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THE IMPACT
OF TAXATION AS AN AID TO ECONOMIC DEVELOPMENT
CHAPTER ONE
1.0 INTRODUCTION:
1.1 BACKGROUND OF THE STUDY:
One of the
major functions of any government especially developing countries such as
Nigeria is the provision of infrastructural services such as electricity,
pipe-borne water, hospitals, schools, good roads and as well as ensure a rise
in per capita income, poverty alleviation to mention a few.
For these
services to be adequately provided, government should have enough revenue to
finance them. The task of financing
these enormous responsibilities is one of the major problems facing the
government. Based on the limited
resources of government, there is need to carry the citizens (governed) along
hence the imposition of tax on all taxable individuals and companies to augment
government financial position. To this
end, government have always enacted various tax laws and reformed existing ones
to stand the taste of time. They
include: Income Tax Management Act
(ITMA), Companies Income Tax Decree (CIID), Joint Tax Board (JIB) etc.
All these
are aimed at ensuring adherence to tax payment and discouraging tax evasion and
avoidance. For the purpose of this
study, the researcher would be concerned with the impact of taxation as an aid
to the economic development of Edo State (Nigeria).
1.2 STATEMENT OF THE PROBLEM:
The first
need of any modern government is to generate enough revenuewhich is indeed “the
breath of its nostril”. Thus taxation is
by far the most significant source of revenue for the government. Nigerians regard payment of tax as a means
whereby government raises revenue on herself at the expense of their sweat.
It is good
to note that no tax succeeds without the taxpayer’s co-operation. Here, we can ask some thought-provoking
questions such as: what makes taxation such a difficult issue? Why do people feel cheated when it comes to
tax? Is government making judicious use
of taxpayer’s money? In view of these
questions above, this study is going to be carried out to offer solution to
them.
We shall
also look at the following issues and offer recommendations.
1. Problems affecting the successful operation
of tax system in Nigeria.
2. How to determine the Assessable income.
3. Process of tax administration in Nigeria.
1.3 OBJECTIVE OF THE STUDY:
The general
objective of the study is to assess the contribution of taxes towards the
growth of the Edo State Economy.
However, the
specific objective of the study includes:
1. To examine the relevance of taxation in Edo
State.
2. To determine why people feel cheated when
it comes to tax.
3. To determine the extent government has been
using revenue generated from tax.
4. To examine how tax rate affects the rate of
investment in the economy.
5. To know general desirability of firms to
invest as a result of tax incentive measures.
Generally,
the work is done to find out if tax constitutes the bulk of government revenue
and to erase the erroneous that it is an exploitation by government for their
selfish interest.
1.4 SIGNIFICANCE OF THE STUDY:
One of the
most frequently discussed issues in Nigeria is how to solve the economic
hardship in the country and how to create an industrial base that can be
guarantee self sustaining economic development.
Also one wonders why a country which is richly endowed with the
necessary human and material resources and which the people pay tax has been
turned a heavily indebted country.
The study
will afford us the opportunity to know the roles taxation play in the Edo State
economy such roles includes:
1. Taxation is a major source of revenue to
the government.
2. Revenue generated from tax enables
government performs its functions effectively.
3. Taxation acts as an instrument of fiscal
policy.
4. The impact of tax on small business in the
state.
5. The study will in addition reveal if there
are other better sources of government funding.
1.5.1 SCOPE OF THE STUDY:
The scope of
this study covers critical examinations on the impact of taxation on Edo State
economic development. It will also
analyse other related issues such as structure and administrative machinery of
tax in Edo State and their associated problems.
The essence of this digression is to possibly find out the obstacles if
any, that hinder the effective collection and administration of tax in the
State.
1.5 ASSUMPTIONS OF THE STUDY:
The
researcher in carrying out this study will make the following assumptions:
1. That the data that will be used are true
and fair figures of taxes actually collected by the Federal Government in each
year of assessment.
2. That the data will be authentic and can be
relied on for further research work on the topic.
3. That the data is going to form the basis of
the research work.
1.7 FORMULATION OF HYPOTHESIS:
To enable
the researcher test if there exist any correlation between revenue generated
from tax and its impact on the Edo State economy, some statistical model will be used based on the response from
the oral interview carried out and the questionnaire distributed, the data
gathered from here will be used to test the following hypothetical statement
(assumption).
HYPOTHESIS
I:
The Null
Hypothesis (Ho): Revenue generated from
tax does not make any impact on the economic development of Edo State
The Alternative
Hypothesis (HA): Revenue generated from
tax has a positive impact on the economic development of Edo State.
HYPOTHESIS
II:
The Null
Hypothesis (HO): That tax evasion and
avoidance do not affect tax revenue.
The
Alternative Hypothesis (HA): that tax
evasion and avoidance do affect tax revenue.
HYPOTHESIS
III:
The Null
Hypothesis (HO): That revenue generated
from tax is so merger compared to revenue from other sources as such,
government can do with tax.
The
Alternative Hypothesis (HA): That tax is
a major source of government revenue and as such government cannot do without
tax.
1.8 DEFINITION OF TERMS:
TAX: A compulsory levy by the government on
its citizen for the provision of public goods and services.
TAX
BASE: The object which is taxed for
instance personal income, company profit.
TAX
RATE: The rate at which tax is charged.
TAX
INCIDENCE: It offers to the effect of
and where the burden is finally rested.
FBIRS: Federal Board of Inland Revenue
Services. It is an operational arm of
Federal Board of Inland Revenue which is responsible for the Federal Tax
matters.
CITA: Company Income Tax Act (CITA) is a federal
law operated by the FIRS, which deals with the taxation of all limited
liability companies in Nigeria with the exception of those engaged in petroleum
operations.
JTB: Joint Tax Board (JTB) is established
under Section 85(1) of Decree 104 of 1993 to arbitrate on tax disputes between
one state tax authority and another.
VAT: Value Added Tax is a multistage tax
levied and collected on transactions at all stages of sales and distribution.
CGTA: Capital Gain Tax Act is an act that
stipulates that all capital gains arising on disposal of asset of individual
partnership and limited companies should be taxed.
PPTA: Petroleum Profit Tax Act is an act that
regulates the petroleum profit tax and also specifies how profit from petroleum
will be taxed.
WITHHOLDING
TAX: This is tax charged on
investment income namely: rents, interest, royalties and dividends, presently
it is charged as the tax offset.
PROGRESSIVE
TAX: This is a tax incidence that
increases as the size of income increases.
REGRESSIVE
TAX: A tax is regressive when its tax
rate decreases as the income increases.
EXCISE
DUTIES: These are taxes on some goods
manufactured within a country.
PERSONS: It includes all taxable persons whether
it be individual or corporate bodies.
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