CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of Study

In other to supply goods and services such as public goods (defense, roads, bridges),

merit goods (hospitals, schools), welfare payments and benefits (unemployment benefit,

disability benefit) that the private sector may fail to provide, government needs to boost its

revenue adequately. One of such mediums through which government can generate funds to fuel

its economic development projects and goal is taxation. Tax is a compulsory levy imposed by the

government through its agents on its subjects or his property to achieve some goals (Ariwodola

2001). These goals are usually directed towards improving the general standard of living in the

country. In the same vein, Arnold and Mclntyre (2002) define tax as a compulsory levy on

income, consumption and production of goods and services as provided by the relevant

legislation.

Government need funds to provide developmental projects and social services and as a

result, imposes various taxes on its citizens, properties and companies that fall within the tax

bracket. One thing is to levy tax to tax payers within a tax bracket and another thing is to be able

to collect the levied taxes. Tax administration is concerned with the administration, management,

conduct, direction, and supervision of the execution and application of the internal revenue laws

or related statutes and tax conventions. In most developing countries, tax administration has been

the critical and most important aspect in ensuring that there is enough revenue for the operation

of the government. The ability of the government to administer tax determines the available

revenue via taxation for the business of governance (Bird, 2015: Pantamee & Mansor, 2016).

Thus, tax administration is a veritable tool for improved revenue generation in any given

1
economy: The effect of tax administration on revenue generation cannot be over emphasized as it

plays a fundamental role in rendering quality taxpayer service, to encourage voluntary

compliance of tax laws and to detect and penalize non-compliance. With a good tax

administration system in place, tax evasion and avoidance can be effectively controlled as well

as improved strategies to boost revenue collection can be formulated and to enhance revenue

generation at all tiers of government.

Nigeria is federalist country with three tiers of governments (federal, state, and local

governments), each having its own tax administration saddled with the responsibility of

identifying taxable individuals, companies, and properties; assessing the taxes that need to be

levied; collecting the taxes and remitting same to the respective governments as and when due.

The appropriateness and effectiveness of the tax administration in place normally determines the

revenues that would be collected and remitted to the various tax administrators at the different

levels of governments. All the tiers of government in Nigeria get significant part of their

Licensed under Creative Common Page 396 revenue from tax. Therefore, since tax revenues

contribute significantly to the total revenues generated by the government of Nigeria, it is very

important that effective and efficient tax administration be put in place. However, the state of tax

administration in Nigeria is worrisome.

Prominent among the problems attributed to the ineffective and inefficient tax

administration in Nigeria include lack of adequate equipment for the tax administrators to carry

out their job, lack of skilled staff in the area of tax collection, lack of good road network that

would give the tax collectors access to the rural areas in order to expand the tax base, lack of

training for the tax officials, lack of database to keep the records of the taxpayers and businesses

in the country, lack of inadequate enlightenment to the taxpayers, understaffing, poor

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remuneration for the tax officials, the inability of the taxpayers to pay on time, ineffective

mechanism of locating the tax evaders, and non-working internal control mechanism (Abiola &

Asiweh, 2012; Afuberoh & Okoye, 2014; Nto, 2016). There are varieties of studies that examine

the effect of tax administration on revenue generation in Nigeria, some of the authors include

Abiola & Asiweh, (2012); Soetan, (2017); Enahoro & Olabisi, (2012); Oriakhi & Ahuru, (2014);

Asaolu, Dopemu, & Monday, (2015). In line with the aforementioned studies, this study seek to

determine the effect of tax administration on revenue generation from the standing point of

personal income tax (PIC), company income tax (CIT), and value added tax (VAT).

1.2 Statement of the Problems

Over the years, revenue derived from taxes has been very low and no physical

development actually took place, hence the impact on the poor is not being felt. Inadequate tax

personnel, fraudulent activities of tax collectors and lack of understanding of the importance to

pay tax by tax payers are some of the problems of this study. The issues mentioned above will

therefore constitute the problem to be addressed by this research work. In Nigeria, value added

tax is one of the instruments the Federal government introduced to generate additional

revenue. Yet, most prominent Nigerians and interest groups had spoken against its

introduction. It would appear that VAT is froth with some problems. After its adoption

into the Nigeria tax system, it has become a controversial issue that generates debate

among several authors like Naiyeju and (2009) that the purpose of introducing value

added tax as one of the methods of taxation in Nigeria economy has not yet known.

