CUSTOM AND EXCISE DUTIES AND ECONOMIC GROWTH IN NIGERIA
The issues surrounding the relationship between custom and excise duties and economic growth in Nigeria cannot be over emphasized. This study discuss the role of the customs reforms in boosting non-oil revenue in Nigeria through which the government restructure and enhanced the effectiveness and efficiency of the service. So as to increase revenue and ensure that all collectable revenue is collected by the custom service to bring about economic development. There have however been corrupt practices among the staff, inefficient and ineffective on operations, existence of smuggling of goods through the territories of member states. The government being aware of this reality introduced reforms to cover the staff welfare, effectiveness in operations, implementation of a common external tariff to reduce conflict, ensuring compliance with government fiscal policy and reducing smuggling through the territories of member states. It is therefore concluded that the successful implementation of the reforms would ensure that all revenue due to government are collected and in that way boost the non-oil revenue in Nigeria.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study
Statement of the Research Problem
Objectives of the Study
Hypothesis of the Study
Significance of the Study
Scope of the Study
Limitation of the Study
Definition of Terms
CHAPTER TWO: LITERATURE REVIEW
2.2 Brief History of the Nigerian Customs
2.3 Concept of Custom Duties
2.4 Concept of Excise Duties
2.5 The Role of the Customs Reforms in Boosting Non-Oil
Revenue in Nigeria
2.6 Organizational Design of Customs in Sub-Saharan Africa:
A Critical Evaluation
2.7 Tax Policy Reforms in Nigeria
2.8 Economic Growth Models
2.9 Empirical Evidence
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
4.2 Presentation and Analysis of Result
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary of Findings
BACKGROUND TO THE STUDY
Taxes are levied on individuals, groups, business or corporate bodies, by constituted authorities for funds used by state in the maintenance of peace, security, economic growth and development and social engineering among others for the benefit of the citizenry. According to Appah (2004), taxation is a compulsory levy imposed on a subject or upon his property by the government to provide security, social amenities and create conditions for the economic well-being of the society. Also Bhartia (2009) argues that a tax is a compulsory levy payable by an economic unit to the government without any corresponding entitlement to receive a definite and direct quid pro quo from the government.
The economic history of both developed and developing countries, reveals that taxation is an important weapon or instrument in the hand of government; not only to generate revenue, but also to create fiscal goals that influences the direction of investment and taming the consumption and production of certain goods and services. It is on the basis of this that Anyanwu (1997) and Anyafo (1996) argues that taxes are imposed to regulate the production of certain goods and services, protection of infant industries, control business and commerce, curb inflation, reduce income inequalities etc.
Historically, taxation constitutes the oldest instrument of financing the public sector in times of either peace or war. For sacrificing their private resources to the state in form of taxes, citizens expect the government to reciprocate by spending public revenue in a way that will enhance their welfare. This is why scholars have divided the issue of public finance into two aspects this is revenue and expenditure (Musgrave and Musgrave, 2004). In 1776 during the era of Adam Smith, the place of taxation in public finance has caught the attention of experts like David Richardo, another classical economist who did argue that an economic principle could only be considered useful if it directs government to the right measures of taxation (Jhingan, 2004a).
However, taxation is a tool by government in fashioning various aspects of economic growth. According to Tosun and Abizadeh (2005), taxes are instrument of fiscal policy. They outlined five possible mechanisms by which taxes can affect economic growth.
First, taxes can inhibit investment rate through such taxes as corporate and personal income, capital gains taxes. Second, taxes can slow down growth in labour supply by distorting labour-leisure choice in favour of leisure. Third, tax policy can affect productivity growth through its discouraging effect on research and development expenditures. Fourth, in a Harbenger framework, taxes can lead to a flow of resources to other sectors that may have lower productivity. Finally, high taxes on labour supply can distort the efficient use of human capital high tax burdens even though they have high social productivity. Engen and Skinner (1996) suggest that a number of recent theoretical studies have used endogenous growth models to stimulate the effects of a fundamental tax reform on economic growth. All of these studies conclude that reducing the distorting effects of the current tax structure would permanently increase growth.
Anyanwu (1997) opine that in practice, it is difficult to distinguish between the effects of tax policy on levels and on growth rates of GDP. This is because transitional growth may be long-lasting and so it has not proved possible to distinguish effects on long-run growth from transitional growth. For instance, it is possible that tax changes that encourage innovation and entrepreneurship may have persistent long-run growth effects, while those that affect investment also can have long lasting effects on growth that fade out in the long run.
Economic growth has received much attention among scholars. According to Appah (2010), classical studies estimate that economic growth is largely linked to labour and capital as factors of production. The emergence of the endogenous growth theory has encouraged specialists to question the role of other factors in explaining the growth phenomenon (Bogdanov, 2010). Therefore, taxation is considered as an instrument of fiscal policy an important variable which may determine changes in national income in developing countries like Nigeria. Increased taxation on imported goods and services have affected the level of such goods and services that industrialist within our sovereignty are encouraged to produce. And because of high import duty on dairy products, textiles, materials, food drinks etc our economic potential are encouraged through industrial investment locally and the multiplier effect on employment and national growth. Also, high tax rate imposed on imported components of oil industrial inputs and the encouragement of local content in the oil industry are all geared towards increasing economic growth in Nigeria.
The findings of Devereux and Love (1995) explore that a permanent increase in the share of government spending in income that is financed with lump-sum taxes will endorse interest and long run growth rate when it is funded with an income tax while a temporary rise increases output but has no impact on long-run growth rate. It is also claimed that government spending may increase growth rates only if it is financed with a taxsmoothing policy. Tomljanocich (2004) have tested empirically whether tax revenue has transitory or permanent impact on the growth rate of output. However, all these studies deal with only developed economies.
