THE IMPACT OF TAX ON GOVERNMENT CAPITAL EXPENDITURE AND ECONOMIC GROWTH IN NIGERIA

CHAPTER TWO

LITERATURE REVIEW

A Tax is a fee charged or levied by a government on a product, income, or activity. If it is levied directly on personal or corporate income, it is called a direct tax. If it is levied on the price of a good or service, then it is called an indirect tax. The main reason for taxation is to finance government expenditure and to redistribute wealth which translates to financing development of the country (Ola, 2001 Jhingan, 2004, Musgrave and Musgrave, 2004. Bhartia, 2009). Whether the taxes collected are enough to finance the development of the country will depend on the needs of the country and. countries can seek alternative sources of revenue to finance sustainable development (Unegbu and Irefin. 2011). Government collects taxes in order lo provide an efficient and steadily expanding non-revenue yielding services, such as infrastructure education, health, communications system etc, employment opportunities and essential public services (such as the maintenance of laws and order) irrespective of the prevailing ideology or the political system of a particular nation.

Tax is also the nexus between state and its citizens, and tax revenues are the lifeblood of the social contract. The very act of taxation has profoundly beneficial effects in fostering better and more accountable government (Tax Justice Network (TJN)S revenue 2012). Musgrave and Musgrave (2004) also stated that the economic effects of tax include micro effects on the distribution of income and efficiency of resource use as well as macro effect on the level of capacity output, employment, prices, and growth. However, the use of tax us an instrument of fiscal policy to achieve economic growth in most less develops countries cannot be reliable because of dwindling level of revenue generation. Consequent upon this, changing or fine-tuning tax rates has been used to influence or achieve macroeconomic stability, A critical examples of governments that have influenced their economic development through revenue from tax are; Canada. United States, Nethcriand. United Kingdom. They derive substantial revenue from Company Income tax. Value Added Tax. Import Duties and have used same to create prosperity (Qluba 2008), A significant share of the tax revenue increase in Africa stems from natural resource taxes. This included income from production sharing, royalties, and corporate income tax on oil and mining companies (Pfister, 2009). Nigeria is a developing country whose major export is mainly crude oil. Also endow with other natural resources such as; natural gas, lin. iron ore. coal, limestone, lead, zinc and arable land (Economy Watch, 2011). A& a sovereign nation, Nigeria has a land mass that covers about 923. 768 £q km and have a population of about 149,229,090.