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THE IMPACT
OF TAX ON GOVERNMENT CAPITAL EXPENDITURE AND ECONOMIC GROWTH IN NIGERIA
A Tax is a
fee charged or levied by a government on a product, income, or activity. If it
is levied directly on personal or corporate income, it is called a direct tax.
If it is levied on the price of a good or service, then it is called an
indirect tax. The main reason for taxation is to finance government expenditure
and to redistribute wealth which translates to financing development of the
country (Ola, 2001 Jhingan, 2004, Musgrave and Musgrave, 2004. Bhartia, 2009).
Whether the taxes collected are enough to finance the development of the country
will depend on the needs of the country and. countries can seek alternative
sources of revenue to finance sustainable development (Unegbu and Irefin.
2011).
Government
collects taxes in order lo provide an efficient and steadily expanding
non-revenue yielding services, such as infrastructure-education, health,
communications system etc, employment opportunities and essential public
services (such as the maintenance of laws and order) irrespective of the
prevailing ideology or the political system of a particular nation.
Tax is also
the nexus between state and its citizens, and tax revenues are the lifeblood of
the social contract. The very act of taxation has profoundly beneficial effects
in fostering better and more accountable government (Tax Justice Network (TJN)S
revenue 2012). 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 us an instrument of fiscal policy to achieve economic growth in most
less develops countries cannot be reliable because of dwindling level of
revenue generation.
Consequent
upon this, changing or fine-tuning tax rates has been used to influence or
achieve macroeconomic stability, A critical examples of governments that have
influenced their economic development through revenue from tax are; Canada.
United States, Nethcriand. United Kingdom. They derive substantial revenue from
Company Income tax. Value Added Tax. Import Duties and have used same to create
prosperity (Qluba 2008),
A
significant share of the tax revenue increase in Africa stems from natural
resource taxes. This included income from production sharing, royalties, and
corporate income tax on oil and mining companies (Pfister, 2009). Nigeria is a
developing country whose major export is mainly crude oil. Also endow with
other natural resources such as; natural gas, lin. iron ore. coal, limestone,
lead, zinc and arable land (Economy Watch, 2011). A& a sovereign nation,
Nigeria has a land mass that covers about 923. 768 £q km and have a population
of about 149,229,090.
According to
Tran (200K), emerging economies are nations that have large territories and
populations; and they are undertaking extraordinary development projects that
call for new infrastructure, such as power-generating plants and
telecommunications systems. Also, United Nations (20(15) asserts that,
achieving the Millennium Development Goals (MDGs)} for instance, low-income
countries (LICs) arc required to increase their domestic revenues by around 4
percent of the GDP. Also, to meet the MDGs, OECD countries have been urged to
raise their level of aid to LICs to about 0.7 percent of their Gross National
Income - but this is as nothing when compared to potential tax revenues. The
infrastructural developments demand a lot of resources and funding. In many
rich countries, tax constitutes 30-40 percent of the GDP (Golit. 2008 and TIN,
2012). Nigeria with a budget of N4,97 trillion for the year 2011, representing
12% increase of 2010 annual budget ( Uneghu and Irefin, 2011) shows that
taxation is one of the ways of funding infrastructural developments specified
in the budget.
The tax base
in Nigeria since had been on the increase in order to mobilize the resources
needed to execute infrastructure project. According lo Kaldor (3963), those who
believe that insufficient growth and investment is mainly a consequence of a
lack of resources arc chiefly concerned with increasing the resources available
for investment through additional taxation. The availability and mobilization
of tax is the fundamental factor on which an economic development is sustained
and managed. As noted by TIN (3012), tax is the most important, the most
beneficial, and the most sustainable source of finance for development. Tax in
Africa, for example, is worth ten limes the value of foreign aid. The long-term
goal of poor countries must be to replace foreign aid dependency with tax
self-reliance. However, in Nigeria the contribution of tax has not been
encouraging, thus expectations of government are being cm short.
Corruption,
evasion, avoidance and lax haven indicators arc strongly associated with low
revenue (Attila, Chambas, and Combes, 2U08) and indeed, corruption functions
like a tax itself.
According to
Adegbie and Fakile. 2C11), the more citizens lack knowledge or education about
taxation in the country, the greater the desire and the opportunities for tax
evasion, avoidance and non-compliance with relevant lax laws. In this respect,
the country will be more adversely affected because of absence of tax
conscience on the part of individuals and the companies and the (allure of tax
administration to recognize the importance of communication and dialogue
between the government and the citizens in matters relating to taxation.
In the face
of resource deficiency in financing long term development, Nigeria has heavily
resorted to foreign capital, such loans and aid as the primary means to achieve
rapid economic growth. Thereby accumulate huge external debt in relation to
gross domestic product and serious debt servicing problems in terms of foreign
exchange flow and, as such majority of the populace live in abject poverty.
Government has expressed concern over these and has vowed to expand taxation in
order to meeting its mandate. Kiabel and Nvokah (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
taxation, Also, Ndekwu (1991) noted that, more than ever before, there is now a
great demand for the optimization of revenue from various tax sources in
Nigeria. This probably influenced the decision of the Federal Government of
Nigeria (FGN), which in 1991 set up a Study Group on the Review of the Nigerian
Tax System and Administration.
Also, that
an accurate estimation of the optimal level of expenditure requires knowledge
of the productivity of the tax system and that it will assist in identifying a
sustainable revenue profile for the country. As noted by IMF (cited in TJM,
2012): ''Developing countries must be able to raise the revenues required to
finance the services demanded by their citizens and the infrastructure
(physical and social) that will enable them to move out of poverty. Taxation
will play the key role in this revenue mobilization.
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