THE TAX SYSTEM IN NIGERIA IN RELATION TO ECONOMICGROWTH
ABSTRACT
This study investigated the tax system in Nigeria in relation to growth. The specific objectives include; to examine the relationship between state government tax revenue and Economic growth, to examine the relationship between Local government tax revenue and Economic growth and also to examine the relationship between Federal government tax revenue and Economic growth.
The population of this study comprises of the state government tax revenue, local government tax revenue and federal government tax revenue. Data collected was analyzed using the panel regression and the method of estimation was least square estimation techniques
From the hypothesis tested, it was showed that there exist a significant relationship between the state government tax revenue and economic growth, local government tax revenue and economic growth and Federal government tax revenue and Economic growth in Nigeria. The study also discover that there exist an inverse relationship between the state government tax revenue and Economic growth in Nigeria. This implies that when tax rate increases, it brings down economic growth. The Local government tax revenue and economic growth has a direct relationship. This means that when the local government tax rate increases, economic growth will also increase. At the federal government level, the tax revenue has an inverse growth relationship with economic growth. This implies that when tax rate increases, it brings down economic growth.
CHAPTER ONE
INTRODUCTION
1.1    Background to the Study
Since the creation and existence of man,there has been increasing needs for the provision of social amenities. The quest for the satisfaction of these needs has led authorities and governments to source for means of raising funds.
Tax as a means of raising fund,no doubt,plays very critical role in government revenue generation. In some advanced democracies or countries.  The earliest trace of any form of 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.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. In 1914 when Northern and Southern Nigeria were amalgamated the then Governor- general deemed it necessary to extend the system of direct taxation which had been in existence in the north to the south part of the country provinces for fear of disturbance. As regard to this, direct taxation was not introduced in Eastern part until 1927 Resistance to this form of direct taxation in this area was such that it led to riot notably in Calabar, Owerri and famous Aba women riot of 1929 which was so severe that it attracted a probe into it. They were later modified and incorporated into the Direct taxation ordinance No. 29 of 1943 respectively. The direct taxation ordinance 1940 empowered native authorities to tax Africans in their area of jurisdiction while the income tax ordinance 1943 was for the taxation of non-Africans and companies. These two ordinances were the foundation of our modern taxation.
Tax according to longman dictionary of contemporary English is defined as “an amount that must be paid to government according to your income, property, goods etc and that is used to pay for public services”. There are basically two types of tax, they are direct taxes and indirect taxes. Direct taxes includes; personal income tax(PIT),poll tax ,company tax, capital gain tax(CGT) etc. while indirect taxes includes import and export duties, excise duty, value added tax(VAT) etc.
Taxation plays a crucial role in promoting economic activity and growth. Through taxation, government ensures that resources are channeled towards important projects in the society, while giving succor to the weak. Unfortunately, in today’s Nigeria, the economic development is nothing to write home about. The role of taxation in promoting economic activity and growth is not felt, primarily because of its poor administration.
In the view of Ayua(1996),”tax administration has to be revamped while refunds of taxes as well as duty draws backs administration are inefficient. This study seeks to evaluate the impact of government tax revenue on economic growth in Nigeria.
1.2    Statement of Research Problems
It is the duty of the government of any country to provide its citizens with those basic amenities that will make life enjoyable for them. This is because individuals cannot single handedly provide amenities for themselves. The provision of these basic amenities can only be possible through taxation.
Tax from time immemorial has been a powerful agent or instrument for revenue generation considering the efficiency of taxation. Taxation is the major problem that obstructs the maximum collection of taxes from individuals and groups. Though it could also be accepted that improper revenue collection methods and shortage of manpower and facilities hinder the efficiency of the taxation system. This deprives the tax of the government that is due and drastically reduces revenue generated from taxes. Due to this, the amount available for the provision of necessary social and economic activities are also reduced and finally results in governments inability to provide the citizens with the basic necessities of life.In Nigeria, the government’s fiscal power is based on a three-tiered tax structure i.e. the Federal, State and Local Governments, each of which has different tax jurisdictions. In 2002, about 40 different taxes and levies are shared by all three levels of government.
The first need of any modern government is to generate enough revenue which is indeed “the breath of its nostril”. Thus taxation is by far the most significant source of revenue for the government.Arnold (2011) asserted that economic growth will increase if more savings are channeled into the activity with high productivity while reducing the risk associated with liquidity needs. This shows that banks provide the benefit of eliminating Overview of Tax System in Nigeria.
Odusola (2006) stated that Nigeria’s tax system is characterized by unnecessary complexity, distortion and largely inequitable tax laws that have limited application in the informal sector that dominates the economy. This study seeks to examine the significant influence of government tax revenue on economic growth in Nigeria.
1.3    Research Questions
The problems that this research tries to find answers to include the following:
1.    What is the relationship between state government tax revenue and economic growth?
2.    What is the relationship between local government tax revenue and economic growth?
3.    What is the relationship between federal government tax revenue and economic growth?
1.4    Objectives of theStudy
    The general objective of the study is to assess the tax system in Nigeria in relation to growth.The specific objectives include;
To examine the relationship between state government tax revenue and Economic growth.
To examine the relationship between Local government tax revenue and Economic growth.
To examine the relationship between Federal government tax revenue and Economic growth.
1.5      Research Hypothesis
    1.    Ho:    There is no significant relationship between state government tax revenue and economic growth
        H1:    There is significant relationship between state government tax revenue and economic growth
    2.    Ho:    There is no significant relationship between local government tax revenue and economic growth
        H1:    There is significant relationship between local government tax revenue and economic growth
     3.        Ho:    There is no significant relationship between federal government tax revenue and economic growth
        H1: There is significant relationship between federal government tax revenue and economic growth.
1.6    Significance of theStudy
The essence of this research work is to examine government tax revenue and economic growth in Nigeria. Thus, this study will at a wide range be of great benefit to the local, state and federal governments as it will highlight the effect of taxation on the economy.
This study would also be of benefit to employers and employees of the various Inland Revenue services who have been experiencing incorporation of tax payers by not paying taxes regularly.
It would also be of immense benefits to students of higher learning who may wish to carryout research on the similar topic.  
1.7    Scope of theStudy
The scope of the study will cover the effect of tax revenue on economic growth in Nigeria. The length of period covered by this study will be between 1981-2013.
1.8    Limitations to theStudy
The study is not immune to some constrainable forces that are capable of downplaying the result of the study but not sufficient enough to undermine the reliability of the information provided. Getting the required secondary data was a major constraint.
1.9    Definition of Terms
It is pertinent to consider the use of a number of terms in the course of this study. Many of which are familiar to layman but very much peculiar to taxation laws and it’s often misused or misinterpreted.
(1)    Tax Evasion: Tax evasion is a deliberate act on the part of the tax payer not to pay tax due. It is a criminal offence on the part of tax payer.
(2)     Revenue: This is the income of a government from taxation, excise duties, customs or other sources, appropriated to the payment of the public expenses.
(3)      Tax: It is defined as an amount that must be paid to government according to your income, property, goods etc and that is used to pay for public services.
(4)    Tax Administration: This means the development and formulation of federal tax policy relating to existing or proposed internal revenue laws and conventions. It includes; assessment, collection and enforcement.
(5)  Economic growth;An increase in the amount of goods and services produced per head of population over a period of time.
(6)   GDP; This stands for Gross domestic product and it  is the monetary value of all of a nation’s goods and services produced within a nation’s border and within a particular period of time