ABSTRACT
This research work is been designed to untold the effect of Taxation on the Economy of Nigeria. The aim and objective is to find out if taxation constitutes significant impart as an instrument for control of money in circulation such as the effect on the rapid rise in price on Revenue, Expenditure and credit; the extent to which the tax system may be effective in preventing or combating an inflation; And how taxation can be used to breach the vicious circles of poverty, to find out if taxation can be used to industrialize a developing economy like Nigeria. The research instrument used for data collection was questionnaire which contained 15 items. The data collected were analyzed through the use of percentage. From the findings, it was discovered that taxation can help in regulating the level of money in circulation and can be used to combated inflation and also breach the wide gap between the rich and the poor. Based on the finding, recommendations were made which the researcher hope would help to understand that taxation can be used as an instrument of control of money in circulation.
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TABLE OF CONTENT
Title Page … … … … … … … … … i
Declaration … … … … … … … … … ii
Approval Page … … … … … … … … iii
Dedication … … … … … … … … iv
Acknowledgment … … … … … … … v
Abstract … … … … … … … … … vi
Table of Contents … … … … … … … vii
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study … … … … … 1
1.2 Statement of the Problem … … … … … 2
1.3 Objective of the Study … … … … … 3
1.4 Research Questions … … … … … … 4
1.5 Research Hypothesis … … … … … 4
1.6 Significant of the Study … … … … … 5
1.7 Scope and Limitation of Study … … … … 6
1.8 Definition of Terms … … … … … … 6
References … … … … … … … 8
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Meaning and Nature of Taxation … … … 9
2.2 History of Taxation in Nigeria … … … … 11
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2.3 Theory of Taxation … … … … … … 15
2.4 Origin of Taxation in Nigeria … … … … 17
2.5 Taxation and Fiscal Regulations in Nigeria … … 18
2.6 Current Taxation Reforms in Nigeria … … 21
2.7 Challenges of the Draft National Tax Policy … 23
2.8 Overview of Taxation System in Nigeria … … 25
2.9 Challenges of Tax Administration and
Collection in Nigeria … … … … … … 28
2.10 Tax System in Nigeria has Undergone Challenges.. 30
2.11 Tax Administration across the Globe …. … 32
2.12 Economic and Social Effects of Taxation … … 34
2.13 The Economy of Nigeria – an Overview … … 36
2.14 Types of Taxation … … … … … … 38
2.15 Principles of Taxation … … … … … 50
2.16 Administration of Income Tax … … … … 52
2.17 The Effect of Production and Distribution … … 53
2.18 Taxation as a Regulator of Consumption
and Savings … … … … … … … … 55
2.19 Taxation as a Regulator or Combating Inflation … 56
2.20 Tax effects on investment and efficiency … … 56
2.21 Taxation as a Means of Providing Social Amenities 58
2.22 Taxation and the Establishment of Industries … 59
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2.23 Taxation and the Development of
Egalitarian Society … … … … … … 60
2.24 Open Market Operations … … … … … 62
References … … … … … … … 64
CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY
3.1 Research Design and Method … … … … 66
3.2 Sources of Data … … … … … … 66
3.2.1 Questionnaire … … … … … … … 66
3.2.2. Interview … … … … … … … 67
3.2.3 Observation … … … … … … … 67
3.3 Population and Determination of Simple Size … 67
3.4 Validity of the Instruments … … … … 67
3.5 Sample of the Study … … … … … … 68
3.6 Method of Investigation … … … … … 70
References … … … … … … … 73
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Data Presentation and Analysis … … … 74
4.2 Test of Hypothesis … … … … … … 84
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
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5.1 Summary of Findings … … … … … 90
5.2 Conclusions … … … … … … … 91
5.3 Recommendation … … … … … … … 92
Bibliography … … … … … … … 94
Appendix 1 … … … … … … … 96
Appendix II … … … … … … … 97
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Government, all over the world needs tax to fund and control
their economic activities and one of source of revenue is taxation.
Taxation can be variously defined. Fundamentally however, it is a
compulsory levy on income since the decision to pay tax is not that
of the tax payers. According to Amaechina (1998:9), “taxation has
been defined as a levy which a government imposes on the income
of the citizens or corporation in a state for which the government
gives no direct benefit to the taxpayer” or “a non-punitive but yet a
compulsory levy by government on the properties and income of
individual and corporation”. The government cannot build a school
or a hospital personally for somebody because he has paid his
taxes, but the money realized is used to finance general government
expenditures.
