This research work focuses on the impact of taxation on Nigeria’s economic and social development. Using secondary data obtained from CBN statistical bulletins with the help of regression as a statistical tool, we analyzed hypotheses on the relationship that exists between taxation and economic and social development in Nigeria. In Nigeria, taxation was found to be positively related to economic and social development. The researchers then recommend clear policies for inter-governmental cooperation, cooperation among different layers and agencies of government, coordination, and taxpayer awareness of the role of taxation in Nigeria’s economic and social development. Raising awareness, was created in this research work. Governments should also strive to redirect tax revenues to socioeconomic activities that benefit taxpayers.
1.1 BACKGROUND TO THE STUDY
The world we live in presents a picture of appalling contrasts. Some Countries are immensely prosperous, nearly two-thirds of the population of the world subsists on sub-standard incomes. Some Countries of the world are considered as developed and others developing, underdeveloped, or less developed with characteristics including illiteracy, inadequate housing and infrastructural facilitates, lack of medical care, malnutrition, unemployment and low levels of technology.
Nigeria is the most populous Nation in Africa and the 11th in the world and is also endowed with vast human and natural resources but unfortunately, Nigeria is also one of the Nations regarded as underdeveloped or developing.
According to Udabah (2000:1) “the fundamental challenge facing counties like Nigeria is in the transformation of their economic or economic structures from an underdeveloped to a developed status”. This entails the development of their economic wealth for the well-being of their citizens and the formation of social structures in a manner which improves their capacity to fulfill their aspirations.
Okpe (1998:1) stated that the existence of government is a necessity that cannot continue without financial means to pay it’s expenses as there are certain services which the government must provide to it’s citizens because of their essential nature. Government does this to ensure that the supply of such goods and services are evenly distributed in any given society so that the rich and poor alike may benefit. One may ask how does government get such huge amounts to finance the supply of such essential good and services to her citizens. It is true that government mints money but there are other important economic factors that should be considered so that excessive money is not, in circulation in any economic. Thus Olashore (1999:23) noted that for an economic and social balance to be maintained in an economy government found ways of financing her activities and one of such finance apart from loans and grants is taxation.
Taxation plays a crucial role in promoting economic and social activities and growth. Though taxation, government ensures that resources are channeled towards important projects in the society while giving succor to the weak. Orjih (2001:153) stated that taxation is useful in raising revenue, controlling the consumption of certain commodities, controlling monopoly, reducing income inequalities, improving the balance of payments as well as protecting infant industries.
In essence, taxation is a core pillar of a country’s regulatory framework for investment and growth. It features prominently in investment decision making motivated by profit maximization while also spurring local enterprise development but this can only happen when taxation and it’s administration are properly designed.
1.2 STATEMENT OF THE PROBLEM
Nigeria and other African Countries at large are facing a series of challenges when it comes to optimizing taxation for economic and social growth while aiming to reach development targets. Perhaps the most inherently difficult challenge is how to find the optimal balance between a tax regime that is business and investment friendly while at the same time leveraging enough revenue for public service delivery which in turn makes economics more attractive to investors.
The taxation system in Nigeria has not been fully tapped and maximized and its role in promoting economic and social activities and growth is not felt because of it’s poor administration. Thus, Olashore (1999:53) stated that the economy has remained in deep slumber as all macro economic indicators show an economy in dire need of rejuvenation, balancing and indeed radical reform.
Identifying the impact of taxation on economic and social development in Nigeria is a research work born at the right time as there is an urgent need to delve deep and look into the situation of tax evasion and the likes which are punishable by law and also to look into measures required to meet challenges.
This will not only guarantee improved revenue base for the country but also position the country properly to take full advantage offered by the new millennium global tax reform system. This research work shall examine the impact of taxation on economic and social development in Nigeria by analysing the tax gap in the system over the years thereby revealing the critical challenges that need to be tackled.
1.3 OBJECTIVES OF THE STUDY
The primary objective of this research work is identifying the impact of taxation on economic and social development in Nigeria. Also the research work will attempt to:
- Critically examine tax administration challenges in Nigeria in the last decades and in the new millennium
- Review measures that have been advanced in the time past by tax authorities and practitioners to meet these challenges.
- Expose factors militating against the impact of taxation as a tool for socio-economic development in Nigeria.
- Recommend policies to help in effective tax administration to enable social and economic growth and development in Nigeria.
1.4 RESEARCH QUESTIONS
The following research questions were formulated to guide this study effectively and successfully.
- Does tax Administration have any significant impact in an economy?
- Is there any tax gap in the Nigeria tax system?
- What factors are responsible for the ineffective nature of tax system in Nigeria?
- What measures could be adopted to improve the tax Administration process in Nigeria?
1.5 HYPOTHESES OF THE STUDY
The hypotheses are stated below:
- There is no significant relationship between taxation and economic and social development in Nigeria
- There is a significant relationship between taxation and economic and social development in Nigeria.
The decision criteria is to accept the null hypothesis and reject the alternative hypothesis or otherwise based on the result of the test carried out.
This research work shall cover the following areas:
- The origin of taxation in Nigeria
- The objectives of taxation
- A time line of the growth of tax Administration system in Nigeria
- An evaluation of tax Administration and the critical tax Administration challenges in the new millennium in Nigeria.
- Measures that have been advanced by the tax Authorities and practitioners to meet those challenges.
1.7 SIGNIFICANCE OF THE STUDY
The significance of this study can be viewed from two major stands points-academic and practical.
a. Academic Significance:
In the academic arena, this study will prove to be significant in the following ways:
- It will contribute to the enrichment of the literature by adding a new body of knowledge to the existing body of knowledge in the research work related to the research topic.
- The study aims at exposing factors responsible for low level of revenue from taxation in Nigeria
- It will suggest ways (of interest to academics) based on empirical evidence of improving tax Administration process in Nigeria.
- The research work also aim at providing recommendation to address the savagery impact of poor taxation and tax system as an aid to economic and social development in Nigeria
B. Practical Significance
This kind of study will assist in broadening understanding and scope of knowledge of the following:
- To policy makers and regulators, it will present a scheme through it’s analysis of the loopholes in the taxation Administration and taxation system.
- To economic watchers and interested public, it will provide some insight into the factors militating against the impact of taxation as a tool for socio-economic development in Nigeria
- To students, it will provide more information on the origin of taxation in Nigeria and it’s importance to economic and social development when properly designed.
1.8 OPERATIONAL DEFINITION OF TERMS
a. Development: this is a multidimensional process involving the reorganization and reorientation of the entire economic and social system.
b. Impact: The effect or influence that an event, situation etc has on someone or something.
c. Taxation: this 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.
d. Tax Administration: This is the Administration, management, conduct, direction and supervision of the execution and application of the internal revenue laws or related statutes and tax conventions.