CHAPTER
ONE
1.0
Background
to the study
Over the years, one
of the main issues developing countries have faced is sustainable economic
growth. To keep up with the tremendous demand for government need to raise
revenue to carry out its duties. The single most important way government raise
funds to finance its operations is through taxes (Osundina and Olanrewayu 2013:
76). Tax is a major player of every nation of the world and tax system put in
place an opportunity for government to collect additional revenue needed in
discharging its obligations.
The economic effects
of taxation include micro effects on the distribution of income and efficiency
of resource use, as well as, macro effect on the level of capacity output,
prices, employment, and growth. Hence, taxation tends to affect productivity and
resources allocation in the economy.
It is important to
note that asides the fact that taxation is an important source of generating
revenue for the government, it is also an avenue for the redistribution of
wealth and re-adjustment of the economy (Ojo 2008) cited in (Abata 2014: 110).
The tax system is one of the most powerful levies available to any government
to stimulate and guide its economic and social development (Abata 2014: 110).
Furthermore, according to Roche (2015: 1), corporate taxation is of great
concern in investors' decisions and hence with employment and economic growth.
Taxation has
different impacts depending on the form it assumes. Corporate and Shareholder
taxes reduce the capital funds available to make investments and build a general
and more productive structure (Roche 2015:2).
1.1
Statement
of the problem
Taxation as a source
of financing economic growth in Nigeria has been a difficult issue primarily
because of its administration and various girls of resistance such as
avoidance, evasion, etc. These activities are considered as sabotaging the
economy and are presented as part of the reasons for the present state of
underdevelopment in Nigeria.
It is an important
part of fiscal policy which can be used effectively by government and developing
economies. Taxation also affects condition consumption, distribution, price,
stability, savings, investment, and economic growth. It is important to note
that despite the policies and measures that are being taken by the government
in promoting economic growth in Nigeria, the efforts have not really produced
results. Also, many researchers have worked on the economic growth of Nigeria
and have taken a critical look at variables that affect economic growth,
however not much empirical studies have been made to examine how taxation had
impacted economic growth. This study intends to fill the gap in the literature
by carrying out an empirical study of the trend of taxation in Nigeria right
from 1980 to 2016 and examine its impact on the economic growth.
1.2
Research
Objective
The main objective of
this study is to investigate the macroeconomic impact of taxation on economic
growth of Nigeria. The specific objectives are:
1.) To determine the
nature of the relationship between taxation and economic growth in Nigeria.
2.) To examine the
impact of taxation on the Nigerian economic growth.
1.3
Research
Questions
1.) What is the
relationship between taxation and economic growth in Nigeria
2.) To what extent
has taxation contributed to the growth of Gross Domestic Product in Nigeria?
3.) In what ways can
Nigeria change her tax system in order to boost revenue generation through this
source?
1.4
Research
Hypothesis
HO:
Taxation has not contributed significantly on economic growth in Nigeria.
H1:
Taxation has contributed significantly on economic growth in Nigeria.
1.5
Scope
of the study
This study covers the
Gross Domestic Product of Nigeria from 1980-2016 to obtain the extent to which
taxation has contributed to the GDP and consequently economic growth of
Nigeria.
Significance of the
study
This study will help
to provide a clear insight that would help government to know how to run a
smooth and effective tax system and policies. Given the fact that the subject
of taxation is an essential part of a country's investment and growth plan,
this study will help to contribute to the efforts of government in promoting
economic growth by showing how taxation has impacted economic growth from
1980-2016. It also coordinator contributes to the empirical literature by
focusing on the effect of each tax indicators on economic growth.
1.6
Limitation
of the study
The broad scope of
this study makes it require enough time to carry out empirical studies
1.7
Definition
of terms
1.) Tax: this refers
to a compulsory levy on the citizens of the country in order to generate
revenue for the government. It could be direct or indirect tax.
2.) Economic growth:
this refers to the positive change in the level of goods and services produced
by a country.
3.) Gross Domestic
Product: this refers to the output of goods and services of a country. It is
used to measure the economic growth of the country.
References
1.) Abata, M. (2014),
"The impact of Tax Revenue on Nigerian Economy (Case of Federal Board of
Inland Revenue)", Journal of Policy and Development Studies, 9(1):
109-121.
2.) Ekpung, E and
Wilfred, O. (2014), "The Impact of Taxation on Investment and Economic
Development in Nigeria", Academic Journal of inter-disciplinary Studies,
3(4): 209-218.
3.) Roche, G. (2015),
"Taxation and it's negative impact on business investment
activities", IEM's economic note.
4.) Osundina C and
Olanrewaju G. (2013), "Welfare Effects of Taxation on the Nigerian
Economy", International Journal of Humanities and Social Science
Invention, 2(8): 76-82.