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 macroeconomic 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 analyzing the tax gap in the system over the years thereby revealing the critical challenges that need to be tackled
.1.3 Research Objective
The main objective of this study is to investigate the macroeconomic impact of taxation on economic growth of Nigeria. The specific objectives are:
1.) To determine the nature of the relationship between taxation and economic growth in Nigeria.
2.) To examine the impact of taxation on the Nigerian economic growth.
1.4 Research Questions
1.) What is the relationship between taxation and economic growth in Nigeria
2.) To what extent has taxation contributed to the growth of Gross Domestic Product in Nigeria?
3.) In what ways can Nigeria change her tax system in order to boost revenue generation through this source?
1.5 Research Hypothesis
1.) Taxation has contributed significantly on economic growth in Nigeria.
2.) Taxation has contributed significantly on economic growth in Nigeria.
1.6 Scope of the study
This study covers the Gross Domestic Product of Nigeria from 1980-2016 to obtain the extent to which taxation has contributed to the GDP and consequently economic growth of Nigeria. Significance of the study This study will help to provide a clear insight that would help government to know how to run a smooth and effective tax system and policies. Given the fact that the subject of taxation is an essential part of a country’s investment and growth plan, this study will help to contribute to the efforts of government in promoting economic growth by showing how taxation has impacted economic growth from 1980-2016. It also coordinator contributes to the empirical literature by focusing on the effect of each tax indicators on economic growth.
1.7 Limitation of the study
The broad scope of this study makes it require enough time to carry out empirical studies
1.8 Definition of terms
1.) Tax: this refers to a compulsory levy on the citizens of the country in order to generate revenue for the government. It could be direct or indirect tax.
2.) Economic growth: this refers to the positive change in the level of goods and services produced by a country.
3.) Gross Domestic Product: this refers to the output of goods and services of a country. It is used to measure the economic growth of the country.