CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The burden of tax falls heaviest on those with smallest income earning (odoh, 1998). An accurate record of business transaction and income tax becomes difficult. Some tax collection and assessors are dishonest.

There are cases of bribery and corruptions and also the cases of tax collections being prosecuted for misappropriations of funds collected from taxpayers.

Sometimes tax collectors went into the remote villages to collect tax but the problem of transportation might increase the difficultly. Also there is a languge barrier in the tax collection to raise money. Taxes are imposed to raise revenue for government for it to satisfy the peoples wants.

There is need for government to raise money for the provision of essential services such as the maintenance of law and order, the construction of roads and railways and the provision of health services, social and educational facilities. It is important because it is used to stimulate recovery from trade depression when unemployment is usually high, so to fight these ills there may be an increase in taxation.

Taxation is the system of raising money in form of taxes paid by the citizens of the country in return for the services rendered by the government.

It could be recalled that taxation is instituted by God, this is traced back to “Mattew chapter 22 vs. 17-21”, when the Pharisees asked Jesus whether it is lawful to pay taxes or not. The Pharisees were later told render therefore to Caesars the things that are Caesar’s and to God the things that are to God.

According to  Lekan .S. etal (2006), tax was described and not defined in the statues, but according to Cambridge international dictionary of English, it is “an amount of money paid to the government usually a percentage (%) of personal income or company profits”.

According to Okpe I.I (2000) tax is the transfer of resources and income from the private sector to the public sector  in order to achieve some of the nation’s economic and social goals.

Taxation is universally accepted as a powerful tool in the hands of any government to raise income for its services and to ensure equitable distribution of income among its citizens.

Therefore, in every modern communities, a large amount of taxation is necessary for a public expenditure increases to promote social progress, taxation which is the main sources of funds also increases.

The present tax laws in Nigeria emanated from the Raismais commission in 1957. Before this time we only had what was called the income tax ordinance for the colonies and which was rather common in all the colonies and the  provisions were very  similar. Raim’s recommendation was the basis of provision in the Nigerian constitution order council of 1960 section 70(1) which conferred an exclusive power upon the parliament to make laws for Nigeria or any part thereof with certain uniform principles in respect of personnel income tax.

During 1963 when Nigeria became a republic, the mid-western region was created out of the western region and they adopted the western region tax law accordingly with the amendments, the position under the republican constitution of 1963 and that the regions (now divided into states) assumed jurisdiction over the income tax of person other than companies. While the federal government assumed jurisdiction over the taxation of companies, the uniform principles under the income tax management act and the regional taxes in the federal territory of Lagos.

Thus, after the creation of former 12 states in 27th may 1967, the state assumed the tax laws of the regions in which they were before the creation of such states. The uniform principle covered by the income tax management act of 1961 were as follows:

(i) Specifies what income are exempted from tax.

(ii) What constitute income for tax purposes.

(iii) Upholds residence on the basis for taxation or in the alternative, the principal place of business.

(iv) And recently prescribed the rates of tax and personal reliefs.

STATEMENT OF THE PROBLEM

There is high incidence of tax evasion and avoidance by tax payers. This may affect the amount of revenue collectible by the federal government for the running of administration.

Furthermore, it is hoped that people were wrongly assessed and the assessment sometimes result to regressive taxation.

The Nigerian government has realized the need for revenue generation through imposition of tax on citizen so there are different objective for imposing tax in the country.

To detect the extent, the federal government tax policies have helped in revenue generation and allocation in Nigeria.

To find out the extent the federal government tax polices have contributed to the growth of the economy.

RATIONALE OF STUDY

The federal government generates a large proportion of its revenue from tax.  The revenue generated from tax helped the federal government to provide for such things as national defence, security, Justice, transport, Communication and construction, health and education, while transfers from the fourth group and include employed retirement benefit consisting of pension, gratuities and public debt charges.

Tax controls inflation in an economy because when there is inflation in the economy, government can tax away the income in the hand of society and thereby reducing the aggregate demand, which will eventually bring the price down in the economy.

Government also levy taxes to discourage the consumption of goods that are considered undesirable, goods welfare or those goods that create room for ostentation, wrong investment priorities or class distinction in he society (odoh 1998)

PURPOSE OF THE STUDY

The purpose of this study include the following:

(a) To examine the causes and reasons for high tax evasion and avoidance.

(b) To generate revenue to help the government to finance ever-increasing public sector expenditure.

(c) To promote social, economic, and good governance through provision of merit goods.

(d) To examine the effect on economy, the high incidence of tax evasion and avoidance.

(e) To examine people’s perception on taxation.

SIGNIFICANCE OF THE STUDY

The finding of this research will benefit both the government and community.  The government generates a large population of its revenue from tax and it s used to satisfy people wants and it is providing for such things are national defence, security, Justice, Construction of roads and railways and provision of essential services, health social and educational facilities.

Hence it is beneficent to both because taxes are imposed to raise revenue for the government for it to satisfy the people in a community.  Also it is used to stimulated recovery from trade depression, when unemployment is usually high.

The topic “The impact of Federal Government tax policies on Nigeria economy”, will also educate the entire public on how the federation could encourage economic development and also how a reduced tax could promote the standard of living of the tax payer and increases his capital formation and investment thereby, resulting in a higher gross National Product (GNP) of the economy(country) and also promote the industrial development of the nation.

The study will be of immense benefit to the following group of persons.

(a) Government of the federation of Nigeria

(b) The business community for the purpose of companies income tax.

(c) The tax experts especially the practicing professional accountants.

(d) The Nigerian Institute of Management and Nigerian Statisticians.

(e) The economist and financial analysts or capitalist.

(f) The students of Accountancy profession and other allied professions.