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TAX AS A
STIMULUS FOR GROWTH AND DEVELOPMENT IN NIGERIA
CHAPTER ONE
Background
of the study
Responsible
governments all over the world, be it at the Federal, State or Local government
level, are concerned with the provision of social goods and services for their
citizens.
They are
responsible for the maintenance of laws and orders within their nations and
also for the protection of their territorial integrity against any external
aggression.
In carrying
out these social responsibilities, a huge amount of money is needed. One of the
major sources of fund available to government to execute its numerous programs
is imposition of taxes.
Governments
at various levels enact laws to impose taxes and to enforce their payment so
that enough revenue can be generated to defray their expenditure.
However,
despite many stringent penalties and fines in the tax laws, it appears that a
lot of individuals and corporate entities still do not see the reason why they
should pay correct taxes or pay taxes at all. Hence, they try in some cases to
avoid payment of taxes and in
other
extreme cases, evade taxes (Bukar, 2004; Omoigui, 2004).
One of the
remarkable trends in contemporary history has been the importance in the growth
of economic life. Any serious discussion of government is bound to raise the
question about revenue and expenditure. Through appropriate tax, expenditure
and regulatory policies, government seek to attain certain objectives. The
achievement of macroeconomic goals namely, full employment, stability of price
level, high and sustainable economic growth and external balance, from time
immemorial, has been a policy priority of every economy whether developed or
developing, given the susceptibility of macroeconomic variables to fluctuations
in the economy. The realization of these goals is not automatic but requires
policy guidance. The policy guidance represents the objectives of economic
policy (Olawunmi & Ayinla 2007). One of the regulatory policies used by
government in achieving its objectives to bring about economic growth is fiscal
policy. Fiscal policy is an outgrowth of Keynesian economics; its logical
analysis suggests that it offers a sure-fire means of stabilizing the economy.
The goal of modern fiscal policy is to achieve economic efficiency and
stability. In a modern economy, no sphere of economic life is untouched by the
government. Two major instruments or tools are used by government to influence
private economic activity; taxes and expenditure. The effect of taxation covers
all the changes in the economy resulting from the imposition of a tax system.
One may say that without taxation, a market economy would not attain certain
production, consumption, investment, employment and other similar patterns. The
presence of taxation modifies these patterns for good or for bad and such
modifications may collectively be called the effect of taxation. Expenditure on
the other hand, was meant to directly add to the effective demand in the market
and generate a high-value multiplier by distributing income to those sections
of the population which had a high marginal propensity to consume. Government has
the responsibility of preventing calamitous business depression by the proper
use of fiscal and monetary policy, as well as close regulation of the financial
system. In addition, government tries to smooth out the ups and downs of the
business cycles, in order to avoid either large scale unemployment at the
bottom of the cycle or raging price inflation at the top of the cycle. More
recently, government has become concerned with financing economic policies
which boost long-term economic growth. Because of the increasing importance of
government conduct in a nations development process, fiscal policy handles the
issues of resource allocation and is preoccupied with the problems of economic
growth, economic stability, employment, prices, income distribution and social
welfare. Fiscal policy has developed an array of instruments to handle
different facets of the economics of public sector. But by the very existence
of multiplicity of goals, it is often bedevilled by inherent conflict of
objectives; between long-term growth and short-term stability, between social
welfare and economic growth, and between income redistribution and production
incentives (Samuelson & Nordhaus 2005). One of the most important
objectives of macroeconomic policy in recent years has been the rapid economic
growth of an economy. Economic growth is defined as “the process whereby the
real per capita income of a country increases over a long period of time”.
Economic growth is measured by the increase in the amount of goods and services
produced in a country. A growing economy produces more goods and services in
each successive time period. Thus growth occurs when an economy‟s productive
capacity increases which, in turn, is used to produce more goods and services.