Therefore, this gap in existing literature on tax revenue and economic growth needs to be filled.
Consequently, an efficient and effective tax administration results in increased revenue yield, but this is not possible because of the presence of evasion and avoidance due to loop holes in the tax laws. On the other hand, people do not expect that by sacrificing their private resources the state in the form of taxes, government is expected to reciprocate by spending public revenue in a way that will enhance their welfare. But government and tax collectors have been dubiously mismanaging the public treasury. There is high level of manipulation and diversion of tax revenue by the collectors. The dwindling tax revenue as presently witnessed results from lack of encouragement to the taxpayer, due to the fact that there is very little evidence to show for taxes collected. For these reasons, there are increased cases of tax evasion.
An important research issue arising from Barro’s taxsmoothing hypothesis insights is: whether, the tax policies adopted by a government effects its output growth permanently or transitorily? A prominent feature of the endogenous growth theories is permanent change in s variable that is potentially influenced by government policies cause permanent changes in the growth rate. The policy effect in the endogenous growth models is contradictory to that of neo-classical growth models (exogenous models). The later anticipate that such changes will alter growth rate only temporarily. The endogenous growth models argue that financing through taxes may have an impact on welfare and/or on growth.
Tax policy can affect economic growth by discouraging new investment and entrepreneurial incentives or by distorting investment decisions. Therefore, future economic output would be higher with the optimal rate of taxation and hence future tax revenues would be higher with a lower rate of taxation (Kiabel and Nwikpasi, 2009).
In the light of the above, the researcher intends to empirically examine the impact of Customs and Excise duties on economy growth of Nigeria.
STATEMENT OF THE RESEARCH PROBLEM
Customs and excise duties without doubt have contributed in no small measure to the economic development of Nigeria.
Efforts by the government to reform the customs have not yielded fruitful results. From the records of collections, customs reforms have not succeeded in achieving objective of boosting revenue
In the light of this, the following research questions are raised.
What is the relationship between customs and excise duties and economic growth of Nigeria?
What is the relationship between total indirect tax and economic growth of Nigeria?
What is the relationship between total tax revenue and economic growth of Nigeria?
What is the relationship between openness and economic growth of Nigeria?
What is the relationship between inflation and economic growth of Nigeria?
Is there adequate implementation strategies put in place by government for customs and excise duties collection in Nigeria
OBJECTIVES OF THE STUDY
The objectives of this study are:
To determine if there is relationship between customs and excise duties and economic growth of Nigeria.
To examine the relationship between total indirect tax and economic growth of Nigeria.
To investigate if there is relationship between total tax revenue and economic growth of Nigeria.
To determine if there is relationship between openness and economic growth of Nigeria.
To investigate whether there is relationship between inflation and economic growth of Nigeria.
To examine whether there is adequate implementation strategies put in place by government for customs and excise duties collection in Nigeria.
HYPOTHESIS OF THE STUDY
The hypothesis for this study is;
Ho: There is no relationship between customs and excise duties and economic growth of Nigeria.
H1: There is relationship between customs and excise duties and economic growth of Nigeria.
Ho: There is no relationship between total indirect tax and economic growth of Nigeria.
H1: There is relationship between total indirect tax and economic growth of Nigeria.
Ho: There is no relationship between total tax revenue and economic growth of Nigeria.
H1: There is relationship between total tax revenue and economic growth of Nigeria.
SIGNIFICANCE OF THE STUDY
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 customs and excise duties to know the essence of the customs and excise duties and economy growth of Nigeria.
The Government: It will acquaint the government of the importance of customs and excise duties and how it should be properly managed.
The public: This study will help to restore the lost confidence of the public as regard the customs and excise duties and Nigeria economy.
Academic/future researcher: Both academic and other future researchers in this similar subject matter will find it a useful source of learning and research.
SCOPE OF THE STUDY
This study is undertaken to examine the impact of custom and excise duties on the growth of Nigerian economy. In term of time series, a period of twenty years is used (i.e. 1970 to 2011) as means of assessing the impact of custom and excise duties on the growth of Nigerian economy. It is hoped that this will help to achieve the stated objective of the study.
LIMITATION OF THE STUDY
The subject matter of this study is constrained by the available limited time which would not allow for a more comprehensive work. Also this work is constrained by the following factors; limited number of published texts on the subject matter, lack of adequate finance, distance from source of data which makes it impossible to get some relevant data and lukewarm attitude of some officials towards researchers. In the course of data collection more, there may be some personal judgment which may not be absolutely correct. Finally, possible mistakes of the different writers whose work were consulted might be reflected.
DEFINITION OF TERMS
Custom Duty: A tax levied on imports (and, sometimes, on exports) by the customs authorities of a country to raise state revenue.
Excise Duty: A percentage levied on manufacture, sale, or use of locally produced goods (such as alcoholic drinks or tobacco products).
Appah, E., (2004). Principles and practice of Nigerian taxation. ezevin mint. printers, Port-Harcourt.
Bhartia, H.L., (2009). Public finance. 13th edn., vikas publishing house PVT Ltd., New Delhi.
Anyanwu, J.C., (1997). Nigerian public finance. joanne educational publishers, Onitsha.
Anyafo, A.M.O., (1996). Public finance in a developing economy: the nigerian case. department of banking and finance, University of Nigeria, Enugu Campus, Enugu.
Tosun, M.S. and S. Abizadeh, (2005). Economic growth and tax components: An analysis of tax changes in OECD. Appl. Econ., 37: 2251-2263.
Kiabel, B.D. and N.N. Nwikpasi, (2009). selected aspects of nigerian taxation. mgbaa commercial enterprises, port harcourt. Musgrave, R.A. and P.B. Musgrave
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