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1.0     Introduction

One of the major functions of the government especially developing countries such as Nigeria is the provision of infrastructural services such as electricity, schools, hospitals, pipe-borne water, good roads and as well as ensure a rise in per-capital 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/organizations to augment government financial position is essential.

To this end, government have always enacted various tax laws and reformed existing ones to stand the taste of time. These laws include: Income Tax Management Act (ITMA), Companies Income Tax Decree (CITD) etc.

All these are aimed at ensuring adherence to tax payment and discouraging tax evasion and avoidance. For the purpose of this study, the researchers would be concerned with the impact of taxation on Nigeria economy.

The Nigerian Tax System has undergone significant changes in recent times. The Tax Laws are being reviewed with the aim of repelling obsolete provisions and simplifying the main ones. Under current Nigerian law, tax revenue is enforced by the 3 tiers of Government, which are Federal, State, and Local Government with each having its sphere clearly spelt out in the Taxes and Levies Act, 1998.

The whole essence of tax revenue is to generate revenue to advance the welfare of the people of a nation with focus on promoting economic growth and development of a country through the provision of basic amenities for improved public services via proper administrative system, and structures. Tax revenue plays a crucial role in promoting economic activity growth and development. Through tax revenue, government ensures that resources are channeled towards important projects in the society, while giving succor to the weak. The role of tax revenue in promoting economic activity and growth may not be felt if poorly administered. This calls for a need for proper examination of the relationship between revenue generated from taxes and the economy, to enable proper policy formulation and strategy towards its efficiency. According to Olashore (1999), the Nigerian economy has remained in a deep slumber with macroeconomic indicators reflecting an economy in dire need of rejuvenation, revival and indeed radical reform. Also in the view of Oni (1998), tax administration needs to be revamped and refunds of taxes as well as duty drawbacks administration are inefficient.

A critical challenge before tax administration in the 21st century Nigeria is to advance the frontiers of professionalism, accountability and awareness of the general public on the imperatives and benefits of tax revenue in our personal and business lives which include: promoting economic activity; facilitating savings and investment; and generating strategic competitive advantage. If tax administration does not for any reason meet the above challenges, then there is a desperate need for reform in the area of the tax regime, and in the administration of taxes.

A country‘s tax system is a major determinant of other macroeconomic indexes, specifically, for both developed and developing economies; there exists a relationship between tax structure and the level of economic growth and development. Indeed, it has been argued that the level of economic growth has a very strong impact on a country‘‘s tax base (Kiabel, 2009, and Vincent, 2001), and tax policy objectives vary with the stages of development. Similarly, the economic criteria by which a tax structure is to be judged and the relative importance of each tax source vary over time (Vincent, 2001). For example, during the colonial era and immediately after the Nigeria‘‘s political independence in 1960, the sole objective of tax revenue was to raise revenue. Later on, emphasis shifted to the infant industries protection and income redistribution objectives. In his discussion of the relationship between tax structure and economic development, (Vincent, 2001) divided the period of economic development into two, the early period when an economy is relatively underdeveloped and the later period when the economy is developed. During the early period, there is limited scope for the use of direct taxes because the majority of the populace resides in the rural areas and is engaged in subsistence agriculture. Because their incomes are difficult to estimate, tax assessment at this stage is based on presumptions prone to wide margins of error.

Tax revenue is a powerful tool of economic reform and a major player in every economy of the world. It is never static but dynamic and should reflect current realities prevailing in the economy. The tax system is an opportunity for government to collect additional revenue besides other sources of income, which is needed in discharging its pressing obligations. A good system of tax also offers itself as one of the most effective means of mobilizing a nation’s internal resources and it lends itself to creating enabling and conducive environment to the promotion of economic growth and development (Ogbonna, 2010).

Further, the rudimentary nature of the economy precludes retail form of taxes. At this stage also, taxes are difficult to collect because of the lack of skills and facilities for tax administration (Kiabel, 2009). Given this, a complicated tax structure is not feasible and the amount of revenue from personal income tax will depend on taxpayers ‘‘compliance and the efficiency of the tax collector. An important source of government revenue during the early stage of economic development is the foreign trade sector because exports and imports are readily identifiable and they pass through few ports. However, revenue from export and custom duties is not stable because of periodic fluctuations in the prices of primary products. This tends to complicate plan implementation in many developing countries (Kiabel, 2009).

