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Late May 2010, the Federation Account Allocation Commitment (FAAC) meeting ended before it even started. Reason was that the commitment members which comprises of the 36 states commissioners of finance had their hope of sharing about 1.1 trillion naira dashed as the Federal Government declare a paltry sun of 452 billion as available disbursement to the states. To most economic watchers in Nigeria, the message was very clear, hence the paradigm shift to a re-emphasis on the need to focus more on Internally Generated Revenue (IGR) by state government which taxation is one of them rather than waiting for the monthly sharing of the “National Cake”.
Moreover, the problem of underdevelopment should not be the topic of the day in a “natural resource blessed country” like Nigeria. Thus the emphasis on taxation by one and all cannot be overemphasized. Taxation according to Nightingale (1997) is compulsory contribution imposed by the government on its citizens. Our quest to ensure economic development shall meet with desired expectation if all expected tax is paid and as at when due.
From the forgoing, we can now deduce the need to garnish our understanding with contemporary knowledge in the area of Taxation, Economic growth so as to entrench that dependability spirit which can tune around the fortune of our Government.
Taxes are levied on individuals, groups, business or corporate organization, by constituted authority for funds used by state in the maintenance of peace, security, economic development, and social engineering among others for the benefit of the citizenship. In this view, the management of a society for effective growth rest on the who can only discharge such responsibilities creditably to the citizenry with adequate resources. Therefore, it behaves a responsible citizenry with to discharge his/her duties to the state through prompt and regular payment of taxes. The economic history of both developed and developing countries reveals that taxation is an important weapon in the hand of the government; not only to generate revenue, but also to achieve goals such as influencing the direction of investment and taming the consumption of certain goods and services. A tax is simply a compulsory payment levied on the citizens by government for the purpose of the government itself.
Traditionally, taxes are based on income of individuals or profit of an economic entity. Other bases of taxes are wealth, capital, property and consumption. All forms of consumption taxes fail within the purview of indirect taxation. Income taxes and those based on capital, profit and wealth are in the realm of direct taxation.
The imposition of a tax is based on certain considerations. One of these is how effective as well as equitable the tax can be. Since tax can be equitable without being effective and vice versa, the capacity of the tax base to reflect both equity and effectiveness becomes a serious subject in taxation. Taxation as a system has been known to have existed as early as history. In the Bible, we learnt that even Christ paid tax and also encourage his disciples to follow suit. According to bible book of Matthew 17:24 & 25 there Christ gave evidence that there was payment of tax back then. Also in Romans 13:7 also attested to that. During his missionary days on earth, he saw the need to support the Roman Government through the payment of tax hence, he advised his followers to “render therefore, unto Caesar the things which are Caesars”.
In the same vein Rabiu (1990) states that,” various form of taxes prescribed in the Holy Koran and which were operative in Northern Nigeria to include “Zakat’, ‘Kurdinkasa’, and Jangali. Zakat is a form of levy on Islamic adherents for charitable, religious and educational purposes. The proceeds of ‘Zakat’ are used help the poor and less privilege members of the society. Also, it is used in “Jihad’ and other forms of religious promotions.
“kusrdinkasa” and “Shukka-Shukka” are levies imposed on agricultural yields. They are usually paid during harvest seasons and the proceeds used to finance the Emirate “administration” “Jangali” is also a form of tax in Northern Nigeria levied on livestock. It is a form of community tax paid to the Emirate Authority.
In the Western Nigeria for example, a form of land tax called “Ishakole” was in force, and heads of families were used as machinery for its collection.
All these points supportive of the existence of one form of taxation or the other in Nigeria before the arrival of the colonial masters. Before the advent of colonialism, eminent scholars and tax experts acknowledge the fact that the country had a system of taxation that was in operation. Ola (1981) asserts that “Previously Nigerians cheerfully paid their taxes in kind by rendering free service such as clearing the bush, digging pit toilets, wells; sweep village squares etc., for the benefit of the community as whole. Defaulters’ properties are usually confiscated and can only be redeemed by payment of money or fine.
Historically, taxation constitutes the oldest instrument of financing the public sector in times of either peace or war. For sacrificing their private resources to the state in the form of taxes, citizens expect the government to reciprocate by spending public revenue in a way that will enhance their welfare. This is why scholars have almost always collapsed the issue of public finance into two aspects, what Adebayo Adedeji terms “the principle of expenditure”. Similarly, economic literature shows that as far back as 1776 during the era of Adams Smith the place of taxation in public finance has caught the attention of experts like David Richardo, another classical economist who did, in fact, argue that “an economic principle could only be considered useful if it directs government to the right measure of taxation”. Richardo as well as John Stuart Mill both classical economics too had put revenue first in the division finance into three via: “revenue, expenditure and public debt”. The issue is that since access to revenue is basic to the functioning of government, the source of such revenue including (and most especially) taxation must be prioritized.
