One of the major functions of the government especially developing
countries such as Nigeria is the provision of infrastructural services
such as electricity, schools, hospitals, pipe-borne water, good roads
and as well as ensure a rise in per-capital income, poverty alleviation
to mention a few.
For these services to be adequately provided, government should have
enough revenue to finance them. The task of financing these enormous
responsibilities is one of the major problems facing the government.
Based on the limited resources of government, there is need to carry the
citizens (governed) along hence the imposition of tax on all taxable
individuals and companies/organizations to augment government financial
position is essential.
To this end, government have always enacted various tax laws and
reformed existing ones to stand the taste of time. These laws include:
Income Tax Management Act (ITMA), Companies Income Tax Decree (CITD)
All these are aimed at ensuring adherence to tax payment and
discouraging tax evasion and avoidance. For the purpose of this study,
the researchers would be concerned with the impact of taxation on
The Nigerian Tax System has undergone significant changes
in recent times. The Tax Laws are being reviewed with the aim of
repelling obsolete provisions and simplifying the main ones. Under
current Nigerian law, tax revenue is enforced by the 3 tiers of
Government, which are Federal, State, and Local Government with each
having its sphere clearly spelt out in the Taxes and Levies Act, 1998.
The whole essence of tax revenue is to generate revenue to advance
the welfare of the people of a nation with focus on promoting economic
growth and development of a country through the provision of basic
amenities for improved public services via proper administrative system,
and structures. Tax revenue plays a crucial role in promoting economic
activity growth and development. Through tax revenue, government ensures
that resources are channeled towards important projects in the society,
while giving succor to the weak. The role of tax revenue in promoting
economic activity and growth may not be felt if poorly administered.
This calls for a need for proper examination of the relationship between
revenue generated from taxes and the economy, to enable proper policy
formulation and strategy towards its efficiency. According to Olashore
(1999), the Nigerian economy has remained in a deep slumber with
macroeconomic indicators reflecting an economy in dire need of
rejuvenation, revival and indeed radical reform. Also in the view of Oni
(1998), tax administration needs to be revamped and refunds of taxes as
well as duty drawbacks administration are inefficient.
A critical challenge before tax administration in the 21st century
Nigeria is to advance the frontiers of professionalism, accountability
and awareness of the general public on the imperatives and benefits of
tax revenue in our personal and business lives which include: promoting
economic activity; facilitating savings and investment; and generating
strategic competitive advantage. If tax administration does not for any
reason meet the above challenges, then there is a desperate need for
reform in the area of the tax regime, and in the administration of
A country‘s tax system is a major determinant of other macroeconomic
indexes, specifically, for both developed and developing economies;
there exists a relationship between tax structure and the level of
economic growth and development. Indeed, it has been argued that the
level of economic growth has a very strong impact on a country‘‘s tax
base (Kiabel, 2009, and Vincent, 2001), and tax policy objectives vary
with the stages of development. Similarly, the economic criteria by
which a tax structure is to be judged and the relative importance of
each tax source vary over time (Vincent, 2001). For example, during the
colonial era and immediately after the Nigeria‘‘s political independence
in 1960, the sole objective of tax revenue was to raise revenue. Later
on, emphasis shifted to the infant industries protection and income
redistribution objectives. In his discussion of the relationship between
tax structure and economic development, (Vincent, 2001) divided the
period of economic development into two, the early period when an
economy is relatively underdeveloped and the later period when the
economy is developed. During the early period, there is limited scope
for the use of direct taxes because the majority of the populace resides
in the rural areas and is engaged in subsistence agriculture. Because
their incomes are difficult to estimate, tax assessment at this stage is
based on presumptions prone to wide margins of error.
Tax revenue is a powerful tool of economic reform and a major player
in every economy of the world. It is never static but dynamic and should
reflect current realities prevailing in the economy. The tax system is
an opportunity for government to collect additional revenue besides
other sources of income, which is needed in discharging its pressing
obligations. A good system of tax also offers itself as one of the most
effective means of mobilizing a nation's internal resources and it lends
itself to creating enabling and conducive environment to the promotion
of economic growth and development (Ogbonna, 2010).
Further, the rudimentary nature of the economy precludes retail form
of taxes. At this stage also, taxes are difficult to collect because of
the lack of skills and facilities for tax administration (Kiabel, 2009).
