Impact of Taxation as an Aid to Economics Development in Nigeria

Impact of Taxation as an Aid to Economics Development in Nigeria

There are several literature by different authors, scholars and researchers on Taxation as source of government revenue and its impact on the Edo state economy many of them have covered all its ramifications while some have effectively appraised the proscem of tax administrator in Nigeria. 

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Despite these appreciable and commendable efforts, it should be noted that much still need to be to really quantity the contributions of taxes to the growth and development Edo state.

DEFINITION OF TAX-ACCORDING TO O TERIBA,

          Tax is a compulsory payment made by individuals and firms to the government.  Ola (198:55) defined taxation as a compulsory financial contribution to government by individual and corporate bodies —- it is a form of withdrawal by government for a particular economic purpose. T he national accountant, defined taxation a levying by public authorities on citizen within their tax jurisdictions, for the purpose of obtaining compulsory payment, to meet financial social and economic goals of the authorities.

INDIRECT TAXES – DAVID BEGG (1984-284)

          Defined indirect tax as taxes levied on expenditure on goods and services.  On the other hand Agyer (1983) says that indirect tax is a tax imposed indirectly on tax payer’s income. Taxes changeable to indirect taxes includes.

VALUES ADDED TAX (VAT)

          This is effectively a retail sale tax and in and is an indirect form of taxation based on the consumption on certain good and services.  VAT” is collected at different stages of production process and on the added value at each stage of consumption.  It came into operation to Nigeria courtesy as VAT decree of 1993, which became effect 19993, which became effective from 1st January 1994.  The introduction of VAT replaced the sales Tax decree of 1986.

According to professor Aluko, “VAT” is a consumption tax.  If is equitable because the more you consume, the more you pay — services exempted from VAT are the one, that touches the directly and they include pharmaceutical and medical products, basic food items, commercial vehicles and their spare parts, books and educational material and so, on it is a good tax.  Accountant (Volume 6 NO5 June/July 1996).  From the above, taxation could be said to mean a compulsory payment to the government by every taxable individual and corporate bodies.

TYPES OF TAXATION

According to Agye: (1983-73) tax can be basically divided into direct and indirect taxes.

1.       Direct Tax:  David Begg (1984-284) defined direct tax as taxes levied on individual income on earnings from labour, rents, dividends and interest.  A common features of this types of tax is that it is levied according to the ability to pay that is “pay as you earn” (PAYE).

Direct Taxes are made up of the following according to O. Teriba (1976: 178).

2. Income tax: This is tax changed an earning from ways, salaries, rent, interest, premium etc.  It in normally changed progressively.  After deducting all the tax relief, the reminder becomes the taxable income.

3.  Poll Tax: A poll tax is imposed at a flat rate per head of population or among a group of people.  This types of taxation is employed where enough data do not exist to determine the actual income of the tax payer.  It is a regressive tax because no matter what the size of a person’s income everyone has to pay the amount.

4.Company Tax: David Begg (1984:284) assents that companies pay corporation tax calculated on their taxable profits after allowance for interest payment and depreciation.  Company tax is charged progressively, i.e the higher the profits the greater the tax companies are taxed under the provision of the companies income tax act (1961) and its various amendments.

5. Capital Tax: O Terisa (1976:180) states that “capital taxes are imposed on property and other capital assets from instance, when a person dies his assets are subject to capita l tax, in this case the term death duty or estate duty is used.

6. Capital Gams Tax: This tax is charged on gains in value (profit) accruing to any company or individual on the disposal of assets e.g. land.  This system of tax was introduced in Nigeria in 1967.  Under the capital gains tax decree 44 of 1967 as amended.  Therefore, for taxation to make the desired impact on the economic development of Nigeria given is being a major source of government revenue the following Acts were enacted to regulate its operations

–                     The joint tax management act (ITMA) 1976.

–                     The joint tax board (JTB)

–                     Company income tax act (ITA (1979)

–                     Value added tax act (VAT) 1993

–                     Petroleum profit tax act (ITMA)

  1. a.                 Income Tax Management Act (ITMA)

This act regulate personal income tax through out the federation.  It lays down the procedures to determine the assessable income of an individuals.  It comes into operation in 1961.

  1. b.                Joint Tax Board

This is constituted under sections 27 of ITMA, (1961) and 78 of the CITA, (1979).  Their duty is to promote Uniformity both in the application of ITMA (1961) and to the incidence of income tax on individuals throughout the country.  It also advises the federal government on matters relating to amendments of tax Act, double relief arrangement and rates of capital allowances.

