CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The mono-product status of the Nigerian economy has received series of criticisms in recent times. According to Akhor, (2014), without the diversification of Nigerian revenue from oil, the economy will soon collapse. Nigeria rely on crude export for revenue based on the projected price and assumed production. However, oil revenue has accounted for over 76% of government revenue (Ogbonna, & Ebimobower, 2012). The implication of this overly dependence on oil revenue is the boom-and burst nature of the economy. Against the backdrop of the need to diversify the economy of Nigeria, taxation has come extremely handy. Taxation is made up of two broad components and several subcomponents and basically we have indirect and direct taxation. For purposes of this study, emphasis is on indirect tax
Indirect tax such as sales tax, per unit tax, Value Added Tax (VAT), or goods and services tax (GST) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (Ochei,2010). Indirect tax is so called as it is paid indirectly by the final consumer of goods and services while paying for purchase of goods or for enjoying services. It is broadly based since it is applied to everyone in the society whether rich or poor (Ogbonna, & Ebimobower, 2012).
Taxation is a way of raising revenue for the day to day running of government activities. Government activities involve generating funds and using same to provide security, social amenities, infrastructural facilities, etc, for the citizens of the country. Base on this, it is worthy of note that the objective of taxation is in tandem with the functions of government (Okafor, 2012).
The economic growth of a nation is dependent on a stable means of revenue. For the government to carry out its duties, revenue has to be generated. In Nigeria, aside oil revenue which in recent times, has been on a decline especially in its demand and supply with the fall in the price of oil by more than 40% since June 2014 when it was $115 per barrel, now it is below $ 70 per barrel, in fact, as at February 2018, it was $70 per barrel and there is no hope yet of its increase, another constant source of revenue has been taxation (Oyewo, 2013).
Taxation is a major source of government revenue all over the world and governments use tax proceeds to render their traditional functions, such as: the provision of goods, maintenance of law and order, defense against external aggression, regulation of trade and business to ensure social and economic maintenance (Umoru, & Anyiwe, 2013). With expenditure consistently rising faster than revenue, deficits grew from an average of 5.0% of Gross Domestic Product (GDP) in the 1983-1986 period to 10.3% in the 1991 – 1994 period before declining to 4.9 % between 1999 and 2010 and has been on an increase since then. In recent times, 2014 – 2019, it is about 21.2% and increasing yearly (Okafor, 2019).
This has been due to the rise in government’s recurrent expenditure which is higher than her capital expenditure as a result of huge government departments with sometimes overlapping functions and poor revenue collection and management. Taxation imposes taxes on its citizens and institutions for three strategic objectives: the allocation function, the distributive function and the stabilization function (Unegbu, & Irefin, 2011). Indirect taxes are seen as the greatest form of taxation in most developed countries but in Nigeria it is seen as a punishment on the masses, because most people feel it is governments’ way of aggressively taking from its people since there is no compensating infrastructural development.
The reason for this is because the revenue generated from VAT and other forms of indirect tax are not used effectively and efficiently. This study therefore examines the impact of indirect taxes on revenue generation in Nigeria.
1.2 Statement of the Problem
Evidence so far supports the view that indirect tax is already a significant source of revenue in Nigeria. From an economic point of view, one expects the price of goods subject to indirect tax to rise, however, beyond this expected rise, businesses are taking advantage of the existence of indirect tax to increase prices of goods and services arbitrarily. According to Emmanuel, (2013), the resulting price increase has led to higher inflation.
In Nigeria, people, especially the rich and the elites, deliberately dodge this civic responsibility of paying tax and sometimes employ the service of tax specialists in order to pay less tax to the government. There is also the problem of falsification of ages and the number of children and dependents one has in order to reduce the amount of tax payable.
Emanating from these factors, the sub-national governments (state and local governments) contend that their currently assigned taxes are poor in terms of their bases and, therefore, accruable revenues are not enough to meet their expenditure targets. Also the statutory allocation from the federation account has been grossly inadequate as a result of a fall on gross domestic product. This invariably reduces their overall performance, considering their expenditure profiles. Taiwo (2008) observed that the distribution of government revenue is skewed in favour of one tax base or the other (e.g. oil revenue) in Nigeria.
Nevertheless, the overwhelming evidence of positive impact of oil revenue on economic growth in Nigeria cannot be overemphasized and it is against this background that this study seeks to analyze the impact of indirect tax on revenue generation in Nigeria.
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