Tax revenue mobilization as a source for financing development activities in Nigeria has been a difficult issue primarily because of various forms of resistance, such as evasion, avoidance and corrupt practices attending to it. These activities are considered as sabotaging the economy and are readily presented as reasons for the underdevelopment of the country. (Adegbie et al, 2010:2). Government exists in order to effectively collect taxes from available economic resources and make use of same to create economic prosperity such that available and willing human  and  other  resources  are  gainfully employed,  infrastructures  provided,  essential public services (such as the maintenance of law and order) are put in place etc. Tax resistance only makes the development process unattainable. (Onairobi, 1998). It could be deduced that changing or fine-tuning, tax rates is used to influence or achieve macroeconomic stability. Some of the most recently cited examples are the governments of Canada, United States, Netherland, United Kingdom, who derive substantial revenue from Company Income tax, Value Added Tax, Import Duties and have used same to create prosperity (Adegbie et al, 2010:3). Thus it can be said that the economic development of a country depends on various reasons one of which is the presence of an effective and efficient tax revenue policy. In Nigeria the contribution of tax revenue has not met the expectations of Government. Government has equally expressed this disappointment and has accordingly vowed to expand the non-oil tax revenue. (Festus and Samuel, 2007). It is in the light of the foregoing that this study examines the extent to which the tax system has contributed to economic growth of Nigeria.

1.1     Background of Study

The earliest trace of any form of direct taxation in Nigeria even before the British Administration was in Northern Nigeria. The North was favored for this because it had a form of organized central administration under the Emirs unlike the south which except in few places in the west was not as organized. Furthermore, the Muslin religion adhered to by the people approved of taxation as being consistent with the demand of Islam. Thus taxes such as Zakka, Gada, Kindin, Kararat and Jangoli which were typical forms of taxes on agricultural products and livestock.

With the coming of the British and their consequent colonization of Nigeria they took advantage of tax system that was existing in the Northern part of the country to introduce direct taxation into the area since that was the only alternative available to them to arise fund to administer the region.

Taxation is the system of raising money in form of taxes paid by the citizens of the country in return for the services rendered by the government.

It could be recalled that taxation is instituted by God, this is traced back to “Mattew chapter 22 vs. 17-21”, when the Pharisees asked Jesus whether it is lawful to pay taxes or not. The Pharisees were later told render therefore to Caesars the things that are Caesar’s and to God the things that are to God.

According to  Lekan .S. etal (2006), tax was described and not defined in the statues, but according to Cambridge international dictionary of English, it is “an amount of money paid to the government usually a percentage (%) of personal income or company profits”.

According to Okpe I.I (2000) tax is the transfer of resources and income from the private sector to the public sector  in order to achieve some of the nation’s economic and social goals.

Taxation is universally accepted as a powerful tool in the hands of any government to raise income for its services and to ensure equitable distribution of income among its citizens.

Therefore, in every modern communities, a large amount of taxation is necessary for a public expenditure increases to promote social progress, taxation which is the main sources of funds also increases.

The present tax laws in Nigeria emanated from the Raismais commission in 1957. Before this time we only had what was called the income tax ordinance for the colonies and which was rather common in all the colonies and the provisions were very  similar. Raim’s recommendation was the basis of provision in the Nigerian constitution order council of 1960 section 70(1) which conferred an exclusive power upon the parliament to make laws for Nigeria or any part thereof with certain uniform principles in respect of personnel income tax.

During 1963 when Nigeria became a republic, the mid-western region was created out of the western region and they adopted the western region tax law accordingly with the amendments, the position under the republican constitution of 1963 and that the regions (now divided into states) assumed jurisdiction over the income tax of person other than companies. While the federal government assumed jurisdiction over the taxation of companies, the uniform principles under the income tax management act and the regional taxes in the federal territory of Lagos.

Thus, after the creation of former 12 states in 27th may 1967, the state assumed the tax laws of the regions in which they were before the creation of such states. The uniform principle covered by the income tax management act of 1961 were as follows:

(i)      Specifies what income are exempted from tax.

(ii)     What constitute income for tax purposes.

(iii)    Upholds residence on the basis for taxation or in the alternative, the principal place of business.

(iv)    And recently prescribed the rates of tax and personal reliefs.

Nigeria as a nation has the vision of becoming one among the world’s 20 largest economies in the year 2020; this obviously is the brain behind the priority attention the present administration is directing at infrastructural development which is essential for economic growth. A developed economy is one with the ingredient to stimulate investment and create wealth, this by implication offers an atmosphere that is business friendly and has the potentials for the actualization of the vision 2020.The desired outcome requires a lot of money to put the economy in a position that stimulates investment, therefore, tax policies need to attract potential investors, and the revenue from tax should be sufficient enough to meet the infrastructural expenditures of the government. Apere (2003) notes that taxation is a microeconomic and fiscal policy instrument; it involves the transfer of resources from the private to the public sector for the accomplishment of economic and social goals. It is an instrument the government uses to measure, access and control the informal sector that dominate developing economies of the world (Wambaiand Hanga, 2013).