Given this, a complicated tax structure is not feasible and the amount
of revenue from personal income tax will depend on taxpayers
‘‘compliance and the efficiency of the tax collector. An important
source of government revenue during the early stage of economic
development is the foreign trade sector because exports and imports are
readily identifiable and they pass through few ports. However, revenue
from export and custom duties is not stable because of periodic
fluctuations in the prices of primary products. This tends to complicate
plan implementation in many developing countries (Kiabel, 2009).
Tax revenue mobilization as a source for financing development
activities in Nigeria has been a difficult issue primarily because of
various forms of resistance, such as evasion, avoidance and corrupt
practices attending to it. These activities are considered as sabotaging
the economy and are readily presented as reasons for the
underdevelopment of the country. (Adegbie et al, 2010:2). Government
exists in order to effectively collect taxes from available economic
resources and make use of same to create economic prosperity such that
available and willing human and other resources are gainfully
employed, infrastructures provided, essential public services (such
as the maintenance of law and order) are put in place etc. Tax
resistance only makes the development process unattainable. (Onairobi,
1998). It could be deduced that changing or fine-tuning, tax rates is
used to influence or achieve macroeconomic stability. Some of the most
recently cited examples are the governments of Canada, United States,
Netherland, United Kingdom, who derive substantial revenue from Company
Income tax, Value Added Tax, Import Duties and have used same to create
prosperity (Adegbie et al, 2010:3). Thus it can be said that the
economic development of a country depends on various reasons one of
which is the presence of an effective and efficient tax revenue policy.
In Nigeria the contribution of tax revenue has not met the expectations
of Government. Government has equally expressed this disappointment and
has accordingly vowed to expand the non-oil tax revenue. (Festus and
Samuel, 2007). It is in the light of the foregoing that this study
examines the extent to which the tax system has contributed to economic
growth of Nigeria.
1.1 Background of Study
The earliest trace of any form of direct taxation in Nigeria even
before the British Administration was in Northern Nigeria. The North was
favored for this because it had a form of organized central
administration under the Emirs unlike the south which except in few
places in the west was not as organized. Furthermore, the Muslin
religion adhered to by the people approved of taxation as being
consistent with the demand of Islam. Thus taxes such as Zakka, Gada,
Kindin, Kararat and Jangoli which were typical forms of taxes on
agricultural products and livestock.
With the coming of the British and their consequent colonization of
Nigeria they took advantage of tax system that was existing in the
Northern part of the country to introduce direct taxation into the area
since that was the only alternative available to them to arise fund to
administer the region.
Taxation is the system of raising money in form of taxes paid by the
citizens of the country in return for the services rendered by the
It could be recalled that taxation is instituted by God, this is
traced back to “Mattew chapter 22 vs. 17-21”, when the Pharisees asked
Jesus whether it is lawful to pay taxes or not. The Pharisees were later
told render therefore to Caesars the things that are Caesar’s and to
God the things that are to God.
According to Lekan .S. etal (2006), tax was described and not
defined in the statues, but according to Cambridge international
dictionary of English, it is “an amount of money paid to the government
usually a percentage (%) of personal income or company profits”.
According to Okpe I.I (2000) tax is the transfer of resources and
income from the private sector to the public sector in order to achieve
some of the nation’s economic and social goals.
Taxation is universally accepted as a powerful tool in the hands of
any government to raise income for its services and to ensure equitable
distribution of income among its citizens.
Therefore, in every modern communities, a large amount of taxation is
necessary for a public expenditure increases to promote social
progress, taxation which is the main sources of funds also increases.
The present tax laws in Nigeria emanated from the Raismais commission
in 1957. Before this time we only had what was called the income tax
ordinance for the colonies and which was rather common in all the
colonies and the provisions were very similar. Raim’s recommendation
was the basis of provision in the Nigerian constitution order council of
1960 section 70(1) which conferred an exclusive power upon the
parliament to make laws for Nigeria or any part thereof with certain
uniform principles in respect of personnel income tax.
During 1963 when Nigeria became a republic, the mid-western region
was created out of the western region and they adopted the western
region tax law accordingly with the amendments, the position under the
republican constitution of 1963 and that the regions (now divided into
states) assumed jurisdiction over the income tax of person other than
companies. While the federal government assumed jurisdiction over the
taxation of companies, the uniform principles under the income tax
management act and the regional taxes in the federal territory of Lagos.
Thus, after the creation of former 12 states in 27th may 1967, the
state assumed the tax laws of the regions in which they were before the
creation of such states. The uniform principle covered by the income tax
management act of 1961 were as follows:
(i) Specifies what income are exempted from tax.
