Impact Of Personal Income Tax On The Growth Of Nigeria Economy

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IMPACT OF PERSONAL INCOME TAX ON THE GROWTH OF NIGERIA ECONOMY

Abstract

This paper examined the income profile of Benue State Government and assessed the impact of personal income tax on the growth of Nigeria using the internally generated revenue accruable to the state. Adopting the ex-post facto research design, secondary data was obtained from Benue State Board of Internal Revenue Service (BIRS) from 2007 – 2016 and analyzed using descriptive statistics, correlation and ordinary least square multiple regression technique. The study found that pay-as-you-earn has significant positive contribution to internally generated revenue in Benue state while direct assessment has insignificant negative contribution to internally generated revenue in the state over the study period. It was recommended among others, that the tax authority and government of Benue state should conduct a thorough census and aggressive registration of the self-employed in order to drag them into the taxnet of the state to further enhance tax revenues accruing to the state through direct assessment

 

TABLE OF CONTENT

Abstract

CHAPTER ONE

INTRODUCTION

Introduction

Background

Statement of the problem

Objectives of the study

Research questions

Statement of the hypothesis

Significance of the study

Justification of the study

Scope of the study

Definition of terms

 CHAPTER TWO

LITERATURE REVIEW

Introduction

Conceptual framework

Theoretical framework

Literature on the subject matter

CHAPTER THREE

METHODOLOGY

Area of study

Research design and sources of data

Study population and determination of sample size

Instrumentation

Procedure of data collection and data Analysis

Limitations of the study

CHAPTER FOUR

DATA ANALYSIS FINDINGS AND DISCUSSION

Data analysis, findings, and discussion

Findings of the study

Discussion of the findings

CHAPTER FIVE

CONCLUSION AND RECOMMENDATIONS

Summary of findings

Conclusions

Recommendations

References and appendices

 

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

Government's money-needs are tapped from various sources of revenue, among which are; taxation, borrowing (loans), profit from government companies and miscellaneous incomes which include aids from other countries or organizations. Of all these sources, tax is the most important. This is because it contributes more than 50 percent of the total government revenue. However in recent times, government budgets at both state and federal levels are inundated with high borrowing as the major means of financing government expenditures. There has been dwindling Internally Generated Revenue (IGR) at all levels of government in Nigeria as only three out of the thirty-six states of the federation are capable of raising adequate revenues from IGR that can cover the states' financial obligations. IGR, the income that accrues to the State and Local

Governments from within as a result of their internal efforts as opposed to allocations received centrally from the federation account includes personal income taxes (PAYE and Direct Assessments), road tax, fines and fees, licenses, stamp duties, land registration and survey fees, rents of government properties, interest repayment/dividends and reimbursement refunds (Abiola & Ehigiamusoe, 2014). According to Dike (2000:36) the overriding objective is to 'collect the maximum revenue with the minimum cost and without interference with the legitimate trade of the taxpayer'.

In Nigeria today, only salary earners pay Personal Income Tax (PIT) faithfully through the Pay as You Earn (PAYE) system, which deducts tax at source. It has remained difficult, if not impossible to get the self-employed to pay tax faithfully and since the government has not been able to effectively device means of assessing the income of those in selfemployment, they have been evading tax successfully (Omogui, 2007). The situation now is such that, people with means are walking on the streets free without paying any tax at all to the government thus contributing to inadequate IGR accruable to the states.

Benue State government, like most other state governments in Nigeria, always runs short of funds relative to their expenditure. The need for all tiers of government to generate adequate revenue from internal sources has become a matter of extreme urgency and importance, following the increased responsibility on the part of the government to its citizens amidst a decrease in the funds available for distribution to the Federal and State Governments from the federation account. This need underscores the eagerness on the part of states 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 collecting revenue from existing sources. Aguolu (2004) and Oseni (2013) observed that though taxation may not be the most important source of revenue to the government in terms of the magnitude of revenue derivable from it, taxation is the most important source of revenue to the government from the point of view of certainty, and consistency of tax revenue. Owing to the inherent power of the government to impose taxes, the government is assured at all times of its tax revenue no matter the circumstances.