Development is a sine qua non for modern civilization. In order to carryout development at all nooks and crannies of the society, it is the responsibility of the Benue State Government to provide direct development to people to a certain level. Development is associated with funds and much revenue is needed to plan, execute and maintain infrastructures at the state level. The needed revenue generated for such developmental   projects, like construction of accessible roads, building of public schools, health care centres, construction of bridges are generated from taxes, royalties, haulages ,fines, and grants from the states, national and international governments. These funds could either be obtained internally or externally. Thus, the Benue State Government cannot embark, execute and possibly carryout the maintenance of these projects without adequate revenue generation or taxation.

The Benue state government announced its decision to spend N390b ($3 billion) on infrastructural development in the state over the next couple of years. Speaking during the town hall meeting of the Benue State Internal Revenue Service (BIRS) for market associations, general merchants, skilled technicians among others, the Governor of Benue State, Mr Georgie Akume disclosed that huge funds are required to put in place the necessary infrastructure that will make life easier in the state.

He said, “The project on the agenda of the state government requires huge funding. Over the next two decades, Benue State needs to spend at least N390 billion ($3 billion) annually to expand and improve its water supply network. N2.6 trillion ($20 billion) to provide qualitative and efficient network of roads and drainage;  N1.3 trillion ($10 billion) for power supply; N650 billion ($5 billion) for information and computer technology; and N1.2 trillion ($9.3 billion) for inter-modal transportation system.”

To this end, he called on the artisan and other professionals in the state to ensure they pay their tax so that the government can meet up with plans to develop and improving on social amenities in the state.

He disclosed that the state government has put in place measures that will check tax evasion and ensure that individuals and corporate organizations pay the right tax. He noted that the new revenue administration law of the state provides for tax clearance check before any individual or corporate body is allowed to do business with, obtain any license or enjoy other benefits from the state government.

Revenue generation in Nigeria’s local government is principally derived from TAX. Therefore, taxation is an internal source of government revenue within the domestic economy. Its collection and service to the government depends largely on the government itself. Taxation has been described in many ways and for the purpose of this study it will be seen as compulsory levy imposed on a subject or upon his property by the government having authority over his property through its agencies with the aim of providing, maintaining and improving social facilities in the communities at large and for which the tax payer has no quid pro que.

1.2     Statement of Problem

The first need of any modern government is to generate enough revenue which is indeed “the breath of its nostrils”. Thus, taxation is by far one the most significant source of revenue for the government. Nigerians regard payment of tax as a means through which government raises revenue on herself at the expense of their sweat.

It is good to note that no taxation succeeds without the tax payers’ co-operation. Here, we can ask some thought – provoking questions such as:

–     What makes taxation such a difficult issue?

–     Why do people feel cheated when it comes to tax?

–     Is government making judicious use of taxpayers’ money?

There is a general lack of consensus among scholars on the contribution of tax revenue to the economic growth of nations. For instance, whereas Ariyo (1997) in his study on productivity of the Nigerian tax system documented a satisfactory level of productivity of the tax system before the oil boom, Festus and Samuel (2007) established that the role of tax revenue in promoting economic activities and growth is not felt in Nigeria. The two studies reflect that the oil boom has not improved the economic state of the country since before the boom, there was a level satisfactory and after the boom, the growth of economic activities deteriorated. The emergence of oil as a major tax revenue is one of the means a country‘s government devises in solving the economic problems of the country and to enhance government expenditure which is expected to be beneficial to the citizens of such country through the provision of social and economic infrastructures (Adereti et al 2011). In Nigeria, this has not been the case because despite the tax revenue and expenditure reported year in year out by the government, the physical state of the nation in terms of infrastructure and social amenities is backward. This is evident in the lack of electricity supply, portable drinking water, basic health care delivery, bad roads, just to mention but a few.

The gap in terms of the period covered is also a contributory factor to the disparity in the outcomes of relationship between tax revenue and an economy. The advent of the oil boom encouraged some laxity in the management of non-oil revenue sources like the company income tax and custom and excise duties. This calls for an urgent need in the improvement of the tax system to enhance the evaluation of the performance and facilitate adequate macroeconomic planning and implementation (Adereti et al 2011).

Bonu and Pedro (2009) investigated the impact of income tax rates (ITR) on the economic development of Botswana which shows that the impact of income tax revenue over the nations GDP is not impressive in developing nations. This calls for the need to further investigate the current tax performance vis-à-vis the Nigerian economy.

There is high incidence of tax evasion and avoidance by tax payers. This may affect the amount of revenue collectible by the government for the running of administration.

