1.0 Introduction
The realization of sustainable economic growth and development has been a major preoccupation of any government especially in Nigeria; however, the perennial issue of limited finance has necessitated the government to explore means of augmenting her revenue generation so as to have more funds needed to increase the value of goods and services produced/rendered by every sector of the economy yearly as well as to improve the standard of living of the citizenry. Notably, one of the means explored by government to augment its revenue base is taxation. Conspicuously, apart from being a source of finance, taxation is also used as a modifier in an inflation-ridden economy to reduce the volume of money in circulation as well as to correct balance of payment deficit and ensure redistribution of income among others.
The Institute of Chartered Accountants of Nigeria (2006) and the Chartered Institute of Taxation of Nigeria (2002) defined tax as an enforced contribution of money to government pursuant to a defined authorized legislation. The income tax is levied on incomes such as salaries, business profits, interest, dividends, commissions, royalties and rent. It may also be charged on capital gains and petroleum profits. Taxation yields very substantial revenue to government. Therefore, it has a bearing on the Gross Domestic Product (GDP} and Human Development Index which is the standard indicator for measuring the economic wellbeing of a nation.
Indeed, taxation, rather than natural resources, such as oil, ought to be the central instrument of state economic policy in Nigeria – as it is of truly modern democratic states (FIRS, 2012). It is the realization of the centrality of taxation in the overall economic reforms started by the democratic government in the Fourth Republic that led to the reforms in the regime and administration of taxation in Nigeria in 2003.
On returning to democratic dispensation on May 29, 1999, the Obasanjo’s administration quickly saw the need to broaden the revenue base of the nation, so as to hedge the economy from re-occurring incidence of oil market shocks and provide sufficient financial resources to meet the profundity of the financial needs of the country. It becomes imperative to reform the tax administrative regime. To this extent, taxation has been defined as the transfer of resources from private sector to the public sector, so that the government can meet its financial responsibilities (Appah, 2004; Azubuike, 2009; Appah and Oyandonghan, 2011, Worlu and Emeka, 2012 and Oriakhi and Ahuru, 2014).
- Statement of the Problem
Despite being the most important, the most beneficial, and the most sustainable source of finance for economic growth and development, there is no gainsaying that the Nigerian Tax System has been characterized by legions of shocking problems occasioned by loopholes in the system. These range from corruption and bribery to routinely tax evasion and avoidance as well as the dominance by the oil revenue which have consistently contributed not-less-than 70% of the total income tax revenue for the past two decades. All these problems altogether depict the improper tax administration arising from under assessment and inefficient machinery for collection.
Therefore, in order to correct these malaises so as to improve the revenue generated from tax that will support meaningful economic growth and sustainable development, the Nigerian government undertook various tax law reforms which have produced the Value Added Tax (Amendment) Act, 2007; intended to widen the value added tax base and improve the machinery for its collection. Similarly the Company`s Income Tax (Amendment) Act. 2007; the Federal Inland Revenue Services (Establishment) Act, 2007 and The Personal Income tax (Amendment) Act, 2011, were all aimed at encouraging tax compliance and increasing tax yield (Aguolu, 2010).
Relying on the assertion by the FIRS (2012) that “in the fourth year of the reforms alone (that is, in 2008), the actual collection of 2. 972 trillion naira (N2, 972 trillion) in taxes was over and above the cumulative collection for the eight year period (1996-2003) preceding the reforms – which amounted to only 2.682 trillion naira (N2. 682 trillion)”, thus, it becomes pertinent to examine empirically, the contribution of taxation (reform) to the nation’s growth and development especially in the post-reform era.