TAX AS A STIMULUS FOR GROWTH AND DEVELOPMENT IN NIGERIA
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
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 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.
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. 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 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.