The Impact Of Taxation As An Aid To Economic Development In Enugu State (a Case Study Of Ezeagu Local Government Area Enugu State, Nigeria)

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The research work will discuss in detail the impact of taxation as an aid to economic development of Enugu states, a case study of Ezeagu local government area. It will also take notice of the aims and objectives of taxation and its impact on the economic development and social well being of the people. Equally it aimed at identifying problems that hinder the efficient and effective administration of tax system in Enugu state, appraisal of some tax legislation and to assess the contribution of taxes towards the growth of the economy of Enugu state.














Title page                                                              i

Approval pages                                                      ii

Dedication                                                             iii

Acknowledgements                                                 iv

Abstract                                                                v

Table Of Contents                                                   vi


1.0  Introduction                                                    1

1.1  Background of the Study                                         1

1.2  Statement of the Problem                                 5

1.3  Objective of the Study                                      6

1.4  Research Question                                           8

1.5  Scope of the Study                                   9

1.6  Significance of the Study                                  9

1.7  Limitation of the Study                              10  

1.8  Definition of Terms                                   12


2.0  Review of Related Literature                       16

2.1  Introduction                                             16

2.2  Definition of Taxation and Types                 19

2.3  Incidence of Taxation                                26

2.4  Element of Taxation                                         27

2.5  Principles of Taxation                                 28

2.6  The Importance of Taxation                       31

2.7  Appraisal of Some Tax Legislation               38

2.8  structure of Administration of Nigeria Tax System       42

2.9  The Problem of Taxation and it’s Function           54


3.0  Research Design and Methodology                     58

3.1  Research Design                                              59

3.2  Area of Study                                                  60

3.3  Population of the Study                                    60

3.4  Source of Data                                                       61

3.5  Sampling Method                                             62

3.6  Research Instrumentation                                 63

3.7  Methods of Validating the Instruments                64

3.8  Method of Investigation                                    65


CHAPTER FOUR          

4.0  Presentation of Analysis of Data                         66

4.1  Presentation of Related Data                             66

4.2  Analysis of Data                                              67


5.0  Summary of Findings, Recommendation and

 Conclusion                                                            82  

5.1  Summary of Finding                                                82

5.2  Conclusion                                                      84

5.3  Recommendation                                             85

       Bibliography                                                    89

Appendix I                                                      90

Appendix II                                                     91




Late lord Lugard firstly introduced tax in Nigeria in 1904.At that time, community tax was in operation throughout northern Nigeria. This situation did not affect the federal territory of Lagos but the regions .There were a number of laws passed in respect of taxation but the present day tax system was brought into existence in 1940 with the incorporation of various Authority Revenue Ordinance into Direct Taxation Ordinance no 4 of 1940 .cap. 54.

A tax is a fee charged or levied by a government on a product, income or activity .It is a compulsory payment. When levied directly on personal or corporate income, it is a direct tax. If it is levied on the price of a good or service, then it is called an indirect tax. The main reason for taxation is to finance government expenditure and to  redistribution wealth which translates to financing development of the country (Ola 2001,Jhingan 2004,musgrava and Musgrave 2004,Bhartia,2009).

One of the major functions  of any government especially developing countries such as Nigeria, is the provision of infrastructural services, social amenities and as well as ensure a rise in per capita  income, poverty alleviation etc. Government must have revenue in order to adequately finance all these services. Based on the limited resources of government, there is need to carry the citizen along hence the imposition of tax on all taxable individuals and companies to augment government financial position.

However, tax revenue mobilization as a source of financing developmental activities in less developed economics has been a difficult issue primarily because of various forms of resistance such as evasion, avoidance, corrupt practices attending to it. These activities are considered as sabotaging the economy and are readily presented as reasons for the under development of countries. Tax is also the nexus between state, local government and its citizens equally tax revenue are the lifeblood of the social contract. The very act of taxation has profoundly beneficial effects in fostering better and more accountable government (Tax Justic Network (TJN (2012). Musgrava and musgrava (2004) also stated that the economic effects of tax include micro effects on the distribution of income and on the level of capacity output, employment, price and growth. A critical examples of governments that have influenced their economic development through revenue from tax are; Canada, United States, Netherlands, United Kingdom. They derive substantial revenue from company income tax, value added tax, import duties and have used same to create prosperity (Oluba 2008). In many of these rich countries, tax constitutes 30-40 percent of the GDP (Golit, 2008 and TJN, 2012). Nigeria with a budget of N4.97 trillion for the year 211, representing 12% increase of 2010 annual budget (unegbu and Irefin 2011) shows that tax revenue is one of the ways of funding infrastructural developments specified in the budget.

To this end, as a sovereign nation, Nigeria has a land mass that covers about 923,768 sq km and has a population of about 149,229,090. According to Tran (2008), emerging economics are nations that have large territories and population and they are undertaking extra-ordinary development project that call for new infrastructure such as power-generating plants and telecommunication systems. Government have always enacted various tax laws and reformed existing ones to stand the taste of time. They include; income tax management act (ITMA) company income tax decree (CITD), joint tax board (JTB) , capital gain tax act (CGTA), petroleum profit tax act (PPTA) etc. All these are aimed at ensuring adherence to tax payment and discouraging tax evasion and avoidance. For the purpose of this study, the researcher would be concerned with the impact of taxation as an aid to the economic development of Enugu state, a case study of Ezeagu local government.