In recent years, the changes in tax practice that have been in operation were a modification of traditional approaches by the colonial authority. These changes are majorly centred on different taxes, laws and administration. Nonetheless, the new system introduced by the colonial authority met with stiff resistance from the people and this partly might have been due to high rate of illiteracy among the Nigeria people. The problem still persists till today which such a resistance is believed to have political undertone. One of such resistance was the “Aba Women Riot of 1929”
Thus, the imposition of direct personal income tax by the colonial authority in Northern Nigeria through the native, the Revenue ordinance of 1917 was nothing strong to the people. Native Revenue ordinance of 1917 then became the law that guided taxation in Nigeria the ordinance of 1917, 1918 and 1928 were later incorporated into direct taxation ordinance No. 4 of 1940, which repealed the native revenue ordinance. In 1957, there was the Raisman commission; Raisman’s recommendation was the basis for providing the subsection one of section 70 of the Nigeria (Constitution) order in council of 1960 and exclusive power upon parliament to make laws for Nigeria or any part of therefore with respect to taxes on the income and profit of companies, while subsection (ii) and (iii) conferred concurrent powers upon parliament to make laws for Nigeria or any part therefore with respect certain uniform principles in respect or to personal income tax.
However, taxation has been used as a tool by government in fashioning various aspects of our economic growth. It is pertinent to note that the incursion of the military into the body politics in Nigeria state at intervals between the first and now fourth republic since 1966 when taxation was placed on the exclusive and concurrent list of the constitution has left the issue very much at the back burners. This means that the importance of taxation as a state economic weapon failed at various times to attract the desired attention in terms of consistent review reform and or implementation policies etc.
Nearly, fifty year after, it is therefore not surprising that Nigeria is yet to appreciate the fundamental of taxation; hence what is in place even now could at best be described as ad hoc committee and commission charged with realizing various task objectives.
Today it is valid to posit that, apart from the provision of money or defence, security, education, industry, culture, social and other economic infrastructure, taxation serve as a variable too of fiscal policy. It is used to objective of fiscal policy. That is, mobilization and allocation of resources to desired productive sector of the macro-economy; (ie) distribution of income and wealth among different groups of citizens; and stabilization effect of market forces on prices, employment, and balance of payment amongst others.
Increased taxation on imported goods and services have affected the level of such goods and services that industrialist within our sovereignty are encouraged to produce. And because of high import duty on dairy products, textile materials, food drinks etc; our economic potentials are encouraged through industrial investment locally and its multiplier effect on employment and national growth. In this line also, high tax rate imposed on imposed on imported components of oil industrial inputs and the encouragement of local content in oil industry input area all geared towards increasing economic growth of our country.
Over the period with the advent of democracy and effective tax management put in place, a substantial measure of macro-economic stability has been achieved. For the first time in Nigeria’s recent history, value of Naira has not fluctuated so badly but fairly stabilized. The level of inflation is now under control as a result of stable macro-economic policies. It is worthy of note that there is significant improvement in industrial capacity utilization as a result of improvement in electricity with tax payers money that industries were able to remit taxes as at when due. Also, there has been remarkable improvement in non-oil sectors, capital market, education, transports, electricity and steel sector etc.
The institution of taxation is more or less a permanent feature of any state or country, which requires a degree of popular acceptance as well as sound administrative structure capable of regular assessment and collection by the operations. Investigate reveals that revenue from taxation often fall short of expectation and besides this; the administration of tax is faced with so many constraints that it requires re-examination periodically for purposes of maximizing the gains from that sector in order to reflect a better economic development.
Consequently tax administration results in increases revenue yield, but this is not possible because of the presence of tax evasion and a voidance due to loopholes in the law. On the other hand, people do expect and rightly so, that for sacrificing their private resources to the state in form of taxes, government is expected to reciprocate by spending public revenue in a way that will enhance their welfare.
But government and tax collectors have been dubiously mismanaging the public treasury. Another problem is the presence of persons regarded as above the laws and they do not pay taxes. These groups of persons can call the sacred cows. They make so much money and have enormous influence, which they throw around negatively.
These sacred cows are not bordered about paying their dues. There is also the presence of professional touts who connive with unscrupulous tax officers in government offices to falsify records of those willing to evade taxes. Sometime even the police aid and abate the activities of these criminals openly. Also, there is high level of manipulation and diversion of tax revenue by collectors to satisfy their own personal aggrandizement. The encouragement of the paying public due to the fact that there is very little evidence to show for taxes collected. For these reasons therefore, there is an increased cases of tax evasion.
