CAPITAL GAINS TAX AND THE NIGERIAN ECONOMY
ABSTRACT
The objective of this study is to determine the impact of capital gains tax on the Nigerian economy.
The research design used in the study was time series. The secondary data used in this research were gotten from Central Bank of Nigeria (CBN), Statistical Bulletin of 2014 and from the Federal Inland Revenue Service, Abuja. Regression was done on the data using Ordinary Least Square (OLS) econometric technique. Capital gains tax and total revenue were the independent variables and economic growth (GDP) was the dependent variable in this research.
It was revealed that capital gains tax has a negative and significant relationship with the economic growth at 5% level of significance while capital gains tax has a positive insignificant relationship with total revenue at 5% level of significance. The results also showed that capital gains tax administration which is FIRS has been effective in the administration of capital gains tax in Nigeria.
Table of Content
CHAPTER ONE: INTRODUCTION                    
BACKGROUND OF THE STUDY             
STATEMENT OF THE PROBLEM                 
RESEARCH QUESTIONS                    
RESEARCH OBJECTIVES                         
RESEARCH HYPOTHESIS                           
SCOPE OF THE STUDY                                 
SIGNIFICANCE OF THE STUDY                 
DEFINITION OF TERMS                         
CHAPTER TWO: LITERATURE REVIEW
2.1 INTRODUCTION                     
2.2 CONCEPT AND NATURE OF TAXATION            
2.3 TAX SYSTEM IN NIGERIA                     
2.3.1 FEATURES OF THE NIGERIAN TAX SYSTEM        
2.4 TAX POLICY                         
2.5 TAX LAWS                        
2.6 TAX ADMINISTRATION             
2.6.1PROBLEMS OF TAX ADMINISTRATION IN NIGERIA         
2.7 NIGERIA AND FISCAL FEDERALISM     
2.8 THE PRINCIPLES OF TAXATION            
2.9 DIRECT AND INDIRECT TAX            
2.10 OBJECTIVES OF TAXATION                
2.11 SOCIO-ECONOMIC IMPLICATION OF TAXATION    
2.11.1 UTILISATION OF TAXATION AS AN INSTRUMENT OF
FISCAL POLICY                        
2.11.2 TAXATION AS A TOOL FOR WEALTH CREATION AND
EMPLOYMENT                    
2.11.3 THE ROLE OF TAXATION ON ECONOMIC AND SOCIAL
SUSTAINABILITY                        
2.12 GOVERNMENT REVENUE GENERATION        
2.12.1 NIGERIA’S MAJOR TAXES                
2.13 CAPITAL GAINS TAX AND ECONOMIC GROWTH    
2.14 CAPITAL GAINS TAX AND ECONOMIC DEVELOPMENT    
2.15 NATURE AND JUSTIFICATION FOR CAPITAL GAINS TAX    
2.16 CAPITAL GAINS TAX AND TOTAL REVENUE        
2.17 EFFECTIVENESS OF CAPITAL GAINS TAX        
2.18 RATE OF TAX AND EXEMPTIONS FROM CAPITAL GAINS TAX        
2.19 CAPITAL GAINS TAX ADMINISTRATION AND APPLICATION            
2.20 REASONS FOR POOR PERFORMANCE OF CAPITAL GAIN
TAX IN NIGERIA                        
2.21 THEORETICAL FRAMEWORK            
2.21.1 THE PRODUCTION FUNCTION            
2.21.2 THE GROWTH OF LABOUR FORCE            
2.21.3 CAPITAL ACCUMULATION                
2.21.4 THE GROWTH PROCESS                    
CHAPTER THREE: METHODOLOGY
3.1 INTRODUCTION                         
3.2 THE RESEARCH DESIGN                     
3.3 SOURCES OF DATA                         
3.4 MODEL SPECIFICATION                     
3.5 OPERATIONALZATION OF VARIABLES                
3.6 DATA ANALYSIS METHOD                    
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS OF
EMPIRICAL FINDINGS
4.1 INTRODUCTION                         
4.2 DATA PRESENTATION                      
4.3 DATA ANALYSIS AND RESULT                
4.3.1 RELATIONSHIP BETWEEN RGDP AND CGT        
4.3.2 RELATIONSHIP BETWEEN TOTAL REVENUE AND CGT    
4.3.3 EFFECTIVENESS OF CAPITAL GAINS TAX
ADMINISTRATION                        
CHAPTER FIVE: SUMMARY, FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 SUMMARY OF FINDINGS                     
5.2 DISCUSSION OF FINDINGS                    
5.3 RECOMMENDATIONS                        
5.4 CONCLUSION                         
BIBLIOGRAPHY                        
APPENDIX                         
CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
The serious decline in price of oil in recent years has led to a reduction in the funds available for distribution to the Federal, State and Local governments. The need for state and  local  governments  to  generate  sufficient  revenue  from  internal  sources  has therefore  become  a  matter  of  extreme  urgency  and  significance.  This  need underscores the eagerness on the part of state and local governments and even the federal government to look for new sources of revenue or to become aggressive and innovative in the mode of gathering revenue from existing sources. Globally, government is saddled with the responsibility of providing some basic infrastructures for her citizens. Among these are the provisions of schools, hospitals, construction roads, bridges, railway lines, airports and seaports. More so is the security of the life and properties of the citizens in the country against foreign and or local aggression.  