       The first need of any modern government is to generate enough revenue which is indeed “the breath of its nostril” Thus taxation is by far the most significant source of revenue for the government.  The ideas Nigeria’s regard payment of tax as a means whereby government raises revenue on herself at the expense of their sweat. It is good to note that no tax can succeed without the tax payer’s co-operation.  Here, we ask some thought-provoking question such as what takes taxation such a difficult issue.  Why do people feel cheated when it comes to tax? Is government making judicious use of tax payer’s money?      In view of these questions above this study is going to be carried out to offer solution to them.

       The researcher shall also look at the following issues and offer recommendations of the way forward.

1.          Problems affecting the successful operation of tax system in Nigeria

2.          How to determine the Assessable income and Process of tax administration.


The general objective of the study is to assess the contribution of taxes towards the growth of the Enugu state economy. However, the specific objectives of the study include:

1.  People reaction to payment of tax in Ezeagu local government

2.  The system of taxation people accepted.

3.  Major problems affecting tax system in the state

4.   To determine the rate of tax evasion and avoidance.

5.   Assessment of Nigeria tax system.

6.  The aid of taxation in the economic growth of the state using Ezeagu as an example.

7.  Impact of taxation in Enugu state.

8.  Comparison of tax revenue and revenue from other sources.

9.   Functions and scope of work carryout by tax collectors.

10.              To  determine government incentive for tax payers.




The following questions will form the bases of this research work.

            i.        How do people react to payment of tax?

           ii.        Which tax system is more accepted by the people?

         iii.        What are the major problems affecting tax system in the Enugu state?

         iv.        What is the rate of tax evasion and avoidance?

          v.        How would Nigeria tax system be assessed?

         vi.        Can any state grow economically without taxation?

       vii.        How would tax revenue be compared with revenue from other sources?

     viii.        Are there enough workers to carryout tax collection assignment in the state?

         ix.        What are the government incentives for tax collection and is the incentive commensurate with the level of input?


To be consistent with the resources available for the study, the researcher will focused on the impact of taxation as an aid to economic development Enugu state, a case study of Ezeagu local government. It will also analyze other issues such as structure and administrative machinery of tax in Ezeagu and their associated problems. The essence of this digression is to possibly find out the obstacles if any that hinder the effective collection and administration of tax in the state.


One of the most frequently discussed issues in Nigeria is how to solve the economic hardship in the country and how to create an industrial base that can guarantee self sustaining economic development. Also one wonders why a country which is richly endowed with the necessary human and material resources and which the people pay tax has been turned a heavily indebted country.

The study will afford us the opportunity to know the roles taxation play in the Enugu state economy.  Such includes:

1.          Taxation is a major source of revenue to the government

2.          Revenue generated from tax enables government performs its function effectively

3.          Taxation acts as an instrument of Fiscal policy

4.          The impact of tax on small business in the state.

5.          The study will in addition reveal if there are other better sources of government funding.


It can be seen from all indications that a research such as this cannot be carried out in one semester. These are constraints that limit the work of the researcher. among these factors includes;

    i.        Time factor: the time available is very limited, as a result of this; the researcher is restricted to some places for interviews and questioning during the collection of data.

   ii.        Resources: the fund available to the researcher is not sufficient to carry out this researcher work. As a result of high economic hardship as well as high cost of transportation.

 iii.        Duty of secrecy: the inability of some government officials to disclose certain reliable information which they considered confidential may have also limited the study.

 iv.        Lack of current textbooks: there is scarcity of current textbooks on tax because tax laws are constantly changed and so many are obsolete for this topic.

  v.        Finally, the academic workload on the campus and preparation for the second semester examination are equally the limiting factors on this research work. Despite all these constraints, the researcher is able to carry out a fair and effective study on this topic.


TAX:                    A compulsory levy by the government on its citizen for the provision of public goods and services.

TAXBASE:            The Object which is taxed. for instance personal income tax, company profit etc.

TAXRATE:            The rate at which tax is charged.

TAX INCIDENCE: It refers to the effect of tax and where the burden is finally rested

PERSONS:            It includes all taxable persons whether individual or co-operate bodies.

PROGRESSIVE TAX: This is a tax incidence that increases as the size of income increases.

REGRESSIVE TAX: This is a tax incidence that decreases as the size of income decreases.

PROPORTIONAL TAX: This is a situation whereby the rate of tax is the same for all category of income earners or tax payer.

VALUE ADDED TAX:    VATis a multistage tax levied and collected on transactions at all stages of sales and distribution.

WITHHOLDING TAX: This is tax charge on investment income namely; rent, interest, royalties and dividends. Presently it is charged as the tax offset.

CORPORATION TAX: This is a tax charge on company profits based on the total adjusted profit arising in each accounting period.

INCOME TAX: This is a tax levied on the income of an individual.

EXCISE DUTIES: These are taxes on some goods manufactured within the country.

CGTA:           Capital gain tax act is an act that stipulates that all capital gain arising on disposal of asset of individual, partnership and limited companies should be taxed.

PPTA:           Petroleum Profit Tax Act is an act that regulates the petroleum profit tax and also specifies how profit from petroleum will be taxed.

CITA:            Company income Tax Act is a federal law operated by the FIRS which deals with the taxation of all limited liability companies in Nigeria with exception of those engaged in petroleum operations.

JTB:              Joint Tax Board is established under section 85(1) of decree 104 of 1993 to arbitrate on tax disputes between one state tax authority and another.

SBIRS:               state board of Inland Revenue services. It is an operational area of state Inland Revenue which is responsible for the state tax matters.

FBRIS:          Federal board of Inland Revenue services. It is an operational arm of federal Inland Revenue which is responsible for the state tax matters.


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