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The Impact of Taxation on Economy Growth a Case Study of Ogun State Internal Revenue Service

 

Abstract

 This study was on the impact of taxation on economy growth. A case study of Ogun state internal revenue service. Three objectives were raised which included; To ascertain the effect of profit tax revenue on economic growth of Ogun state, to ascertain the effect of Company income tax revenue on economic growth of Nigeria and to ascertain the effect of Value added tax revenue on economic growth of Nigeria. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from Internal Revenue Service, Ogun state. Hypothesis was tested using Chi-Square statistical tool (SPSS).

 

TITLE PAGE                                                         

Certification

Dedication

Acknowledgement

Table of Content

List of Tables

ABSTRACT

CHAPTER ONE: INTRODUCTION

1.1    Background of the study

1.2    Statement of the problem

1.3    Objective of the study

1.4    Research question

1.5    Significance of the study

1.6    Scope of the study

1.7 Limitation of the study

1.8 Definition of terms

CHAPTER TWO: REVIEW OF LITERATURE

2.1    Conceptual framework’

2.2    Theoretical Framework

CHAPTER THREE: RESEARCH METHODOLOGY

3.1    Introduction

3.2    Research Design

3.3    Population of the study

3.4    Sample size determination

3.5    Sample size selection technique and procedure

3.6    Research Instrument and Administration

3.7    Method of data collection

3.8    Method of data analysis

3.9    Validity of the Study

3.10  Reliability of the study

3.11  Ethical Consideration

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1    Data Presentation

4.2    Research Hypothesis

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION

5.1    Summary

5.2    Conclusion

5.3    Recommendation

References

Appendix

 

Chapter one

Introduction

1.1Background of the study

The political, economic and social development of any country depends on the amount of revenue generated for the provision of infrastructure in that   given   country (Ogbonna and Ebimobowei (2012).  They   further   stated   that   a well-structured  tax   system  would  boost   the generation  of  the  income  for  a  meaningful  development of   such country. There were many taxes needed from the provinces to administrate the  Roman Empire these taxes paid for a good system of good roads, law and order, security, religious freedom, a   certain amount of  self-government  and  other  benefits. The provisions of these basic amenities depend on the amount of revenue being generated.

Kiabel and Nwokah (2009) stated that rise in the cost of running government coupled with the incessant dwindling revenue had left all tiers of government in Nigeria with formulating strategies to improve the base   of  income. One of such strategies is taxation.  According to   Price water house Coopers, Nigeria   has made   some   improvement   to   the   tax   system.   What   then   is   taxation?   Oxford Dictionary of Accounting (1995) defined taxation as a levy on an individual or corporate body by the central   or local   government to   finance the expenditure of that government and   also as  a means of  implementing  its  fiscal policy. Thus the government can transfer   resources through taxation from private consumption to public investment.

The major objective of taxation is to Finance government expenditure and to redistribute wealth which   will   have   a   positive   causation   effect  on  development   of  the  country   (Jhingan  2004, Ogbonna and Ebimobowei, 2012; Musgrave and Musgrave, 2004; Ola 2007; Burges and Sterm, 1993; Bhantia 2009; Lewis 1984)In Nigeria, this  important   role  of  taxation  lacks  in  our  system.  Odusila  (2006)  noted that the system is lopsided and dominated by oil revenue, that over the past two decades, oil revenue has  accounted  for at  least   70%  of  the  revenue,  by implication  traditional   tax  revenue has  never assume a strong role in the country’s management fiscal policy. The view of Jhingan (2002) that taxation  effectively  curtails  conspicuous   consumption   and  other  wasteful  expenditure   of   the richer   classes   does  not   hold   water   in   Nigeria.  The   richer   are   acquiring  and   accumulating properties  and paying  less   or  no  tax   while  the  poor  are   getting  poorer  and  paying  tax. The redistribution of income through taxation in Nigeria has not been achieved. On the other hand, there is no tangible improvement in our infrastructural facilities. Nigerian roads are bad and have  become a death trap to the citizens.

Presently,  according  to Okonjo-Iweala,  the  former Minister of  Finance  and  Coordinator  of   Nigerian Economy, said that Nigeria faces a massive infrastructural deficit, citing infrastructure deficit as a   hindrance  that   is   holding  back   economic   development  by   at  least   2   percent  per   annum according to a recent world bank study. The minister further stated “that about US$14.2  billion per year is required to bridge the infrastructural gap, with about $10.5 billion needed for national infrastructure alone,   adding that  amount  spending is  only  $5.9 Billion  (The  Financial Times: 2014). Some countries have  influenced their economic development through revenue from the tax. For example, Canada, United States, Netherland, United Kingdom. They desire substantial  income from  Company Income   Tax, Value Added Tax,  Import Duties  and had  used same  to  create prosperity (Oluba: 2008) cited (Worlu and Nkoro, 2012)