The existence of taxation in Nigeria is linked with the era of
the colonial master in the early 20th century. The introduction
becomes necessary as a result of the enormous tasks facing the
government.
In Nigeria, tax system has undergone significant changes in
recent times. The tax laws are being reviewed with the aim of
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repelling of obsolete provision and simplifying the main ones. Under
current Nigeria law, taxation is enforced by the tiers of government
that is local, state and federal government.
The tasks have to do with how government can control its
economic activities and how government can achieve the desired
level of price inflation and deflation and how to control supply of
money.
1.2 STATEMENT OF THE PROBLEM
The project titled effectiveness of taxation as an instrument for
control of money in circulation is aimed at determining the nature
of taxation and how it can be used to control the supply of money
and regulate the economic activities in our country.
It is obvious that Nigeria being one of the developing nations of
the world is seriously faced with series of problems which includes;
i. The extent in which the tax system has been inactive or
ineffective in preventing or combating inflation.
ii. The probable effects of a rapid rise in prices on revenues and
expenditure.
iii. The vicious circles of poverty (i.e. the gap between the rich and
poor in too wide).
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1.3 OBJECTIVE OF THE STUDY
To critically examine the reasons for taxation as an instrument
of money control and its effects on government and its citizens, and
its general effects on the Nigeria economy with regards to political,
social and economic development of our country.
In this case government has to meet the desired standard of
living and cost of living of the citizens and adopt a suitable level of
economy to boast investors and improve natural output.
For the purpose of this study, the following objectives are
expected to be attained:
i. To determine how tax system can be effective in preventing
and combating inflation.
ii. To ascertain the extent on which revenue and expenditure are
probable effects of a rapid rise in prices.
iii. To determine and to use tax system to breach the vicious
circles of poverty on our country.
1.4 RESEARCH QUESTIONS
In order to achieve the objective highlighted above, the
following research questions were formulated as follows:
i. In what ways can tax be used to effectively prevent or/and
combat inflation?
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ii. The effectiveness of rapid rises in prices on revenues and
expenditure
iii. The effect of vicious circles of poverty in Nigeria economy.
1.5 RESEARCH HYPOTHESES
HI: The extent to which tax system is inactive and ineffective in
preventing and combating inflation.
HO: The extent to which tax system is not inactive and ineffective
in preventing and combating inflation.
HI: There is significant effect of a rapid rises in prices on
revenues and expenditure.
HO: There is no significant effect of a rapid rises in prices on
revenue and expenditure.
HI: There is significant effect on tax system and supply of
money with the vicious circles of poverty.
HO: There is no significant effect on tax system and the supply of
money with the vicious circles of poverty.
1.6 SIGNIFICANCE OF THE STUDY
The study is important in such that:
i. The outcome of this study would enhance the ability of the
students offering course in taxation to understand the
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subject properly and help the researcher to obtain the
award of Master Decree in Accountancy.
ii. The study would serve as an information bank for future
research in the area of taxation.
iii. The findings of this research would help government officials
to utilize taxation in achieving desired goals.
iv. It shall also serve as an eye opener to government of the
present time that taxation can be used as economic tool for
the control of money in circulation in order to avoid
inflation, control high cost of living and low standard of
living.
1.7 SCOPE AND LIMITATION OF THE STUDY
This topic, the effectiveness of taxation as an instrument for
control of money in circulation should been expected to cover
Nigeria (i.e. Thirty six (36) states and the FCT) but decided to limit it
to some states of the federation, since the economy of every state of
the federation is the same and the same tax Act is applied
throughout the Federal Republic of Nigeria.
Due to financial handicap, distance (Landmass) and the
constraints and the attitude of the respondents, most of them were
either not available or incorrectly completed the questionnaire given
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to them. The irrational behavior of human beings who react
differently as same were willing to give the needed information,
other were reluctant or refused to co-operate even under several
persuasion.
1.8 DEFINITION OF TERMS
Some technical term, which features in this work are defined
to enhance letter understanding of the research work.
Taxation: Taxation refers to compulsory levy imposed on private,
individual, institutions or groups by the government.
Tax: Tax is the money paid by the citizens, according to their
income, value of goods purchased etc to the government
for public purposes.
Financial Handicap: This means shortage of money for an activity.
Tax Payer: People, group of people or companies that pays tax.
Vicious Circle: It is a situation in which one problem leads to
another, which then makes the first one worse.
Inflation: This is when there are to much money in circulation.