Taxation is basically the process of collecting taxes within a particular location. In this regard, tax  has  been  defined  as  “a  monetary  charge imposed by the government on persons, entities, transactions or properties to yield revenue”• Capital Gains Tax –  is tax imposed on capital gains  derived  from  sale  or  disposal  of chargeable assets. Meaning that when an asset is sold or disposed, the profit made from this transaction will be a capital gain and therefore should be taxed, the tax rate for capital gains is legally set at 10%, while VAT is 5%, Company Income Tax 30%, Education Tax 2%. Taxes are a good source of alternative revenue for government in running the affairs of the economy and promoting the social well being of the nation.
 Given the difficulties of taxing capital gains as they accrue, capital gains are taxed as they are realized (that is, when the capital asset is sold or exchanged). Capital assets are property, but there are exceptions such as business inventory, accounts receivable acquired in the ordinary course of business, copyrights, and literary compositions.
    Capital gains are calculated by subtracting the asset’s basis from the sales price. An asset’s basis is the original purchase price adjusted for certain additions and deductions; it is not adjusted for inflation. If the basis is greater than the sales price then it is a capital loss.
STATEMENT OF RESEARCH PROBLEM
Although  tax  evasion  and  avoidance  are  problems that  face  every  tax  system,  the  Nigerian  situation seems  unique  when  viewed  against  the  scale  of corrupt  practices  prevalent  in  Nigeria.  Under  direct taxation  as  practiced  in  Nigeria,  the  major problem lies in the collection of the taxes especially from  the  self-employed  such  as  the  businessmen,contractors,  professional  practitioners  like  lawyers,  doctors,  accountants,  architects  and  traders  in  shops among  others, it is observed that these persons blatantly refuse to pay tax by reporting losses every  year.  Accordingly, many of these professionals  live  a  lifestyle  inconsistent  with reported income, which is usually unrealistically low for the nature of their businesses. Civil Servants and their salaried workers are the only class of people that actually  pay  tax  in  Nigeria. In the light of the recent fall in petroleum product price, the Nigerian economy has suffered a great setback as government can hardly pay workers salary or even pursue other development project. This, however, calls for a more strict tax administration especially in the area of Capital Gain Tax which is most time difficult for effective administration. Effective administration of Capital Gain Tax in Nigeria will help reduce inequality in the society, promote redistribution of income, increase government revenue, reduce the disparity between budget and actual revenue to the government and eventually promote economic stability.
Over the years, revenue derived from taxes has been very low and no physical development actually took place, hence the impact on the poor is not been felt.  
Intuitively, we expect that sustained increase in output in an economy over time (growth) will lead to higher tax revenue, including those due from capital gains tax. In the same vein, tax revenue if judiciously utilized can help kick start or initiate the process of economic growth.
The literature is fairly saturated with empirical evidence on the relationship between government revenue and economic growth, both from developed and developing economies.
However, to the best of our knowledge, there is scarcity of empirical evidence on the relationship between capital gains tax (as a component of aggregate tax revenue) and economic growth, especially in developing countries like Nigeria. This study is motivated by the need to  fill this gap in knowledge.
1.3    RESEARCH QUESTIONS
What is the relationship between capital gains tax and total revenue?
What is the relationship between budget and actual revenue in the effectiveness of capital gain tax administration in Nigeria?
What is the relationship between capital gain tax and the economy (GDP)?
1.4    RESEARCH OBJECTIVES
The objectives of this study include;
To investigate the relationship between capital gains tax and total revenue.
To evaluate the relationship between budget and actual revenue in the effectiveness of capital gain tax administration in Nigerian.
To examine the relationship between capital gain tax and the economy (GDP).
1.5    RESEARCH HYPOTHESES
Our research hypotheses formulated for this study are stated in their null form. These include;
There is no relationship between capital gain tax and total revenue.
There is no relationship between budget and actual revenue in the effectiveness of capital gain tax administration in Nigeria.
There is no relationship between capital gain tax and the economy (GDP)
1.6    SCOPE OF THE STUDY
    The administration of capital gains tax is under the Federal Board of Inland Revenue in the federal territory and under the State Inland Revenue Service of various states in the country. The time frame of this study ranges from 2009 and 2014. The geographical scope of the study covers the whole Nigeria.
1.7    SIGNIFICANCE OF THE STUDY
Government: capital gain tax is one of the revenue sources of government and knowing the trend of its effective administration will help the government increase its annual revenue.
Regulatory Authority: the authority will gain a better insight into ways to better administration of capital gain tax and right policies to put in place for its achievement.
Economy: a good understanding of the relevance of effective administration of capital gain tax will help stabilize the economy by redistribution of income so as to reduce inequality in the economic system.
Researchers: other researchers both for academic and non-academic purpose will find this study as a good source of reference and for further research intention.
1.8 DEFINITION OF TERMS
1. Capital gains tax: a type of tax levied on capital gains incurred by individuals and corporations. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price.
2. Gross domestic product (GDP): the value of a country’s overall output of goods and services (typically during one fiscal year) at market prices excluding net income from abroad.
3.  Budget: an estimation of the revenue and expenses over a specified future period of time.
4.  Revenue: the income of a government from taxation, excise duties, customs, or other sources appropriated to the payment of the public expenses.