The Impact of Taxation on Economy Growth a Case Study of Ogun State Internal Revenue Service
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).
Table of Content
List of Tables
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
3.2 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
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;
- 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
- To ascertain the effect of Value added tax revenue on economic growth of Nigeria
For the successful completion of the study, the following research hypotheses were formulated by the researcher;
H0: there 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:
- Inaccessibility of relevant materials in the school library and other library.
- Difficult in collecting Data.
- Insufficient time for the research work as the result of short academic calendar.
- 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.[email protected].
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