(ii) What constitute income for tax purposes.
(iii) Upholds residence on the basis for taxation or in the alternative, the principal place of business.
(iv) And recently prescribed the rates of tax and personal reliefs.
Nigeria as a nation has the vision of becoming one among the world’s
20 largest economies in the year 2020; this obviously is the brain
behind the priority attention the present administration is directing at
infrastructural development which is essential for economic growth. A
developed economy is one with the ingredient to stimulate investment and
create wealth, this by implication offers an atmosphere that is
business friendly and has the potentials for the actualization of the
vision 2020.The desired outcome requires a lot of money to put the
economy in a position that stimulates investment, therefore, tax
policies need to attract potential investors, and the revenue from tax
should be sufficient enough to meet the infrastructural expenditures of
the government. Apere (2003) notes that taxation is a microeconomic and
fiscal policy instrument; it involves the transfer of resources from the
private to the public sector for the accomplishment of economic and
social goals. It is an instrument the government uses to measure, access
and control the informal sector that dominate developing economies of
the world (Wambaiand Hanga, 2013).
Development is a sine qua non for modern civilization. In order to
carryout development at all nooks and crannies of the society, it is the
responsibility of the Benue State Government to provide direct
development to people to a certain level. Development is associated with
funds and much revenue is needed to plan, execute and maintain
infrastructures at the state level. The needed revenue generated for
such developmental projects, like construction of accessible roads,
building of public schools, health care centres, construction of bridges
are generated from taxes, royalties, haulages ,fines, and grants from
the states, national and international governments. These funds could
either be obtained internally or externally. Thus, the Benue State
Government cannot embark, execute and possibly carryout the maintenance
of these projects without adequate revenue generation or taxation.
The Benue state government announced its decision to spend N390b ($3
billion) on infrastructural development in the state over the next
couple of years. Speaking during the town hall meeting of the Benue
State Internal Revenue Service (BIRS) for market associations, general
merchants, skilled technicians among others, the Governor of Benue
State, Mr Georgie Akume disclosed that huge funds are required to put in
place the necessary infrastructure that will make life easier in the
He said, "The project on the agenda of the state government requires
huge funding. Over the next two decades, Benue State needs to spend at
least N390 billion ($3 billion) annually to expand and improve its water
supply network. N2.6 trillion ($20 billion) to provide qualitative and
efficient network of roads and drainage; N1.3 trillion ($10 billion)
for power supply; N650 billion ($5 billion) for information and computer
technology; and N1.2 trillion ($9.3 billion) for inter-modal
To this end, he called on the artisan and other professionals in the
state to ensure they pay their tax so that the government can meet up
with plans to develop and improving on social amenities in the state.
He disclosed that the state government has put in place measures that
will check tax evasion and ensure that individuals and corporate
organizations pay the right tax. He noted that the new revenue
administration law of the state provides for tax clearance check before
any individual or corporate body is allowed to do business with, obtain
any license or enjoy other benefits from the state government.
Revenue generation in Nigeria’s local government is principally
derived from TAX. Therefore, taxation is an internal source of
government revenue within the domestic economy. Its collection and
service to the government depends largely on the government itself.
Taxation has been described in many ways and for the purpose of this
study it will be seen as compulsory levy imposed on a subject or upon
his property by the government having authority over his property
through its agencies with the aim of providing, maintaining and
improving social facilities in the communities at large and for which
the tax payer has no quid pro que.
1.2 Statement of Problem
The first need of any modern government is to generate enough revenue
which is indeed “the breath of its nostrils”. Thus, taxation is by far
one the most significant source of revenue for the government. Nigerians
regard payment of tax as a means through which government raises
revenue on herself at the expense of their sweat.
It is good to note that no taxation succeeds without the tax payers’
co-operation. Here, we can ask some thought – provoking questions such
- What makes taxation such a difficult issue?
- Why do people feel cheated when it comes to tax?
- Is government making judicious use of taxpayers’ money?
There is a general lack of consensus among scholars on the
contribution of tax revenue to the economic growth of nations. For
instance, whereas Ariyo (1997) in his study on productivity of the
Nigerian tax system documented a satisfactory level of productivity of
the tax system before the oil boom, Festus and Samuel (2007) established
that the role of tax revenue in promoting economic activities and
growth is not felt in Nigeria. The two studies reflect that the oil boom
has not improved the economic state of the country since before the
boom, there was a level satisfactory and after the boom, the growth of
economic activities deteriorated. The emergence of oil as a major tax
revenue is one of the means a country‘s government devises in solving
the economic problems of the country and to enhance government
expenditure which is expected to be beneficial to the citizens of such
country through the provision of social and economic infrastructures
(Adereti et al 2011). In Nigeria, this has not been the case because
despite the tax revenue and expenditure reported year in year out by the
government, the physical state of the nation in terms of infrastructure
and social amenities is backward. This is evident in the lack of
electricity supply, portable drinking water, basic health care delivery,
bad roads, just to mention but a few.
