THE EFFECTIVENESS OF TAXATION ON THE ECONOMICS DEVELOPMENT IN NIGERIA

CHAPTER ONE

INTRODUCTION

  • BACKGROUND TO THE STUDY

Taxation has been associated with many historical developments. Hence, the instrumentality of taxation to development especially as subsumed to public policy is a recent discovery, yet it has come to over-shadow all other of its features. Although fiscal polices are diversified and have evolved overtime, it is through the conduct of taxation that it makes it most pervasive impact on the economy. Tax revenue are used to provide public goods and services to the Nigeria populace through which economic growth are induced public expenditure are incorporate recurrent and capital expenditure that are payment for the use of financial and non-financial assets. In production process which contribute to long-term development in the economy.

At all times, revenues from taxes have formed an appreciable position of the total revenues accruing to the federal government of Nigeria. This mainly because of the forms in which the taxing power has been granted to it and the manner in which it has wielded same. Ladan (1984) denoted that the Nigeria Government had to raise revenue through taxation in order to meet its expenditure, which has in time expanded much. Section 141 of the 1963 constitution of Federal Republic of Nigeria made specific provision for shared for development purpose in each state. Pratt (1988) defined taxation as exaction for the support of the government thus, what a tax does is to provide a means through which the government derives majority of the revenues necessary to keep it in operation.

Therefore, to determine the effectiveness of taxation on the economic development of Nigeria. We have to examine the relationship between output and taxation, the contribution of government tax revenue to economic development of Nigeria and identification of the problem in the Nigeria tax system. The Nigeria tax system comprises two components that are the law and the rate and the base. It provides the frame work for the administration of the tax system. Tax which takes a constant proportion of income is called proportional tax. Progressive tax takes an in increase proportion as income rise. Regressive tax takes a decline proportion of income as its rises.

However, Nigeria tax planning and management has suffered from both tax evasion and tax avoidance. These problem, combined with incompetent tax official, high rate of bribery and computation in the economy ensured that the government, real the financial sector were anemic and demonstrably incapable of acting as an engine of growth and development. Overall, the Nigeria economy suffered from large fiscal deficits resulting from broad-based increase in expenditure unmatched the growth in revenues insufficient supervision, excessive administration interference and bureaucratic control in the tax management committee. As a result of this, under development was perhaps inevitable, being a concomitant of tax evasion and unimplemented proper tax policy.

Based on the above, the federal government in 1991 enacted a tax reforms and administrative committee. It is envisaged that the growth of voluntary compliances reduce the complexity of the system both for the tax administrators and the tax payer, encourage a fair allocation of savings amongst investment or at least avoid capital flight to countries with lower taxes, fair and equitable, and be free to distortions to investment decision. To this extent, the tax reform policy was to review the entire tax administrative structure at the Federal, State and Local Government Levels with a view to improving their applications and effect, there enhances equity distribution of resources in order to attain economy growth and development in the society.

Thus, taxation can be used as a policy of economic development, if it is used to redistribute resources from consumption expenditures to investment for the purpose of obtaining resources from consumption expenditures to investment of encouraging saving, investment and redistributing the fruit of economic development among members of the society. Base on this analysis this research intends to examine the relationship between taxation and economic development in Nigeria.

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