TAXATION AND THE NIGERIAN ECONOMY (AN EMPIRICAL ANALYSIS) 1986 - 2021

TAXATION AND THE NIGERIAN ECONOMY (AN EMPIRICAL ANALYSIS) 1986 - 2021

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BACKGROUND OF THE STUDY

Taxation has received considerable attention from scholars and researchers in recent times and everyone has given different view on the subject. Income tax is one of the major sources of revenue to all governments worldwide, including Nigeria. It is levied by governments to raise revenue that will help in the administration of governmental policies (Musa, 2009). The role of each government is, first, to provide good governance. Good governance, on the other hand, simply means provision of basic infrastructures, to meet the basic needs of citizens in an atmosphere where peace and security are guaranteed. Revenues generated through income tax enable government to maintain law and order and other socioeconomic, political and cultural activities. In order to attain this, every government must put in place a rational income tax system where tax payments are made by every tax-payer and the canons of taxation upheld (Musa, 2009). Tax as indicated by Eiya (2012), is a levy compulsorily imposed on the income, profit and capital gains of the individual, organisations or other legitimate elements by the government to raise revenue. Tax is a compulsory transfer or payment from private people, organizations or groups to the administration (Anyanwu, 1997). Tax is a major administrative pivot of any society (Azubika, 2009). With tax system serving as an avenue for government to gather income required in releasing its social commitments. Tax framework offer itself as a foremost means of mobilising a country’s resources in an efficient and effective manner and thereby making a situation favourable to economic growth and development (Akintoye & Tashie, 2013 as cited by Obaretin, Akhor&Oseghale, 2017). Anyaduba (2000) views tax as a levy compulsorily imposed on the income of individual, household and corporate entity by the government or its agent for the purpose of raising revenue. While Ogbonna and Appah (2012) assert that the main aim of taxation is to raise income to finance government expenditure and to redistribute riches and the management of the economy. In any case, Johansson, Powerful, Arnold, Brys and Vartia (2008) portray tax system as a system that is primarily aimed at financing public expenditure. They emphases the importance of tax revenue as a tool for promoting equality and re-addressing issue of social and economic concerns.

Tax is a levy compulsorily imposed on a citizen or upon his or her properties by the state to provide security, social infrastructures and cerate the enabling environment for the economic welfare of the society (Appah, 2004, Appah & Oyandonghan, 2011). They further assert that the tax payable by an individual is not a function of the benefit derivable from the process. The fundamental reason for imposing tax has always been to finance government activities, redistribute income, stimulate economic activities, and influence the level of aggregate demand among others. From the above, tax can be seen as a necessary or an obligatory demand imposed on the income, profit and gains of individual, family unit, firms (joined and unincorporated) by the government with the end goal of raising income to meet State commitments to her nationals. In differentiating taxation from tax, the latter is a compulsory levy imposes on the profit, income and gains of individual, firm and other entity by the agencies of government or the government in other to raise revenue for the government while the former is the system or process put in place by the government or its agencies in raising the needed revenue (as cited by Obaretin, Akhor, &Oseghale, 2017). Though several improvements have been made to reposition the Nigerian tax system, the system is still facing numerous challenges. That is, there are still the existences of many contending issues requiring immediate attention despite the improvements.

1.2 STATEMENT OF THE PROBLEM

The tax system in Nigerian is has several loopholes and as a result is confronted with many challenges and the country has not advanced a tax system that is effective and efficient. In October 2010, Price Waterhouse Coopers listed 50 top tax issues (Simeon, Simeon & Roberts, 2017). These include challenges such as multiplicity of taxes, bad administration, non-availability of database, tax touting, complex nature of the Nigerian tax laws, minimum tax, commencement, change of accounting date and cessation, and non-payment of tax refunds among others (Edori et al, 2017).” “While some of the issues have been dealt with especially by the recent reforms that brought about Finance Act, 2020, yet many issues still remain unclear and unresolved. This is particularly important when the objectives of Nigerian tax system is evaluated. The objectives of a tax system as identified by the Nigerian National Tax Policy are as follows; a. To promote fiscal responsibility and accountability b. Economic development and growth facilitation c. To provide resources stability for the government while the government use the resources to provide goods and services for the public. d. To ensure that the issue of income distribution inequalities is addressed. e. To ensure stability of the economy f. To correct disappointments and faultiness in the market (Edori et al, 2017). A cursory look at the system would show that the objectives have not been met regardless of several reforms. Several literatures on taxation system viewed Nigeria Taxation System in perspective of private sectors. While private sector is important, the public sector including the whole economy and its importance cannot be overemphasised. A good tax system is expected to bring about revenue needed for the development of the economy. In the light of this, this study links the relationship between taxation and the accompany effect on the nation’s economy as a whole.

1.3 OBJECTIVES OF THE STUDY

The primary aim of this study is to examine taxation and the Nigerian economy (an empirical analysis) 1986 - 2021. Other specific objectives are:

1. Examine if there is a significant positive relationship between Value Added Tax (VAT) and Gross Domestic Product (GDP).
2. Examine if there is a significant positive relationship between Petroleum Profit Tax (PPT) and Gross Domestic Product (GDP).
3. Examine if there is a significant positive relationship between Company Income Tax (CIT) and Gross Domestic Product (GDP).

1.4 RESEARCH QUESTIONS

The following questions guide this study:

1. Is there a significant positive relationship between Value Added Tax (VAT) and Gross Domestic Product (GDP)?
2. Is there a significant positive relationship between Petroleum Profit Tax (PPT) and Gross Domestic Product (GDP)?
3. Is there a significant positive relationship between Company Income Tax (CIT) and Gross Domestic Product (GDP)?

1.5 RESEARCH HYPOTHESES

The following hypotheses are tested in this study:

H01: There is no significant positive relationship between Value Added Tax (VAT) and Gross Domestic Product (GDP).

H02: There is no significant positive relationship between Petroleum Profit Tax (PPT) and Gross Domestic Product (GDP).

H03: There is no significant positive relationship between Company Income Tax (CIT) and Gross Domestic Product (GDP).

 

1.6 SIGNIFICANCE OF THE STUDY

This study will be of immense benefit to the government and policy makers in Nigeria because it will expose to them the role judicious use of money generated in the country goes a long way to boosting the country’s economy.

This study will also serve as a reference material to students, scholars and researchers who may wish to carryout further studies on this topic or related domain in the future.

1.7 SCOPE OF THE STUDY

This study focuses on investigating the relationship between taxation and the Nigerian economy (an empirical analysis) for the period of 36 years from 1986 - 2021. The independent variables are Value Added Tax (VAT), Petroleum Profit Tax (PPT), and Company Income Tax (CIT) while Gross Domestic Product (GDP) is the dependent variable.

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