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EFFECT OF TAX REFORM ON REVENUE PRODUCTIVITY IN NIGERIA
Abstract:
The study examines the impact of tax reforms on the economic growth of Nigeria To achieve the objective of the study, relevant secondary data were collected from the Central Bank of Nigeria (CBN) Statistical Bulletin, Federal Inland Revenue Service (FIRS), Office of the Accountant General of the Federation, and other relevant government agencies. The data collected were analysed using relevant
descriptive statistics and econometric models such as White test, Ramsey RESET test, Breusch Godfrey test, Jacque Berra test, Augmented Dickey Fuller test, Johansen test, and Granger Causality test. The results from the various test shows that tax reforms is positively and significantly related to economic growth and that tax
reforms granger cause economic growth. On the basis of the findings, the study concluded that tax reforms improves the revenue generating machinery of government to undertake socially desirable expenditure that will translate to economic growth in real output and per capita basis. However, it was recommended that sustainable
economic growth cannot be attained with tax reform processes except obsolete tax laws and rates are reviewed in line with macro economic objectives, corrupt-free and efficient tax administrative machinery with
personnel’s and accountability and transparency of government officials in the management of tax revenue.
CHAPTER ONE
1.1 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 tax system is an opportunity for government to collect additional revenue needed in discharging its pressing
obligations. A tax system 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. It on the account of this lopsided revenue structure that tax experts and scholars stated in clear terms that the Nigerian tax system need to be reformed to achieve long term economic growth and development.
1.2 Significance of the study
Tax is a compulsory levy imposed on a subject or upon his property by the government to provide security, social amenities and create conditions for the economic well-being of the society (Appah, 2004; Appah and Oyandonghan, 2011). Anyanfo (1996) and Anyanwu
(1997) stated that tax are imposed to regulate the production of certain goods and services, protection of infant industries, control business and curb inflation, reduce income inequalities etc. Tosun and Abizadeh
(2005) say taxes are used as proxy for fiscal policy. They outlined five possible mechanisms by which taxes can affect economic growth. First, taxes can inhibit investment rate through such taxes as corporate and
personal income, capital gain taxes. Second, taxes can slow down growth in labour supply by disposing labourleisure choice in favour of leisure. Third, tax policy can affect productivity growth through its discouraging effect on research and development expenditures. Fourth, taxes can lead to a flow of resources to other sectors that may
have lower productivity. Finally, high taxes on labour supply can distort the efficient use of human capital high tax burdens even though they have high social productivity. Engen and Skinner (1996) suggest that a
number of recent theoretical studies have used endogenous growth models to stimulate the effects of a fundamental tax reform on economic growth. All these studies conclude that reducing the distorting effects of the current tax structure would permanently increase growth.
1.3 Statement of the problem
Tax is a major source of government revenue all over the world. Government use tax proceeds to render their traditional functions, such as the provision of public goods, maintenance of law and order, defense against external aggression, regulation of trade and business to
ensure social and economic maintenance (Azubike, 2009).
Musgrave and Musgrave (2004) also stated that the economic effects of tax include micro effects on the distribution of income and efficiency of resource use as well as macro effect on the level of capacity output,
employment, prices, and growth. However, the use of tax as an instrument of fiscal policy cannot be achieved because of dwindling level of revenue generated as a result of ineffectiveness of government officials. Kiabel and Nwokah (2009) argue that the increasing cost of
running government coupled with the dwindling revenue has left all tiers of government in Nigeria with formulating strategies to improve the revenue base. Tax is dynamic, so reforms are necessary to effect the required changes in the national economy (Ola, 2001). Azubike
(2009) noted that tax reform is an ongoing process with tax policy makers and tax administrators continually adopting the tax systems to reflect changing economic, social and political circumstances in the economy.
1.4 Objectives of the study
Therefore, the objective of this study is to examine the
impact of tax reforms on revenue productivity in Nigeria
1.5 Research Questions
1. Will tax reforms have a significant impact on revenue productivity in Nigeria
2. Is there a relationship between tax reforms and revenue productivity in Nigeria
1.6 Hypothesis
H1: Tax reforms have a significant impact on revenue productivity in Nigeria
H2: There is a relationship between tax reforms and revenue productivity in Nigeria
1.7 Limitations of the study
Uncooperative respondents, limited time and funds were the limitations encountered in the course of the research.
TABLE OF CONTENT:
CHAPTER ONE
INTRODUCTION
- Background of the Study
- Statement of the Research Problem
- Objectives of the Study
- Significance of the Study
- Research Questions
- Research Hypothesis
- Conceptual and Operational Definition
- Assumptions
- Limitations of the Study
CHAPTER TWO
LITERATURE REVIEW
- Sources of Literature
- The Review
- Summary of Literature Review
CHAPTER THREE
RESEARCH METHODOLOGY
- Research Method
- Research Design
- Research Sample
- Measuring Instrument
- Data Collection
- Data Analysis
- Expected Result
CHAPTER FOUR
DATA ANALYSIS AND RESULTS
- Data Analysis
- Results
- Discussion
CHAPTER FIVE
SUMMARY AND RECOMMENDATIONS
- Summary
- Recommendations for Further Study
References
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