AN EMPIRICAL INVESTIGATION OF THE INFLUENCE OF TAXATION ON THE NIGERIAN ECONOMY (1980 – 2006)

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Capitalism as advocated by Adams Smith (1776) in his book, “The Wealth of Nation” implies an economic system where the means of production and distribution of goods and services lies in the hands of individual. To enhance the smooth running of the economic system, a well secured environment through the maintenance of law and order to including the provision of social overhead by the government. Government need resources (finance) to meet up with this endless task. Hence, the concept of taxation becomes eminent.

Taxation has existed since the birth of early civilization and it could be said that it is part of the price to be paid for living in an organized society. However, taxation is not just a means of transferring money to the government to spend as it thinks fit, it also has a tendency to reflect prevailing social values and priorities. The system of taxation is a socio-economic model, representing society’s social, political and economic needs often being reflected by changes to the system of taxation.

Oriakhi, (2002) defines taxation “as a compulsory levy an those who are taxed have to pay the sums irrespective of any corresponding returns of services or goods by the government, the government of most developing countries profess a desire to stimulate and guide the economic, and social development of their nations. The tax system is often identified as one of the most power levers available to those government to move the economy. Anyanwu (1997) view taxation as “compulsory transfer of payment of money from private individuals, institution or groups to the government. Taxation, system of raising money to finance government. All government requires payments of money taxes from people. Government uses tax revenues to pay soldiers and police, to build dams and roads, to operate schools and hospitals, and for hundreds of their purposes. Throughout history, people have debated the amount and kind of taxes that a government should impose, as well as how it should distribute the burden of those taxes across society.

Taxation is the most important source of revenue for modern governments, typically accounting for 90 percent or more of their income. The remainder of government revenue comes from borrowing and from charging fees for services.

Nigeria is basically a mixed economy. The government and private sector work side by side, but due to Nigeria state of economic development coupled with multi-various problems, the government usually plays a greater role. Most problems that confronts Nigerian economic activities, which retards it’s growth calls for a greater participation by the government for their solution.

Besides, the government is also committed to the achievement of macro-economic goals such as price stability, full employment, equitable distribution of income, balance of payment (BOP) equilibrium and economic stability which enhance economic growth thereby paving way for economic development. Huge resources are required by the government to enable her meet up with this commitment. Taxation which is compulsory levy imposed on tax accessories is one of the major sources of government revenue in Nigeria. It is the objects of discussion in relation to Nigerian economic development through the ages in this study.

Revenue collection from taxation “direct to indirect is expendable on national development to improve and transform the social, mental, economic, institutional and environmental condition of the people through the mobilization of materials, human resources in order to their capacity to cope commensurately with the daily commitment as well as the demand for modern time.

The impact of the Nigeria tax system on Nigerian economy is a vital issue which serves as yardstick for the measurement of the national development as income generated is geared towards the provision of social overhead. It runs through Nigerian society in that it has economic, political and social implication for both the citizens and the nation. Consequently, upon the above analysis, welfare economics becomes influential compared to other aspect of economics.