1.2 State of the problem

Since the responsibility of every government is to avoid a collapse of its economy by providing a conducive atmosphere where all micro and macroeconomic variables thrive and this responsibility can only be achieved with a buoyant strong revenue base, and of course requisite human capital (Wole, 2008), this paper seeks to assess the relationship between PIT and IGR in Benue state, with a view to examining the extent to which PIT contributes to revenue generation in the state.

One of the greatest developmental challenges facing Benue State since its creation is the low IGR base of the State. It is true that the problem of lack of financial capacity and autonomy is not peculiar to Benue State alone; the problem is more acute in Benue State because of the near absence of federally established industries or parastatals. The IGR profile of States in Nigeria was worsened by the dire consequences of the global economic crisis on the finances of all tiers of government in the country, such that the Nigerian Governors Forum (NGF), in its First National Round Table on IGR, sought ways and means of boosting revenue generation in the country. Benue State has been relying almost solely on one source of revenue derived from the Federation Account. Since the global economic meltdown, revenue accruing to the State has steadily declined. Over the years, revenue derived from PIT has been very low in Benue State, which could be the reason for low pace of physical development and non-payment of the state workers stipends in recent times; hence its impact on the poor is insignificantly felt. There has been an increase in the demand for governmental service for the masses. Government is expected to satisfy collective wants and regulate the economic and social policies of the nation. Therefore, the fact that Benue State is predominantly a civil service and small business state, there is need to ascertain the impact of the various sources of PIT revenue on the total IGR in the State. Thus, the main problem investigated in this study is to ascertain whether Pay-As-You Earn (PAYE) and Direct Assessment (DA) are making significant impact on total IGR in Benue state of Nigeria.

1.3 Objective of the study

The main objective this study is to determine the impact of personal income tax on the growth of Nigeria economy. Specifically, we aim:

  1. To identify the Determinants of personal income tax compliance in Nigeria
  2. To ascertain the impact of Pay-As-You Earn (PAYE) on total IGR in Benue state of Nigeria
  3. To ascertain the effect of Direct Assessment (DA) on total IGR in Benue state of Nigeria

1.4 Research questions

1. What are the determinants of personal income tax compliance in Nigeria?

2. What is the impact of Pay-As-You Earn (PAYE) on total IGR in Benue state of Nigeria?

3. what is the effect of Direct Assessment (DA) on total IGR in Benue state of Nigeria?

1.5 Hypothesis of the study

hypotheses for this study are stated as follows:

H01:    PAYE has not significantly affected IGR generation in Benue state.

H02:    DA has not significantly affected IGR generation in Benue state.

1.6 Significance Of The Study

This study gives a clear insight into the various ways in which revenue from tax can be increased and how the Determinants of personal income tax compliance in Nigeria can be properly tackled. The study also gives a clear insight into the impact of PIT on the internally generated revenue in Benue state. The findings and recommendations of the researcher will help in building a strong and better income tax system in Nigeria, if taken seriously by government and the general public. The Determinants of personal income tax in Nigeria are outlined in-order for drastic measures to be taken to tackle these challenges and meet the prospects of the general public so that revenue from income tax to the government can be increased.

1.7 Justification of the study

The findings and recommendations of the researcher will help in building a strong and better income tax system in Nigeria, if taken seriously by government and the general public. The Determinants of personal income tax in Nigeria are outlined in-order for drastic measures to be taken to tackle these challenges and meet the prospects of the general public so that revenue from income tax to the government can be increased.

1.8 scope of the study

This study on the impact of personal income tax on the growth of Nigeria economy used a case study of  Benue State Board of Internal Revenue Service (BIRS) covering a period of ten years from 2007–2016.

1.9 Definition of terms

Personal income tax: An income tax is a tax that governments impose on income generated by businesses and individuals within their jurisdiction. By law, taxpayers must file an income tax return annually to determine their tax obligations. Income taxes are a source of revenue for governments. They are used to fund public services, pay government obligations, and provide goods for citizens. Certain investments, like housing authority bonds, tend to be exempt from income taxes.

PAYE: A pay-as-you-earn tax (PAYE) or pay-as-you-go (in Australia and the United States) is a withholding tax on income payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns.

Internally Generated Revenue (IGR) is the revenue that state governments generate within the areas of their jurisdiction. The various sources of internal revenue available to state governments includes taxes, fines and fees, licenses, earnings & sales, rent on government property, interests and dividends, among others.

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