AN EXAMINATION OF TAX REVENUE AND ECONOMIC GROWTH IN NIGERIA 1981-2014
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The Nigerian government, like other countries of the world, has legislative powers to impose on its citizens, any form of tax and at whatever rate it deems appropriate. Nigeria has a mixed economy i.e, government undertakes commercial investments alongside the private sector. Economists generally agree that there is a need for minimal direct government intervention through fiscal policies and instruments such as taxation, public expenditure and regulation. Thingan (1995) argues that the most potent fiscal instrument is taxation which facilitates reduction of private consumption, increasing investment and transferring resources to the government for economic development. Therefore, taxation is a compulsory levy imposed by government to defray the cost of governance and communal services. Oloyede (2010) adds that tax facilitates resources re-allocation, promotion of social equity through wealth distribution which enhances economic growth and development and ensures economic stability by correcting and controlling macroeconomic (both policy induced or exogenous) shocks. Aguolu(2004) posits that on the side of capitalist economic policies, the government leaves much of the commercial ventures in the private individuals. Due to certainty, universality and convenience taxation is seen to be the salient source of revenue to the government. In a social economy, only a small percentage of revenue may be derived from taxation while in a capitalist oriented economy, a greater percentage of government revenue is derivable from taxation. The income gotten from investments, due to failure of government companies or private companies (in which government holds substantial investments) may be disrupted. In nutshell, there is need for repositioning of the nation’s taxsystem by the policy makers and academia.
Having Nigeria as a monolithic economy filled with full dependent on the oil sector has made the economy open to external manipulation and adversely disrupts the planning in the country. Taxation is the only non-exhaustible veritable source of revenue to government while oil is an exhaustible resource. According to Adamu (2008), tax is invariably on enforced contribution of money, exact pursuit to legislative authority. Note that a fine or a penalty is not a tax; not even when the tax is imposed by a tax statute for this reason penalty for wrong parking traffic offences etc. are not taxes. Also a charge imposed for services, rendered, property hired or goods sold are not a tax. Fees payable for parking vehicles public toilets usage, night soil contracts, sewage clearing etc. are therefore nothing but payment of services. If there is no valid authority by which it is imposed, a charge is not a tax but once it is backed by written law and it has the other characteristics of a tax, it remains a tax even if it is called a toll, tribute toll gate, customs etc. In detecting a tax, it is better to look to essential characteristics rather than its name.
 This study wishes to view the impact of tax revenue on economic growth in Nigeria and to ascertain detrimental impact on totally generated revenue from taxation. It will simply draw a line between tax revenue and economic growth in Nigeria; it shall also look at tax history, objective, laws and regulations, classification, procedure for enforcement, offences for non-compliances, and role in economic development, issues and challenges of tax system in Nigeria.
1.2 STATEMENT OF THE RESEARCH PROBLEM
Tax revenue collection is one significant issue of economic development among others. It has been said that ‘what the government gives it must first take away’. The economic resources available to society are limited, and so an increase in government expenditure normally means a reduction in private spending. Taxation is one method of transferring resources from the private to the public sector, but there are others i.e. creation of more money, to charge for the goods and services it provides or to borrow.
Taxation has its limits as well, but they considerably exceed the amounts that can be raised by resorting to the printing press, charging consumers directly, or borrowing. So while governments often use all four methods of raising resources, taxation is usually by far the most important source of government revenue.
There are a number of reasons about the fall in the tax-to-GDP ratio in Nigeria. The first is the loss of growth momentum of the economy, especially of large-scale manufacturing and imports, which constitute the primary tax bases in the economy. This has implied a low marginal tax-to-GDP ratio, which has resulted over time a fall in the average tax-to-GDP ratio. The second explanation is related to revenue losses resulting from the ongoing tax reforms in the country during the decade of the 90’s, especially the process of trade liberalization which has involved major reductions in statutory rates of import tariffs. Finally, there is a strong perception that there has been a systemic decline in the quality of tax administration and in the face of growing evasion and corruption; it is argued that the incidence of taxes has effectively declined.
The concept of paying taxes, be it federal or state, is relatively foreign to many Nigerians. Unlike some parts of the world where almost everyone, regardless of their position or income pays some form of income or revenue or property taxes on a regular basis, the effectiveness of taxation in Nigeria has been affected by the following problems in the study.
The research questions form a critical identification of the problems stated above and they include:  
1.    What is the impact of personal income tax on economic growth in Nigeria?
2.    What is the effect of company income tax on economic growth in Nigeria?
3.    What is the impact of value added tax on economic growth in Nigeria?
4.    What is the effect of petroleum profit tax on economic growth in Nigeria?
1.3 OBJECTIVES OF THE STUDY
The main objective of this study is to ascertain the impact of tax revenue on economic growth in Nigeria. The specific objective of this study are to:
1.    Determine the impact of personal income tax on economic growth in Nigeria.
2.     Investigate the effect of company income tax impact on economic growth in Nigeria.
3.    Ascertain the impact of value added tax on economic growth in Nigeria.
4.    Examine the impact of petroleum profit tax on economic growth in Nigeria.
1.5 HYPOTHESES OF THE STUDY
Our hypotheses for this study are as follows;
1.    Personal income tax does not have significant impact on economic growth in Nigeria.  
2.    Company income tax does not have significant impact on economic growth in Nigeria.  
3.    Value added tax does not significantly affect economic growth in Nigeria.
4.    Petroleum profit tax does not significantly affect economic growth in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The researcher views the government tax official and the student as the relevant target group to this study.  The government tax officials will derive benefits from the study as it shows how relevant they are and the need to generate more revenue with its beneficial effect on the economy.  The study will enrich the research resources in Nigeria. The students stand to benefit a lot from the research.  
It is expected that this study would consolidate existing literature on the issues around tax revenue and economic growth in Nigeria. This has become necessary resulting from various criticisms as the topic has received from several stakeholders and other individuals especially various amendment policies and its implementation in recent times. Hence this study will contribute immensely in this regards. Also, the study will be useful to auditors, citizenry, users of financial reports, regulators, management and indeed all stakeholders as it will provide an appropriate conceptual framework on the issues relating to tax revenue in Nigeria. The outcome of this study would aid policy makers and regulatory bodies in the formulation of policies to enhance proper personal income tax system and merge the gap of income inequalities in Nigeria. Finally, it is also expected that the results of this study would provide motivation for further studies.
1.7 SCOPE AND LIMITATION OF THE STUDY
The scope of the study is limited to an examination of tax revenue and economic growth in Nigeria. The data covers the period from 1981to 2014. The choice of the time frame was based on the availability of time series data for the research. The study is constrained by difficulties in retrieving secondary data.