  1. c.                  Company Income Tax Act CITA (1979)

This act regulates the assessment and collection procedure for all corporate bodies. For instance the assessment of company based on actual year basis (AYB) or on preceding year Basis (PYB).

  1. d.                Capital Transfer tax (1979

This Act regulate the assessing and collection of capital transfer tax, provides for these capital assets exempted form capital transfer tax and provision for quick succession relief rate on a deceased property.

  1. e.                  Capital Gain Tax Act (1967)

It makes provision for the assessment of capital gains tax with regard to “Allowance expenses from net proceeds of sale” and treatment of loss accruing from the disposal of an assets and list of changeable asset.

  1. f.                  Value Added tax (1993)

Introduced to replace sales tax decree of 1986 with duty to specifying vatable items and non-vatable items.  Sit is a good tax made to be relatively easy to administer and difficult to evade.

  1. g.                 Petroleum Profit Tax Act 1959

This act was enacted in 1959 but amended to 1979 and specifies how profit from petroleum will be taxed; those engaged in the production of crude oil and transportation of oil (Bunkey); those to be changed and those not to be changed.

RATE OF TAX RELIEF AS PROVIDED BY LEGISLATION (ITMA)

          The 1998 budget of the federal republic of Nigeria provided the following tax relief:

  1. PERSONAL ALLOWANCE: N5000 + 20% of earned income.  As of the year 2000, amendment was made  but not ye5 effective.
  2. 2.                 CHILDREN ALLOWANCE: N2500 per child up to maximum of four children
  3. 3.                 DEPENDENT RELATIVE ALLOWANCE: N2000 per dependent, up to maximum number of 2.
  4. 4.                 DISABLED ALLOWANCE: N2000 or 2% of total income that ever is less
  5. 5.                 LIFE ASSURANCE POLICY ALLOWANCE: Total premium paid per year based on preceding year basin (PYB).

 

TAX RATE

With effect from 1998

1st 20,000             5%

Next 20,000                   10%

Next 40,000                   15%

Next 40,000                   20%

Over 120,000       25%

Income as at 2000, amendment was made but has not come ato effect

 

Below is the amendment

1st 30,000             5%

Next 30,000                   10%

Next 50,000                   15%

Next 50,000                   20%

Over 160,000       25%

Sales Tax: This is the tax imposed on the sales as a commodity collected only at the point of final sale to the consumer.  The rate as tax varies according to the commodity sold. Example includes petrol and agricultural export produce. O Teriba (1976:180).  VAT has replaced this.

Withholding Tax: This is  a tax changed on investment income namely rents, interest, royalties and dividends presently it in changed at the off.

Import Tax: Import taxes are paid on goods brought into a country.  Import duties are change for the folowing persons.  To yield

Excise Taxes: Excise duties are taxes on some goods manufactured within a country.  Hoods on which duties are usually paid are beer, petrol, cigarettes etc.  in Nigeria excise duties were first levied on cigarettes in 1939, on beer in 1949 and on many more goods from 1960

INCIDENCE OF TAXATION

The incidence of a tax according to David Begg Measures the final tax burden on different people and who ultimately pays the tax.  “O Teriba” refer tax incidence as the effect and where the burden of if final rest.  He differentiated between formal and effective incidence of a tax.  According to him formal incidence tells us about the initial effects of a tax on the tax object (income, goods, etc).  While the effective incidence of a tax tells us how the ultimate (final) burden of a tax was met.

 

TYPES OF TAX INCIDENCE

  1. Progressive Taxes: A tax is progressive if its rate increase as the size of income or stock of wealth which I being taxed increase.  Here, the burden of a progressive income tax falls on those who earn higher income
  2. Regressive Taxes: A regressive tax takes a smaller part of incomes as incomes increases, that is as income increase the tax rate decreases for instance individual Y and Z earn N100 and N400 respectively if Y pays N10 as tax, his tax rate is N10%.  If Z pays N20 as tax, his tax rate is 2.5%.  Y pays higher percentage of his income (5%) then Z (2.5%).  Such  a tax system is said to be regressive.
  3. Proportional taxes: A tax is proportional when the rich pay more than the poor in Absolute terms (in actual amounts).  But all tax papers, rich and poor are made to surrender the same percentage of their income in tax payments.

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