Empirical evidence on the relationship between other fiscal policy tools and economic growths exist but such evidence on the relationship between taxation and economic growth is lacking. Hence the choice for this topic to fill the existing gap.
Exhaustive investigation into taxation and economic growth in Nigeria can play an important role in propelling our environment in the right direction while also consolidating our efforts in investment and economic independence. Every citizen and corporate organization should see taxation as a responsibility and sacrifices as his/her own little way of contributing to our great nation. At this juncture, it’s important to state that economic growth and economic development will be used interchangeably.
To meet the general objective of the study the following areas of specification were considered.
i.      To critically evaluate the utilization of tax revenue in the provision of basic infrastructures.
ii.     To investigate and analyze the problems militating against effective tax administration.
iii.    To analyze the impact of tax revenue on the growth of the economy.
iv.    To review of the administrative machinery of the Rivers State Board of Internal Revenue.
In order to have a direct and approach to carrying out the study, the following research questions were drawn. They include,
i.      To what extent does personal income tax influence tax revenue?
ii.     To what extent does economic growth affect gross domestic investment?
iii.    To what extent doe taxation respond to the measures taken by government to improve economic growth?
iv.    What are the impact of taxation on investment in particular and the growth of the economy generally?

To conduct this study the following hypotheses have been posited
H01: b1= 0 There is no significant relationship between economic growth and personal income tax.
H02: b1=0 There is no significant relationship between economic growth and VAT.
H03: b1=0 There is no significant relationship between economic growth and withholding tax.
H04: b1=0 There is no significant relationship between economic growth and other taxes.
The result of the study i.e. taxation and economic growth, and investigation of Nigeria’s experience will provide basic panacea for effective tax system and economic growth in Nigeria. Virtually, this study will analyze the vital role of taxation and its contribution to economic growth. With an efficient tax system in place, in the economic potentials of the nation becomes realizable and guaranteed on a fast lane since tax reforms if properly implemented, will increases resources at both the disposal of government and individuals which in turn translate to benefit in terms and will create a better stock of knowledge for tax consultants and tax managers in their quest for tax reform. It is imperative at this juncture that the study provides ingredient for awareness of taxation which will go a long way to educate the society on strategies for investment drive in addition to all else.
Secondly, occasional reviews of best fitted tax management approaches make for inclusive of new knowledge in the tent. Such new knowledge will keep investors, government, students and the general public abreast with current research findings that guarantees continuity of sustainable investment in our economy.
The following concepts/ terms have been defined in relevance to the context in which they were used in this work.
Tax: This is an obligation and transfer of resources from the private to the public sector in other to accomplish some of the nation’s economic and social goals.
Administration: Is that part of management which is concerned with the installation and carrying out of the procedures by which the programme laid down are communicated and the progress of activities is regulated and checked against plans.
Taxation: This is the transfer of resources from the private to the public in accomplish some of the nation’s economic and social goals.
Economy: Is the collection of all productive activities in the society.
Economic Growth/Development: It refers to the increase overtime of an economy’s capacity to produce those goods and services needed to improve the wellbeing of the citizen in increasing numbers of diversity.
Tax Rate: This refers to the percentage of the net value of the tax base.
As usual with most research work, time and finance is one of the challenges of this research work.
Since tax control and administration is the responsibility of the Federal Republic of Nigeria, through its agencies like Federal Board of Inland Revenue, Central Bank of Nigeria, Federal Office of Statistics, Department of Petroleum Resource, Customs and Immigrations etc, a lot will be borrowed from them and using the Rivers State Government as a study tool, I shall beam my searchlight on the Rivers State Board of Internal Revenue during the field work. I will also scoop several tax materials concerning Nigeria in the library to aid my research.
This study is drawn into five chapters. Chapter one is more or less an introductory chapter, which dwells on context of the problem, statement of the problem, purpose of the study, research questions, hypotheses, significance of the study, definition of terms, limitations and scope of the study, and the organization of the study.
Chapter two is the review of related literature. It studies how tax and economic development are congruently required for our national growth, through a literature review which explains empirical evidence of already published books by scholars both theoretically and practically.
Chapter three focuses on research design, sampling procedure/sample size determination, method of data collection, also test of validity and reliability, operational measures of the variables and data analysis technique(s).
Chapter four dwells on presentation and analysis of data on taxation and economic growth.
Finally, the analysis are being discussed, conclusion(s) made and recommendation made.