The gap in terms of the period covered is also a contributory factor
to the disparity in the outcomes of relationship between tax revenue and
an economy. The advent of the oil boom encouraged some laxity in the
management of non-oil revenue sources like the company income tax and
custom and excise duties. This calls for an urgent need in the
improvement of the tax system to enhance the evaluation of the
performance and facilitate adequate macroeconomic planning and
implementation (Adereti et al 2011).
Bonu and Pedro (2009) investigated the impact of income tax rates
(ITR) on the economic development of Botswana which shows that the
impact of income tax revenue over the nations GDP is not impressive in
developing nations. This calls for the need to further investigate the
current tax performance vis-à-vis the Nigerian economy.
There is high incidence of tax evasion and avoidance by tax payers.
This may affect the amount of revenue collectible by the government for
the running of administration.
Furthermore, it is hoped that people were wrongly assessed and the assessment sometimes result to regressive taxation.
1.3 Objective of Study
The general objective of the study is to assess the effect that
taxation has towards the development/growth/provision Benue state and on
infrastructure inBenue state.
However, the specific objective of the study includes:
i. To highlight the effects of poor revenue generation through taxation on the development of Benue State.
ii. How poor infrastructures has contributed to so many loss of lives in Benue state.
iii. To highlight the importance of training of tax
personnel as a means for effective and lasting solution to the problem
of revenue generation and taxation
iv. To suggest important policy tools that can be used
to in generating revenue through taxation that will be effective.
1.4 Research Question
This study will examine the effects of revenue generation on
infrastructural development in Benue State by providing answers to the
following research questions:
v. What are the impacts of poor revenue generation on the development of Lagos State?
vi. Has poor infrastructures contributed to the loss of lives?
vii. To what extent is the training of tax personnel the
only effective and lasting solution to the problem of revenue
viii. To what extent has the various policy tools used in generating revenue being effective?
1.5 Research Hypothesis
To determine whether internal revenue is being generated effectively
in Benue State and if adequately used for infrastructural development,
the following hypothesis would be tested:
H0: Effective internal revenue generation leads to the development of infrastructure.
H1: Effective internal revenue generation does not lead to the development of infrastructure.
H0: There is internal control measures put in place to ensure effective utilization of revenue generated.
H1: There is no internal control measures put in place to ensure effective utilization of revenue generated.
H0: There are significant relations on effective taxation on government provision for infrastructure in Benue State
H1: There are no significant relations on effective taxation on government provision for infrastructure in Benue State
1.6 Significance of the Study
One of the most frequently discussed issues in Nigeria is how to
solve the economic hardship in the country and how to create an
industrial base that can guarantee self-sustaining economic development.
Also one wonders why a country which is richly endowed with the
necessary human and material resources and which the people pay tax has
been turned a heavily indebted country. The topic “taxation and its
effects to development”, will educate the entire public on how the
federation could encourage economic development and also how a reduced
tax could promote the standard of living and also promote the industrial
development of the nation and Benue state in particular.
The study will afford us the opportunity to:
i. Know the roles taxation play in the Nigerian economy.
ii. Ascertain how government has been using tax generated revenue.
iii. The study will also reveal if there are other better sources of government funding.
1.7 Scope and Delimitation.
This topic, the effectiveness of taxation on government provision for
infrastructure for Benue state a study of BIRSshould have been expected
to cover all the 16 local government of Benue State but the writer
intends to limit this topic to only MakurdiLGA due to financial
handicap, distance and time constraints.
Therefore, since the same tax Acts are applied throughout the
federation Republic of Nigeria, the study of Makurdi-Benue tax system
shall be deemed to serve other LGA in the state. Thus, the writer will
rely heavily on the board of internal Revenue since they have adequate
information and data on the government of Benue state of Nigeria.
Since there are often changes in the tax laws of Acts both at the
state and federal level of government, the writer may wish to visit the
chief inspector of taxes of some urban and rural areas in Makurdi in
other to confirm the information or data so collected from the Board of