In its wider aspect, economic growth implies raising the standard of living of
the people and reducing inequality of income distribution (Jhingan, 2003). The
relationship between government expenditure and economic growth has continued
to generate series of debate among scholars. Some scholars argued that increase
in government socio-economic and physical infrastructure encourages economic
growth. For example, government expenditure on health and education raises the
productivity of labour and increase growth of national output. Similarly
expenditure on infrastructure such as roads, communications, power, etc.,
reduces production costs, increases private sector investment and profitability
of firms, thus, fostering economic growth. Some scholars supporting this view
concluded that expansion of government expenditure contributes positively to
economic growth. The intent of fiscal policy is essentially to stimulate
economic and social development by pursuing a policy stance that ensures a
sense of balance between taxation, expenditure and borrowing that is consistent
with
1.2
STATEMENT OF PROBLEM
Tax is a
major source of government fund, and this fund is the bed rock of our economic
development if effectively managed. This therefor makes tax collection and
administration a top priority to government. 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 THE STUDY
The main
objective of this studies is to ascertain the impact of taxation as a stimulus
for economic growth, however the study specifically seek to:
i) To evaluate the benefit of
taxation in the economy
ii) To ascertain how taxation stimulate
economic growth and development
iii) To evaluate the tax administration
system
iv) To explore avenues of ensuring
effective tax compliance.
1.4 RESEARCH
QUESTION
In other to achieve the objective of the study
and proffering solution to problem of study, the following research question
were formulated:
i) What are the challenges of
taxation?
ii) What are the method which can be
adopted to ensure tax compliance?
iii) How has taxation help in stimulating
economic growth?
iv) What measures can we adopt to make
sure that all tax payers are entrapped in the tax net?
1.5
SIGNIFICANCE OF THE STUDIES
It is
conceived that at the completion of the study its findings would be beneficial
to:
i) The tax authority who has the
responsibility of tax collection
ii) The government who is responsible
for utilization of the fund
iii) The tax payers who bear the tax
burden
iv) The researchers, academia and the
general public.
1.6 SCOPE OF
THE STUDY
The studies
covers the impact of tax as a stimulus for growth and development in in
Nigeria. However, the study has some limitation, which are:
a) AVAILABILITY OF RESEARCH MATERIAL: The
research material available to the researcher is insufficient, thereby limiting
the study
b) TIME: The time frame allocated to the
study does not enhance wider coverage as the researcher have to combine other
academic activities and examinations with the study.
c) Organizational privacy: Limited Access to
the selected auditing firm makes it difficult to get all the necessary and
required information concerning the activities.
1.7
DEFINATION OF TERMS
Tax
A tax (from the Latin taxo) is a financial
charge or other levy imposed upon a taxpayer (an individual or legal entity) by
a stateor the functional equivalent of a state to fund various public
expenditures. A failure to pay, or evasion of or resistance to taxation, is
usually punishable by law. Taxes consist of direct or indirect taxes and may be
paid in money or as its labour equivalent. Some countries impose almost no
taxation at all, or a very low tax rate for a certain area of taxation.
ECONOMIC
GROWTH
Economic
Growth is the increase in the inflation-adjusted market value of the goods and
services produced by an economy over time. It is conventionally measured as the
percent rate of increase in real gross domestic product, or real GDP, usually
in per capita terms.[1]
Growth is
usually calculated in real terms i.e.,
inflation-adjusted terms to eliminate
the distorting effect of inflation on the price of goods produced. Measurement
of economic growth uses national income accounting.[2] Since economic growth is
measured as the annual percent change of gross domestic product (GDP), it has
all the advantages and drawbacks of that measure.
The
"rate of economic growth" refers to the geometric annual rate of
growth in GDP between the first and the last year over a period of time.
Implicitly, this growth rate is the trend in the average level of GDP over the
period, which implicitly ignores the fluctuations in the GDP around this trend.
An increase
in economic growth caused by more efficient use of inputs (such as labor
productivity, physical capital, energy or materials) is referred to as
intensive growth. GDP growth caused only by increases in the amount of inputs
available for use (increased population, new territory) is called extensive
growth.
FISCAL
POLICY
Fiscal
policy refers to that part of government policy concerning the raising of
revenue through taxation and other sources and deciding on the level and
pattern of expenditure for the purpose of influencing economic activities. It
is a policy under which the government uses its expenditure and revenue
programs to produce desirable effects and avoid undesirable effects on national
income, production and employment. The policy can also be seen as a deliberate
spending and taxation actions undertaken by government in order to achieve
price stability, to dampen the swings of business cycles, and to bring about
nation‟s output and employment to desired levels (Jhingan, 2003).
GROSS
DOMESTIC PRODUCT
Gross
domestic product (GDP) is a monetary measure of the market value of all final
goods and services produced in a period (quarterly or yearly). Nominal GDP
estimates are commonly used to determine the economic performance of a whole
country or region, and to make international comparisons. Nominal GDP per
capita does not, however, reflect differences in the cost of living and the
inflation rates of the countries; therefore using a GDP PPP per capita basis is
arguably more useful when comparing differences in living standards between
nations.
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