AN ASSESSMENT OF THE RESPONSIBILITY OF TAXATION ON ECONOMIC EXPANSION IN NIGERIA
Abstract
There has been conflicting preposition as to the extent of tax contribution to the development of Nigerian economy. This study is to determine the impact of taxation proceeds on the development of Nigerian economy. The study explored the impact of three tax income streams – Income tax from companies’ profits, income tax from petroleum companies profits and Value Added Tax on economic development represented by Gross Domestic Product (at current basic prices) growth for the period 1994 to 2018. The study applied Ordinary Least Square statistical tool with the help of SPSS 20.0. The study revealed a positive relationship with a coefficient of determination of 99.2% of the variation in economic development attributable to the tax income streams studied. Also although the study revealed the existence of significant effect of taxes from companies’ profits and Value Added Tax on Gross Domestic Product Growth, there is little or no significant impact of taxes on profits of Petroleum companies on Gross Domestic Product growth in Nigeria due to restriction by Organization of Petroleum Exporting Countries production ceiling on Nigeria’s production/sales and the global price shocks of crude oil over the decade. Also the study revealed tax payers apathy to tax payment and presence of tax leakages due to corruption and administrative inefficiencies by the tax authorities. Keywords: economic development, gross domestic product growth, petroleum profit tax, company income tax, value added tax 1. Introduction The world over, economic development is an important construct for discourse as its relevance can never be over-emphasized. Development in a country spans across array of visible outputs as indicators. These include critical infrastructures, human capital improvement, advancement in technology, expansion in commerce and so on. Most often development and growth are used inter-changeably; however, the difference between these constructs is that while growth is concerned about the total output of a nation within a defined period, development is concerned about visible output in an economy. Economic development in Nigeria started before colonial era although many economic activities that took place during that time were not documented. Since then Nigeria has undergone numerous economic developmental plans all geared toward visible outputs. Notable amongst them are the Structural Adjustment Programme (SAP) of the then military administration of Ibrahim Badamosi Babangida in the 80’s, the Sure-P programme of the Goodluck Ebele Jonathan’s administration, and the current N-Power programme of the Mohamadu Buhari’s administration. Notwithstanding, developmental programmes in Nigeria or anywhere in the world may not be fully achieved without the contribution of revenue generated from taxes to finance such programmes. Although Nigeria in particular may be adjudged as a mono-economic nation, the tax revenue would play a critical role to her development. The drop in the prices of crude oil in the global market, inefficient agricultural sector making Nigeria a mono-product country and the various tax reforms introduced to shore up tax proceeds and the anticipated input to economic growth calls for critical assessment taxation has on economic growth in Nigeria.
- Statement of Problem
Economic development has remained a serial problem bedeviling the Nigerian state since independence as several efforts geared toward economic recovery have failed to yield significant results. There still persist in Nigeria the problems of unemployment, high mortality rate occasioned by poor health care system, brain drain as a result of poor educational funding, lack of critical infrastructures, high inflation rate, insecurity etc. The existence of all these notable problems and recent drop in the prices of crude oil in the global market necessitate an assessment of the effect that tax revenue has on economic development. Also the drive by the management of the Federal Inland Revenue Service (FIRS) and the different tax reforms introduced by government to shore up revenue from taxation and the projected impact on economic growth demands a critical examination of the influence of taxation on Nigeria’s economic growth. The study is therefore to appraise the correlation between proceeds from taxation and economic development and growth.
- Objective of the Study
The main reason for this study is to examine the effect proceeds from taxation has on Nigeria economic development measured by Gross Domestic Product (GDP) growth. The specific objectives are:
- To examine the effect of Company Income Tax (CIT) on economic development
, ii. To examine the effect of Petroleum Profit Tax (PPT) on economic development and
iii. To examine the effect of Value Added Tax (VAT) on economic development. Research Questions: In Other to Address the Above Objectives, We Considered the Below Research Questions: i. How does Company Income Tax revenue impact on GDP growth in Nigeria? ii. What impact does Petroleum Profit Tax revenue have on Nigeria GDP growth? iii. What effect does Value Added Tax revenue have on Nigeria GDP growth? iv. What combined effect does of tax revenues measured by tax on companies’ profits, tax on profits of petroleum companies and Value Added Taxes on Nigeria GDP growth? Hypothesis: The following hypothesis were tested to establish the relationship of taxation and economic development: i. Company Income Tax revenue has no significant effect on Nigeria GDP growth ii. Petroleum Profit Tax revenue has no significant effect on Nigeria GDP growth. iii. Value Added Tax revenue has no significant effect on Nigeria GDP growth. iv. The combined tax revenue streams from CIT, PPT and VAT has no significant effect on Nigeria GDP growth.
2. Review of Literature
2.1 Theoretical Review
The influence of taxation on economic growth has not only being paramount to the government, tax experts and tax officials but has overtime interested both academics and researchers. Myles (2009) linked taxation to growth through the decisions of individual economic agents. He opined that a change in a tax system modifies optimal choices through the equilibrium of the economy ultimately affecting the rate of growth. The neoclassical growth model of Solow (1956) provided the theoretical link between economic growth and tax revenue. The model hypothesizes a steady operation that links productivity to the contributions of labor and capital which are viable. As effect of taxation on economic development encompasses both effect of tax revenue generation and taxation policies on the economy, this study reviewed tax theories that addresses influence of tax revenue on economic growth. Bhartia (2009) postulates some tax theories are built on the hypothesis that needless any connection between payment of tax by citizens and benefits accruable from the state while other theories are based on a link between rendering of service and payment of taxes. The former group includes; socio-political theory and the expediency theory while the later include; the cost of service theory and the benefit received theory. Socio-Political theory postulates social and political objectives as paramount indictors in selecting taxation policies. The theory discouraged tax policy and planning arrangement based on individuals’ consideration and benefits rather than the curing the problems of the public as a whole (Bhartia, 2009). In contrast, expediency theory emphasizes that each tax scheme must exhibit reasonableness and should be the main evaluation the government uses in selecting a tax plan, (Bhartia, 2009). There is also the Faculty theory of taxation which postulated that a taxable person should suffer tax based on his capability to pay. The latter group includes; cost of service theory. This theory highlights the partial contractual link between the government and the people. Semi-contractual relation by way of the state providing the citizens social/welfare services as well as protection of lives and property in lieu of citizens reciprocating by the payment of taxes. Here government cost of providing certain services to the people is to meet the ultimate recipient of the service (Jhingan, 2009). Taxation is thus
