DEVELOPMENTAL IMPACT OF INDIRECT TAX ON NIGERIA ECONOMY
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DEVELOPMENTAL IMPACT OF INDIRECT TAX ON NIGERIA ECONOMY
Chapter two.
REVIEW OF RELATED LITERATURE.
Economic Growth in Nigeria
Fiscal policy is one of the most essential tools for influencing economic indicators such as GDP, inflation, and unemployment. Credit flows and fiscal policy are found to play an important impact in setting trade balances.
The Nigerian government has gradually increased its control over the private sector by levying differential taxes and subsidies, increasing industrial prices relative to farm prices, favouring investment in key sectors
providing tariff and tax incentives to vital sectors, protecting favoured industrial establishments from foreign competition, awarding import licences to selected firms and industries, and providing foreign exchange to priority enterprises at below-market exchange rates.
According to Emmanuel (2010), the realisation came to Nigeria’s government at a critical time when its main source of revenue (oil) has been experiencing an unparalleled crisis and decrease due to a general drop in oil prices on the international market for decades.
This had an impact on the country’s overall revenue and the general performance of the government at many levels, particularly in terms of capital project execution, which is critical to national growth.
According to Muriithi and Moyi (2003), an effective tax system should be capable of generating money for the government, redistributing income, and providing investment infrastructure that will ensure corporate success and economic progress.
The government’s enabling environment fosters the development of new businesses, while the survival of existing businesses and the infrastructures provided is a crucial factor of political, economic, and social A well-structured tax system provides the government with the funds it requires for capital (infrastructure) and recurring (administrative) expenditures
which contribute significantly to economic growth and development. Thus, taxation can be viewed as a fiscal policy, macroeconomic, and internal revenue mobilisation tool for achieving economic growth.
Ogbonna and Ebimobowei (2012) use descriptive statistics and econometric analysis to investigate the impact of tax reforms on Nigerian economic growth. They discovered that certain tax reforms have a positive and significant relationship with economic growth, and that tax reforms promote economic growth.
This means that tax reforms strengthen the government’s revenue-generating apparatus, allowing it to undertake socially acceptable expenditures that will result in economic development in terms of real output and per capita.
Anichebe (2013) conducted a study on the impact of taxes on economic growth in Nigeria from 1986 to 2010. He discovered that there is a considerable association between tax composition and economic growth.
Umoru and Anyiwe (2013) investigate the impact of tax structure on economic growth in Nigeria. They used empirical estimate approaches such as cointegration and error correction, as well as a disaggregation strategy.
They discovered that direct taxes is significantly and positively connected with economic growth, whereas indirect taxation had a negligible negative impact on growth.
2.2 Taxation in Nigeria.
Taxation in Nigeria is imposed by three layers of government: federal, state, and municipal, with each having a clearly defined area in the Taxes and Levies (authorised list for collection) Decree of 1998.
However, Nigeria has a largely centralised revenue collection system, with the federal government collecting the majority of revenue (petroleum revenue – profit taxes, royalties, crude oil sales; company income tax, value added tax, customs and excise duties) on behalf of the constituent governments (Emmanuel, 2010).
Anyanwu (1997) defines a tax as a mandatory levy imposed by the government on persons, businesses, goods, and services in order to generate revenue for its operations and achieve social fairness through the redistribution of income effect of taxes.
According to this viewpoint, taxation is a source of government revenue in which individuals and corporations are forced to pay a portion of their revenues to the government for development purposes.
Furthermore, Bhatia (2003) defined tax as a mandatory levy paid by an economic unit to the government without any matching entitlement to obtain a specific and direct benefit from the government.
Note that the term “direct” does not refer to a price paid by the taxpayer for a specific service done or a commodity supplied by the government. Rather, it means that the government’s benefits to taxpayers are unrelated to or depending on the taxes they pay.
This means that tax is a broad exaction that can be imposed on individuals, groups, or legal entities based on one or more factors.
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