Furthermore, it is hoped that people were wrongly assessed and the assessment sometimes result to regressive taxation.

1.3     Objective of Study

The general objective of the study is to assess the effect that taxation has towards the development/growth/provision Benue state and on infrastructure inBenue state.

However, the specific objective of the study includes:

i.                   To highlight the effects of poor revenue generation through taxation on the development of Benue State.

ii.                 How poor infrastructures has contributed to so many loss of lives in Benue state.

iii.              To highlight the importance of training of tax personnel as a means for effective and lasting solution to the problem of revenue generation and taxation

iv.              To suggest important policy tools that can be used to in generating revenue through taxation that will be effective.

1.4     Research Question

This study will examine the effects of revenue generation on infrastructural development in Benue State by providing answers to the following research questions:

v.                 What are the impacts of poor revenue generation on the development of Lagos State?

vi.              Has poor infrastructures contributed to the loss of lives?

vii.            To what extent is the training of tax personnel the only effective and lasting solution to the problem  of revenue generation?

viii.         To what extent has the various policy tools used in generating revenue being effective?

1.5     Research Hypothesis

To determine whether internal revenue is being generated effectively in Benue State and if adequately used for infrastructural development, the following hypothesis would be tested:

H0: Effective internal revenue generation leads to the development of infrastructure.

H1: Effective internal revenue generation does not lead to the development of infrastructure.

H0: There is internal control measures put in place to ensure effective utilization of revenue generated.

H1: There is no internal control measures put in place to ensure effective utilization of revenue generated.

H0: There are significant relations on effective taxation on government provision for infrastructure in Benue State

H1: There are no significant relations on effective taxation on government provision for infrastructure in Benue State

1.6     Significance of the Study

One of the most frequently discussed issues in Nigeria is how to solve the economic hardship in the country and how to create an industrial base that can guarantee self-sustaining economic development. Also one wonders why a country which is richly endowed with the necessary human and material resources and which the people pay tax has been turned a heavily indebted country.  The topic “taxation and its effects to development”, will educate the entire public on how the federation could encourage economic development and also how a reduced tax could promote the standard of living and also promote the industrial development of the nation and Benue state in particular.

The study will afford us the opportunity to:

i.            Know the roles taxation play in the Nigerian economy.

ii.           Ascertain how government has been using tax generated revenue.

iii.         The study will also reveal if there are other better sources of government funding.

1.7 Scope and Delimitation.

This topic, the effectiveness of taxation on government provision for infrastructure for Benue state a study of BIRSshould have been expected to cover all the 16 local government of Benue State but the writer intends to limit this topic to only MakurdiLGA due to financial handicap, distance and time constraints.

Therefore, since the same tax Acts are applied throughout the federation Republic of Nigeria, the study of Makurdi-Benue tax system shall be deemed to serve other LGA in the state. Thus, the writer will rely heavily on the board of internal Revenue since they have adequate information and data on the government of Benue state of Nigeria.

Since there are often changes in the tax laws of Acts both at the state and federal level of government, the writer may wish to visit the chief inspector of taxes of some urban and rural areas in Makurdi in other to confirm the information or data so collected from the Board of Internal Revenue.

1.7     Definition of Terms

Tax: A compulsory levy by the government on its citizens for the provision of public goods and services.

Tax Base: The object which is taxed for instance personal income, company profit.

Tax incidence: This is the effect and where the burden of taxation is finally rested.

FBIRS: (Federal Board of Inland Revenue Services): It is an operational arm of Federal Board of Inland Revenue which is responsible for the Federal Tax Matters.

CITA:  (Company Income Tax Act) It is a Federal Law operated by the FIRS, which deals with the taxation of all limited liability companies in Nigeria with the exception of those engaged in petroleum operations.

JTB: (Joint Tax Board) Is established under section 85 (2) of Decree of 104 of 1993 to arbitrate on tax disputes between one state tax authority and another.

VAT: (Value Added Tax) is a multistage tax levied and collected on transactions at all stages of sales and distribution.

CGTA: (Capital Gain Tax Act) is an act that stipulates that all capital gains arising on disposal of assets of individuals, partnership and limited companies should be taxed.

PPTA: (Petroleum Profit Tax Act) is an act that regulates the petroleum profit tax and also specifies how profit from petroleum will be taxed.

Withholding Tax: This is tax charged on investment income namely: rents, interest, royalties and dividends. Presently it is charged as the tax offset.

Progressive Tax: This is a tax incidence that increases as the size of income increases.

Regressive Tax: A tax is regressive when its tax rate decreases as the income increases.

Excise Duties: They are taxes levied on some goods manufactured within a country.

Persons: It includes all taxable persons be it individual or corporate bodies.



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