PERSONAL INCOME TAX AND ECONOMIC GROWTH IN NIGERIA
This study examines personal income tax and economy growth. In the light of the empirical review and other discussions, a number of questions arose as to whether there is relationship between personal income tax and economy growth. Using the Ordinary Least Square (OLS) regression technique with the aid of computer software, for a 1980 – 2011 time series data, the empirical findings revealed among other things that personal income tax to total direct tax, secondary enrollment and openness had no significant impact on economic growth in the short-run and that there exists a positive relationship between company income tax, personal income tax, petroleum profit tax, education tax and investment to income ratio with economic growth The study recommends, that government should make judicious use of tax revenue for economic development of the nation provide infrastructural facilities that will improve the welfare of the general populace and alienate their sufferings.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study
Statement of Research Problem
Objectives of the Study
Scope of the Study
Significance Of Study
Limitations of the Study
CHAPTER TWO: LITERATURE REVIEW
Tax Policy Reforms in Nigeria
Problems of Tax Administration in Nigeria
Impact of Tax Administration on Government Revenue in
a Developing Economy
Personal Income Tax
Definition of Income
Effect of Economic Growth on Taxation Revenue
CHAPTER THREE: RESEARCH METHODOLOGY
Method of Data Collection and Sources
The Population of the Study
The Sample Size
Method of Data Analysis
Method of Data Analysis
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF RESULT
Presentation of Empirical Results
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMEDATION
Summary of Findings
BACKGROUND TO THE STUDY
Personal income taxation is amongst the oldest and one of the commonly used instruments of fiscal policy. Besides partly fulfilling the government expenditure needs, income tax is also aimed at reducing the inequality gap in the society. They are transformed in to progressive structures so that principles of fairness are fully accomplished. Setting a just tax base is of critical importance in order to observe the ability-to-pay principle. The extent of redistribution in a tax system is not necessarily a static concept. Time period over which we measure income and wealth are likely to influence the measures of redistribution and progressivity (Creedy 1999).
The declining role of personal income taxes in developing countries is certainly not a new phenomenon. Most developing economies have inelastic tax structures with a narrow tax base, and high collection/administrative costs. Hence in many cases these taxes are easy to evade (Avi-Yonah et al., 2006; Bird et al., 2005). However the overall role of personal income taxation cannot be completely discarded. This is because apart from the distributional impact of these taxes, there are incentive effects as well, which can for example impact the tax payer’s decision and manner of participating in the labour market (Blundell et al., 2000)
Personal income tax systems significantly vary across countries in terms of elements of the system and one of the key elements of the system which differs is the tax rate. A majority of countries around the world use a progressive income tax rate; however, tax systems with a single tax rate have become popular. Although the classical flat tax – as proposed by Hall and Rabushka (2005) – has not been implemented in any country, a number of counties have chosen recently to tax income at flat rates. Up until 1994, the only jurisdictions with flat tax systems were Hong Kong, Jersey and Guernsey, and Jamaica (Mitchell, 2008); however, as of 2009 a flat personal income tax rate schedule was implemented by 24 administrations, 20 of which are formerly centrally-planned economies of Central and Eastern Europe and Eurasia. Countries often apply different tax rates to labor income, dividends, capital gains and other sources of income. Moreover, the tax rates in countries with a flat tax are lower in comparison with other countries. In some countries the flat tax rates are among the lowest in the world (for example, in Ukraine, Kazakhstan, and Kyrgyzstan).
The main aim of countries in cutting income tax rates in recent years has been to attract foreign investment and promote economic growth; thus, the concept of a flat tax rate has been attracting attention from tax policymakers in different countries. Among other advantages put forward by proponents of the flat tax system are 1) a significant improvement of simplicity and fairness in terms of horizontal equity (in comparison with a graduated income tax), 2) enhancement of tax compliance, and 3) an increase of the net reward to working individuals from the gross value of a productive activity due to the lower marginal tax rate, which will stimulate labor supply and economic growth and may lead even to increases in budget revenue.
This research therefore seeks to establish the impact of Personal Income Tax and economic developments of Nigeria.
STATEMENT OF RESEARCH PROBLEM
It has long been evident that personal income tax in Nigeria has remained the most unsatisfactory, disappointing and problematic of all the taxes in the tax system today. This is in spite of the fact that tax reform has of recent been a key element in economic reform which the country had undergone. It is therefore felt that personal income taxation in Nigeria requires radical handling to ensure that a large chunk of the taxable population does not escape tax. Personal income tax is closely related to the pace of development and growth of the economy. An effective tax system ought to satisfy the twin purpose of raising maximum revenue and at the same time encourage production. In an effectively managed tax system, the two purposes are not irreconcilable provided of course that the beneficial effects of Governmental expenditure and incentives for production exceed the unfavourable effects of taxation. An effective tax system, aside from maximizing revenue for development, ought to, if well structured and managed elicite a feeling of common purpose joint responsibility or obligation amongst the taxable persons in a country (Asada, 2010), hence the following research question are raised.
Is there relationship between personal income tax and economic growth of Nigeria?
OBJECTIVES OF THE STUDY
The objectives of the study are:
To examine if there is relationship between personal income tax and economic growth of Nigeria.
The following hypotheses have been formulated to serve as a base for this research;
Ho: There is no relationship between personal income tax and economic growth of Nigeria.
H1: There is a relationship between personal income tax and economic growth of Nigeria.
SCOPE OF THE STUDY
This aim of this study to examine the Impact of Personal Income tax and Economy Growth of Nigeria. As such, this study is restricted to Nigeria as a geographical bias. Temporarily or in term of time series, a period of thirty years is used i.e. 1980 to 2011 using some macroeconomic variables as means of assessing the impact of the Personal Income Tax on the Nigerian economy.
SIGNIFICANCE OF STUDY
This research work on its conclusion, together with whatever solution or findings that may arise, will prove useful to Personal Income Tax and their explanatory varies.
This research work on its conclusion, together with whatever solution or findings that may arise, will prove useful to some particular group of persons or otherwise for various reasons in accordance with their varying needs.
Stakeholders: This study will be important and beneficial to stakeholders of an organization to know the essence of Personal Income Tax in Nigeria.
The Government: It will acquaint the government of the importance of Personal Income Tax in Nigeria and how it should be properly managed.
The public: This study will help to restore the lost confidence of the public as regard Personal Income Tax in Nigeria in Nigeria.
LIMITATIONS OF THE STUDY
The major limitation of this study will be the absence of a similar research work in Nigeria. This will make it extremely difficult to secure relevant materials and facts to make the study more robust.
Time and finance also constitute the limitation of this study.
Creedy, John (1999), Taxation, Redistribution and Progressivity: An Introduction. The Australian Economic Review, 32(4), 410-422.
Avi-Yonah, R. and Y. Margalioth (2006), Taxation in developing countries: Some recent support and challenges to the conventional view. Virginia Tax Review, Summer 2007
Bird, R. M. and Eric M. Zolt (2005), The limited role of personal income tax in developing countries. Journal of Asian Economics, 16, 928-946.
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