THE IMPACT OF TAXATION ON ECONOMIC GROWTH IN NIGERIA (1986-2011)

CHAPTER ONE

INTRODUCTION

Background of the Study

The political, economic and social development of any country depends on the amount of revenue generated for the provision of infrastructure in that given country. However, one means of generating the amount of revenue for providing the needed infrastructure is through a well structured tax system. According to Azubike (2009), tax is a major player in every society of the world. The taxation is an opportunity for government to collect additional revenue needed in discharging its pressing obligations. A taxation offers itself as one of the most effective means of mobilizing a nation’s internal resources and it lends itself to creating an environment conducive to the promotion of economic growth. Nzotta (2007) argues that taxes constitute key sources of revenue to the federation account shared by the federal, state and local governments. This is why Odusola (2006) stated that in Nigeria, the government’s fiscal power is divided into three-tiered tax structure between the federal, state and local governments, each of which has different tax jurisdictions. The system is lopsided and dominated by oil revenue. He further argues that over the past two decades oil revenue has accounted for at least 70% of the revenue, thus indicating that traditional tax revenue has never assumed a strong role in the country’s management of fiscal policy. Instead of transforming the existing revenue base, fiscal management has merely transited from one primary product-based revenue to another, making the economy susceptible to fluctuations of the international market. However, 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 Enugu State (Nigeria).