According to IMF “Developing countries must be able to raise the revenue required to finance the  services  demanded  by their   citizens and  the  infrastructure  (physical  and social)   that  will enable   them   to   move   out   of   poverty.   Taxation   will   play   the   key   role   in   this   revenue mobilization”. However, Nigerian economy as a number one economy in Africa and emerging economy in the world   has   many   problems   militating   tax   revenue   mobilization   as   a   source   of   financing developmental   activities.   Federal  Inland  Revenue  Services  (FIRS)  faces  the  challenges  of widespread tax evasion, which is motivated by a complaint about corruption and poor quality of services. Omoigin (2011) stated, in Nigeria and other African countries, the level of tax evasion  are quite high. No wonder,  Okonjo-Iweala  (2014)  noted   that  a   recent   study  conducted   by the government   revealed   that  about  75   percent   of   registered   companies  in   the  country   are   not registered   with   the   stepping  up  its   efforts   to  encourage  voluntary   compliance  with  a  tax obligation. According to the world bank doing business 2011 report, Nigeria ranked 137 out of 183 countries surveyed on the ease of doing business and 134 on the ease of paying taxes. The report documented that Nigeria has been sloping back consistently on the ease of paying taxes index is a function of three broad indicators – some tax payments, time require complying  with  tax   obligations  and  total  tax   rate.   Confirming  World Bank  Report,  Okonjo-Iweala said for every N100 that business has to pay in taxes they pay about N30 in compliance costs.  She further said that this is a waste of capital that could be invested in this business to grow them  and  create more  jobs  for our  economy. Another challenge  identified according  to  Oyedele (2011) that the mark-to-market (MTM) or Fair Value Accounting (FVA) of the financial instrument upon adoption of International Financial Reporting Standards (IFRS) would create significant swings in earnings and capital. By extension, it will affect taxable profit been reported by some management of organizations that use discretion in managing profit and tax, companies shelter   their taxes  at   the   detriment   of   tax  authority   duty   of   collecting   taxes,  due  to   the government. In the   United States, it is reported that a   “two-book” method of  presentation  of financial report exist, one for taxable income that companies report to government and the other to  investors.  This buttress the   point   that   there   exist   “book  tax  gap  and  evident  of  earnings  manipulation and tax sheltering” (Daniel, 2009).

Statement of the problem

Tax provides a predictable and stable flow of revenue to finance developmental objectives. Therefore, effective and efficient tax system can assist the government generate enough revenue to take care of its estimated expenditure, meet the needs of the people, and effectively participate in the world economy, improve the quality of life of people, have access to education, improved healthcare delivery, employment opportunities, clean air, safe drinking water and security of life and property (Bird & Zolt, 2003; Pfister, 2009; Ofoegbu, Akwu, & Oliver, 2016).However, over the years, revenue derived from taxes has been very low and no physical development has actually taken place (Afuberoh & Okoye, 2014). This has resulted to the increased incessant lamentation of the people to infrastructure decay and the government justification of inadequate fund to attend to provisions of these amenities. Taxation of companies and revenue generated is usually used as a major instrument for revenue generation and to sustain economic development, but the situation is different in Nigeria. Based on this background the researcher wants to investigate the impact of taxation on economic growth in Nigeria

Objective of the study

The objectives of the study are;

  1. To ascertain the effect of profit tax revenue on economic growth of Ogun state
  2. To ascertain the effect of Company income tax revenue on economic growth of Nigeria
  3. To ascertain the effect of Value added tax revenue on economic growth of Nigeria

Research hypotheses

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H0there is no effect of profit tax revenue on economic growth of Nigeria

H1: there is effect of profit tax revenue on economic growth of Nigeria

H02:  there is no effect of Company income tax revenue on economic growth of Nigeria

H2: there is effect of Company income tax revenue on economic growth of Ogun state

Significance of the study

The study will be very significant to students, lecturers and the Nigeria government. The study will give a clear insight on the impact of taxation on economic development in Nigeria. The study will also serve as a reference to other researcher who will embark on the related topic

Scope of the study

The scope of the study covers the impact of taxation on economic growth. The study will be limited to the whole country because of logistics and financial constraint, the researcher therefore restricts her scope to Internal Revenue Service, Ogun state, and despite other tools for economic development, for the purpose of this research the scope of this study is restricted

Limitation of the study

In the course of carrying out this research work, there were a lot of factors which acted in opposite directions towards the completion of this research work.

The following setbacks were encountered be the researcher:

  1. Inaccessibility of relevant materials in the school library and other library.
  2. Difficult in collecting Data.
  3. Insufficient time for the research work as the result of short academic calendar.
  4. Lack of sufficient fund in conducting the research process.

Definition of terms

There were many terms used in this write up which need to be defined to avoid doubt in the mine of the readers. the following terms are defined as they reflect their application in this study.

TAX: it is a levy imposed by the Government against the income, profits or wealth of the individuals, partnership and corporate ‘organization. (Tabansi, 2001).

TAXATION: is the process or machinery by which committees, group of persons of individuals are made to contribute part of their income in some agreed rate and methods for purpose of administration and development of the society. (Okorle Onovo, 2007).

ECONOMIC GROWTH: According to Agu (2000), is the process whereby the level of national production (that is national income) or per capital income increase over a period of time.

INCOME TAX: According to Okerie Onovo (2007), it is a tax levied on the income of an individual.

TAX EVASION: is a deliberate act of a tax payer to escape tax either by running away from collectors or under-declaring his/her income, omission or misstatement of items from returns. this act is illegal and is punishable if discovered (Tabansi, 2001).

TAX AVOIDANCE: this is generally considered  as a way of identifying the loop-hole in the tax law and then taking advantage of such a loop-hole to reduced the tax payable. (Tabansi, 2001).

TAX PAYER: it refers to employer or labour, Government Ministry and department, parastatals, statutory bodies, institutions and other established organization approved for the operation.

BOARD: this refers to the bodies which is authorized and empowered by law for the responsibility of the collection of taxes, they are sub-head quarter offices located at all the Local Government Area in the country. (Wikipedia, 2007).

TAX ADMINISTRATION: Cater (2000) defines it as the management of human and material resources to bring about efficient, fair and effective tax assessment, collection and accountability so as to achieved other economic socio-political objectives of the Government.

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