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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Every known society (ancient or modern) prides its development and progress on the amount of wealth it could
generate sustain and multiply for effective social, economic and political development.
Sometimes, leaders are observed to maximize these wealth for their personal glory and ambition. History is
replete with tales of races, tributes and tolls period by a colonized ex-defeated people to their invader. In modern
times, such inversion has taken another name colonialism.
For colonialism, the essence shifts from existing tributes from the host community to appropriating the vast
resources of the colonies the colonialists have ruled over. The research for invasion is not different from the
reasons for colonialism. Both forms are carried out in order to undertake some kind of development (social or
economic) basic home or abroad. The colonialization of Nigeria in the early 20th century by Britain was not to
carry out an expansionist programme, but was in part or plan to ensure that factories and plants in British cities
and towns are not short down due to inadequate supply of raw materials. A clear case of developing a foreign
economy with local resources are the concept of social or economic development thrives on the principles of
resources generation.
In every society, there exists a direct relationship between the levels of needs and the amount of resources of its
socio-economic development. For this reason taxation, has become what might be called a necessary evil”, this
is so because the burden of development is shared among the populace according to their incomes expectedly
earned during a given period their property and/or their consumption. It is “evil” in the sense that, it is
inconvenient to part with an amount of money which cannot decide.
As society continues to grow in size and the levels of needs of the populace increases man began to adopt
system of taxation that is equitable of generating sufficient revenue that is commensurate to the need level. As a
result of growth of fiscal group, governments have been encouraging individuals and corporate bodies to
undertake certain community development projects and services as part of their social responsibility initiatives.
These initiative come in various forms such as:
1. Sponsorship of games and sports
2. Sponsorship of educational programme through scholarship for indigenous students
3. Underwriting medical bills for helpless victims of fire or chemical bias, or those with debilitating
aliments.
4. Construction of water and electrical projects.
5. Offering material and financial assistance to orphanages, desire homes etc.
6. Road or bridge construction for resurfacing.
7. Classroom or school blocks construction and donation of books and reading material for libraries.
8. Adoption, beautification word junctions and round about etc.
The financial implications of these activities are that they are tax deductible. In other words, the taxable income
of the individual or organization are exclusive of the costs of these projects.
Thus, since governments have the responsibility to provide social amenities for her citizens the purpose of the
tax system is to enable it spread this burden among all its people in an acceptable way. According to the fairness
or equitability of the tax system is best evaluated on the principles of the payer’s benefits and the ability to pay.
As a general rule. Daughters et al (1980), suggest that income tax records and returns should be kept together
with major expenditures which would verifiable before they are substrated from income to lower the amount of
taxes to be paid to the government.
1.2 STATEMENT OF PROBLEMS
The statement of problems could be stated below:
1. Lack of compliance by tax payers and
2. Challenges of tax evasion and avoidance
3. Ineffectiveness of machineries put in place for tax collection and administration.
4. Sharp practice by tax efficients leading to reduction in tax remittance.
1.3 OBJECTIVE OF THE STUDY
The objective of this study shall be based on the following:
1. To evaluate the economic implication of taxation in the state.
2. To determine why government tax officials are collaborators in tax evasion, avoidance and officer
economic malpractices.
3. To evaluate the extent to which the tax system is boosting economic activities.
4. To find out why only corporate bodies take social responsibility initiative.
5. To assess the social welfare maximization of the people, the social marginal cost of taxation, SMC(I) and
the social marginal benefit of expenditure SMB(E).
1.4 SIGNIFICANCE OF THE STUDY
One of the consequent elements of taxation to an economy is that the payers spending power is limited or
reduced the summary effect of this is that government is exploited to deliver the needed development to boost
social and economic life. The emphasis is on the importance of taxation on economic life of the people, will not
only be significant for the immediate at future utilization by government and her agencies but also by research
students who might evaluate the finding as reference materials.
1.5 RESEARCH QUESTION
This study shall provide answers to the following research questions:
What are the sources of government revenue?
What factors guide government consideration when establishing a tax policy?
How does government ensure that tax is paid by all citizens and organization?
What are the penalties for tax evasion and avoidance
What factors influence the willingness to pay tax by some individuals or organizations?
1.6 STATEMENT OF HYPOTHESIS
The following hypothesis shall be tested in this research study:
1. Ho: Taxation has not contributed to the development in the state.
Hi: Taxation has contributed to the development in the state.
2. Ho: The role of corrupt government tax officials has not affected the revenue accruable from taxation.
Hi: The role of corrupt government tax officials has adversely affected the revenue accruable from
taxation.
3. Ho: The imposition of high and multiple local taxes would not discourage investment in the state.
Hi: The imposition of high and multiple local taxes would discourage investment in the state.
1.7 SCOPE AND LIMITATION OF THE STUDY
The study will embrace mainly officials of governments in such places as the Lagos State Board of internal
Revenue who are responsible for tax matters in the state. The research study shall be limited to taxation and its
economic effects in Lagos State and government officials only. The research study shall also be restricted only to
the Lagos metropolis. Therefore, in the course of carrying out this study, a lot of challenges were prevented and
the principal among these were the following: finance, time and lack of relevant materials.
1.8 DEFINITION OF TERMS
Key terms that would be used and would require further explanation are stated below, these includes:
Aggregate Demand: This is the total spending on the economy. It is the sum of personal consumption
expenditure, business investments and government spending.
Tax Avoidance: Using loophole in the tax law as a cover in order not to pay tax.
Tax Evasion: This is the failure of the tax payer to comply with the tax laws. (It is a criminal offence).
Tax Base: This is the object of taxation i.e. the economic activity upon which tax is levied. It could be
household’s income, consumption or wealth.
Personal Income: The total money income reserved by individuals before taxes are paid.
Fiscal Policy: Refers to the use of government expenditures, taxation and subsides to influence the level
of economic growth and development.
Taxable Income: The amount of income remaining after subtraction of all allowable deductions and
exemptions that are available for taxation.
Diminishing Marginal utility: The gradual dealing in consumer satisfaction that each additional unit of
consumption of a particular goods or services gives.
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