long
as there were constituted authorities as in any other national. Lord Luggard
first introduced tax became operative in Nigeria.
The duties of the tax collection authorities during
the period included the giving of information, supervision of the collection of
taxes, accountability of tax collected and the payment of such taxes into the
treasury by the district council. Tax
was designed to generate fund for the government to enable her perform her
socio-economic and political responsibilities to the citizens.
On the other hand, fiscal policies, simply defined,
is the use of taxation, public borrowing and public expenditure by the
government for the purpose of increasing per capital income, to bring about
even distribution of income, reduction of unemployment and the promotion of
local technology. The role of fiscal policy in developing
countries is to accelerate the rate of capital formation for the enhancement of
Therefore, understanding the role of fiscal
policies implies understanding the economic objectives of government and how
the tool of fiscal policies is being used to achieve the stated
objectives. This is against the
background of a fairly well development financial system. Fiscal policies in Nigeria are one of the
policies used in achieving some of the economic objectives set by the
Therefore, this research work seeks to know how
taxation is being used as a tool of this very important policy and the impact
such has made in Nigeria.
SIGNIFICANCE AND JUSTIFICATION
FOR THE STUDY
The significance of this study stems from the fact
that a healthy economy is beneficial not only to the government but to the
entire citizenry as it affects her standard of living.
As fiscal policy concerns taxes and government
expenditure. It involves manipulation
of the revenue and expenditure of government with the objectives of influencing
macro-economic variables e.g. the employment level, aggregate demand level to
mention but a few.
Therefore, an examination of the impact of taxation
as a tool of fiscal policy will help in revealing further procedures to bring
about an improved economy, improved standard of living and maintenance of a
healthy balance of payment. Also, the
wrong notion of an average Nigerian as to the purpose of taxation would be
corrected. This study could also serve
as a basis for further research work on the subject being considered.
1.2 STATEMENT OF THE PROBLEM
Fiscal policies being one of the policies used by
the government in order to enhance the economic development and which indeed
has been of great help to the economy of Nigeria make use of taxation as one of
But then, how actually is taxation employed in
achievement of these objectives and how effective is its use in carrying out
OF THE STUDY
The basic objective of this project work is to
highlight the impact of taxation as a tool of fiscal policies.
To examine the effect of taxation on Nigeria
1.4 SCOPE OF
project work focuses on the impact of taxation as a tool of fiscal policies in
impact of this policy varies from one country to another due to the level of
advancement and technological know-how on their institution that participates
on the fiscal policy such institution like central Banks, Financial Houses and
the Stock Exchange market. It was also impossible to cover all body that
participate in fiscal policy in Nigeria, money market and capital market are
the bodies that are involved, the findings obtained were then generalize to the Nigeria situation since all
the bodies involved operates with the same legal frame work.
1.5 LIMITATION OF
fields of human endeavour, problems and constraints are inherent and a work of
this nature cannot be excluded. As a result of this, the researcher found it
difficult to visit many financial houses and to collect information within her
locality. Among other constrains are the following:
- Time Frame: There
is a limited time for this project works, hence the researcher cannot afford to
visit various banks, and time did not permit me to actually have a
- Finance: The
problem of capital storage also had its effects on the researchers as a result
of this I was not able to travel to other relevant places other than the place
of case study.
method of data collection was both primary and secondary. Primary data
collection was done by setting questionnaires in which respondents were to
answer several questions that were of specific interest to the study. While
secondary data were collected from various writers and authorities in the
government expenditure financed?
government administering taxes?
are the limitation and problems of fiscal policy in relation to taxation?
1.7 DEFINITION OF
Fiscal Policy: This
is the manipulation of the government budget in order to influence the level of
activity in the economy.
is a process or machinery by which individuals or group of persons are make to
contribute in an agreed quantum and method of development and administration of
their communities or societies.
Tax: Tax may be defined as a
compulsory level imposed by government on individuals or legal entities.
Direct Taxes: These
are taxes that have direct bearing on the income of individuals and corporate
entities e.g. pay as you earn (PAYE), Companies Income Tax (C.I.T), Capital
Gains Tax (CGT) and Petroleum Profit Tax (PPT).
Indirect Taxes: These
are taxes levied on the production and consumption of goods and services i.e.
they do not have direct bearing on the income of the Tax Payers e.g Import
Duties, Export Duties, Excise Duties and Value Added Tax.
Incidence of Tax: The
incidence of tax means economic unit of person that bears the burden to a tax.
This is the tax that requires the tax liabilities
of individuals, sole traders, partners in a partnership and benefit of a Trust
or Estate or settlement.
This is the tax relief or allowance granted by the
Act in lieu of depreciation as an allowable deduction in arriving at the
chargeable income of an individuals or companies, for the use of Qualifying
Capital Expenditure in a basis period of a trade or business.
This is a tax that is levied or applied to assets
transferred by one individual to another.
This is payable by entities engaging in prospecting
for or extraction of and transportation of petroleum, oil or natural gas.
Added Tax (VAT):
VAT is a consumption tax payable on the goods and services consumed by
any person whether government agencies, business organization or individuals.
Discretionary fiscal policy: Discretionary fiscal policy is the deliberate alteration of the rate of
taxation or government expenditure purposely to adjust the equilibrium level of
Net National Product of full employment and stable price level.