Effective and Efficient Tax Policy A Tool for Resuscitation of Nigerian Economy
1.1 BACKGROUND OF THE STUDY
An operation becomes effective when it achieves the desired goal. It becomes efficient when the goal was achieved at a minimum cost. Policies are formulated to control functions so as to conform to desired target. Indeed, the economy of any given nation grows when the population growth is accompanied by positive net capital formation and the relationship between the latter and the growth of output is given by assumed constant incremental capital output ratio. Tax functions include:
- To generate revenue for government to carry out its business,
- To restrain consumption so that amount of investment needed for non inflationary growth can be undertaken
- To do the above 2 in such a way that consumption of high income groups is restrained more proportionately, than consumption of the lower income groups. If these tasks are successfully performed, economic growth will take place and the distribution of income should be improved. These kind of taxes required in these cases are direct taxes, progressive expenditure taxes supported by gift taxes. Taxation, rather than natural resources, such as oil, ought to be the central instrument of state economic policy in Nigeria – as it is in truly modern democratic states, 1 Sven Steinmo (2011), Taxation and Democracy, New Haven.
Tax, a compulsory levy imposed on taxable persons within a given domain or society by the authority that governs the same society has become an instrument of control and revenue generation in the hands of the authorities concerned. Historically, tax was invented to finance public projects like wars and provision of essential public infrastructures. Lord Keynes had it that tax policy is key to economic restructuring and development. Tax policy involves the determination of goals, objectives, strategies, priorities and frame work reflected in formally adopted tax planned document. Nigeria is much a consuming nation rather than a productive one. The Nigerian economy tends to mono economic one, heavily dependent on oil which is not even processed in Nigeria.
The Gross Domestic product and other economic indicators show Nigeria economy to be a weak one. The GDP though recently shown to be high cannot portray how well off Nigerian standard of living is, hence very negligible number of Nigerian live in affluence while much great percentage of the Nigerians living below poverty line. Such critical economic indicators like power supply, employment rate, inflation, mortality rate, etc. score Nigerian economy very low.
There is low propensity to save, no clear future and hopelessness stare on the majority of Nigerian faces. The above suggests how weak Nigeria economy appears, though there appears significant improvement in the general economy recently. There is need for better economic planning. With proper economic planning the economy of Nigeria must boost. At the core of economic planning is effective and efficient tax policy. There are the raw materials, abundant human resources and abundant natural resources. Tax could restructure the economy of Nigerian when the functional tax policy is seen to be in place.
1.2 STATEMENT OF PROBLEMS
National Tax policy is seen as document which spelt out issues on tax, taxations and all matters concerning tax.
Nigerian economy is slow at shaping up. This is caused by domestic debts, high inflation, corruption, resulting in high poverty level. Business Eye. Pg 22, 32 and 39 Sept. 2012
Revenue from personal and corporate tax contribute about ¾ of Federal Revenue, Samuelson (2002)
US Federal Budget Receipts from taxes amounts to 95% in 2003. Hoffman, Smith, Willis (2004).
Former UN Sec. Gen. Kofi Annan, has said that tax avoidance and murky deals by major international firms are depriving African states of $10 billion each year, Abota, Sun Newspaper June 24th, 2013.
Money laundering and tax evasion have become a norm especially among the companies owned by Asian; in Nigeria – Sun Newspaper 28th June 2013 pg 19
Poor legal framework on the tax could bring about poor yield from tax. Absence of effective and efficient tax structure brings about low compliance to tax. Also poor accounting records and corruption could bring about poor yield from tax
Low revenue contributions from tax as results of the above factors ultimately lead to Government not having enough money to finance its bills. This can directly result in low economic development. Functional national tax policy can go a long way in assisting Nigerian economy grow and meet the needs of Nigerians.
- OBJECTIVE OF THE STUDY
The main objective of the study is to access the effectiveness and efficiency of the current Nigerian tax policy in resuscitating the Nigerian economy, vide its increased revenue generation which would provide revenue for Government to do its business. Other sub-themes in the objective are:
- To evaluate the capacity of the new tax policy in significantly improving the growth/development of the Nigerian economy in relation to Gross Domestic Products.
- To access the capacity of the new tax policy in increasing the revenue in relation to federal government demand for capital expenditure (for construction, health etc).
- To compare the compliance rate of the tax payer before and after the adoption of the new tax policy in Nigeria as would show in greater revenue generation to better the lives of the whole Nigerians.
- HYPOTHESES OF THE STUDY
- The performance of tax as a result of new tax policy does not have corresponding positive impact on the Nigerian Gross Domestic Product.
- The revenue generation from tax as a result of new tax policy does not have positive impact on the Federal Capital Expenditure (for capital formation).
- The revenue generation from tax as a result of new tax policy cannot improve or bring about increase in per capita income of Nigerians.
- RESEARCH QUESTIONS
- To what extent can the new tax policy significantly improve the growth/development of the Nigerian economy?
- To what extent does the new tax policy increase tax collection in Nigeria?
- Is there any significant difference between the level of compliance by the tax payers before and after the adoption of the current tax policy in Nigeria?
- Does the increase in revenue generation if any positively impact on Nation’s Gross Domestic Product, Federal Capital Expenditure and Per Capita Income.
1.6 SCOPE OF THE STUDY
The research is on the Tax Policy on individual Income tax, company tax, Petroleum Profit tax, Value Added tax and other tax areas. It covers revenue generation from tax for a gap of 2004 – 2012. This is to ascertain the revenue contribution to National development.
Such development indicators that affect the economy like GDP, quality of life, investment are looked into to see the growth and investment in Nigerian Economy. This is to see the impact of tax in improving the economy of Nigeria
- SIGNIFICANT OF THE STUDY
The research is significant to two categories of interest namely practical and academic significant.
The research would expose what need to be known, the area of improvement to tax administrators and tax payer. The tax payers would find the research very useful as good model approaches to issue on tax is documented. The State Inland Revenue Services and Federal Inland Revenue Services will find the tax guide well exposed and relevant to them in their duties. The tax advisors and taxpayers would use the research work as guide for tax planning.
In the field of academic, the research would contribute as a body of knowledge for the students in the field of taxation.
It offers a good guide for further studies in the area. It would assist young research personal get more exposed in the area of tax. It can be a point of reference for other research purposes.
1.8 OPERATIONAL DEFINITION OF TERMS
Tax – compulsory levy imposed on eligible person/s in a given society by the Government or authority of that society or country.
Tax Policy – This is tax guide, the modus operand on tax aimed at attaining the goal set up by the government machinery.
Merit Wants – These are staple food needed to keep a laborer alive. It is no more than a daily bread only enough to keep a being minimally functional in a day.
Effective – the ability to achieve a goal not considering the cost or commensurate benefit or advantage.
Efficient – the ability to produce a result under such minimum cost so that the end result is very advantageous.
Economic growth – this is a state where capital formation is in consonance with population growth such that the output is assumed constant incremental capital ratio in growth.
Mono Economic – the state of economy where there is heavy reliance on one line of business or heavy reliance on a line of product/service.
Gross Domestic Product – the total value of goods and services produced by a given country.
Fiscal Policy – the way a government attempt to manage the economy through taxation, spending and borrowing.
Investment: the act of investing money into an economic activity to boost the economy or boost productivity.