For the purpose of these, this paper work shall examine the implication of value added

tax on revenue generation in Nigeria and to provide reasonable solutions and

recommendations that will be geared to reveal the benefit of VAT in Nigeria macro

3
economy. The problem of how to properly manage taxation in Nigeria, the extent to

which the tax laws is properly interpreted and implemented and knowing the actual

impact of tax revenue on economic growth. The problem of whether or not adequate tax

revenue is generated from various taxes through proper tax administration machinery

which translate into economic growth. Secondly, the problems of the challenges facing

tax administration in Nigeria which include tax evasion and avoidance, non compliance,

deficiencies in tax collection system, obsolete tax laws, complex legislation and corrupt

practices which affect tax revenue generation for the growth of the economy. The

problem that generated from taxes over the years, there is the question whether or not

the economic growth of Nigeria in terms of the various economic indicator is justifiable

given the relative revenue that accrue to government from taxes. Therefore, this present

study attempts to investigation the effect of taxation and revenue generation in Nigeria.

1.3 Objectives of the Study

The general objective of the study is to ascertain the effect of taxation on revenue

generation in Nigeria. The specific objectives are as follows:

1. To examine the effect of personal income tax on revenue generation in Nigeria

2. To determine the effect of company income tax on revenue generation in Nigeria

3. To ascertain the effect of value added tax on revenue generation in Nigeria.

1.4 Research Questions

1. To what extent does personal income tax affect revenue generation in Nigeria?

2. Does company income tax have effect on revenue generation in Nigeria?

3. How does value added tax affect revenue generation in Nigeria?

1.5 Statement of Hypotheses

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 Ho1 There is no significant relationship between personal income tax and

revenue generation in Nigeria

Ho2 There is no significant relationship between company income tax and

revenue generation in Nigeria

Ho3 There is no significant relationship between value added tax and revenue

generation in Nigeria

1.6 Significant of the Study

The study helps us to understand the effect of taxation on revenue generation in

Nigeria. The information contained here will benefit the society at large as it will expose the

society to the need to pay tax and consequence of failure to pay tax. The study will no doubt

charge the attitude of an average Nigerian towards the payment of tax and the collectors of

taxes who were hitherto regarded as enemies.

Owing to the present steps taken by federal government in rebranding the economy

activities, the research work will recommend measures that can be taken by the Federal In

land Revenue Services, budget and Planning department and other government decision –

making bodies ways to enhance effective administration of her services and achieve

immensely her stated objectives, especially in the area of taxation on revenue generation.

The study will also unleash problems affecting tax effectiveness, which if appropriate

corrective measures taken it will go a long way in improving the state internally generated

revenue machineries of the government.

1.7 Scope of the Study

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 The scope of this research work is to examine the effects of taxation on revenue

generation in Nigeria. The study cover a period of 10 years (from 2010 to 2019) data collected

on personal income tax, company income tax and value added tax are collected for this period.

1.8 Operational Definition of Terms

Words that are frequently used in this research work are briefly discussed to enable

the reader get equipped with their meaning, some are:

Tax: This can be defined as a compulsory transfer of resources and Income from the private

sector in order to achieve some of the nation “economic goals Okpe (1998: 109)

Tax Evasion: Here, the tax payer adopts illegal means so as to pay less than he should

ordinarily pay.

Tax Avoidance: This is a means where by the tax payer arranges his affairs legally so that

he pays less tax than he should otherwise pay.

Revenue: This could be described as an income accruable to person(s), government and

organization.

Tax Jurisdiction: This refers to an area where one tier of government has power to collect

tax.

Tax Allowance: This refers to the proportion of income exempted from tax.

Tax Holiday: This is a period of grace granted to a company during which it’s income is

not subjected to tax.

Taxable Income: This refers to that proportion of income that is liable to tax.

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 CHAPTER TWO

2.0 REVIEW OF RELATED LITERATURE

2.1 Introduction

This chapter reviews various concepts as it relates to the effect of taxation on revenue

generation and theories that inform economic development and their macroeconomic effects. A

critical review of empirical studies is undertaken and an effort to evaluate contributions is made

and pertinent knowledge gaps identified.

2.2 Conceptual Review

2.2.1 Taxation

Taxation is seen as a burden which every citizen must bear to sustain his or her

government because the government has certain functions to perform for the benefits of those it

governs. A précised definition of taxation by Farayola (2017) is that taxation is one of the

sources of income for government, such income as used to finance or run public utilities and

perform other social responsibilities. Ochiogu (2014) defines tax as a levy imposed by the

government against the income, profit or wealth of the individuals and corporate organizations.

According to Adams (2011) taxation is the most important source of revenue for modern

governments, typically accounting for ninety percent or more of their income. Taxation is seen

by Aguolu (2014), as a compulsory levy by the government through its agencies on the income,

consumption and capital of its subjects. These levies are made on personal income, such as

7
salaries, business profits, interests, dividends, discounts and royalties. It is also levied against

company’s profits petroleum profits, capital gains and capital transfer. Whereas, Ojo (2018)

stresses that, taxation is a concept and the science of imposing tax on citizens. According to him,

tax is itself a compulsory levy which is required to be paid by every citizen. It is generally

considered as a civic duty. The imposition of taxation is expected to yield income which should

be utilized in the provision of amenities, both social and security and creates conditions for the

economic well being of the society.

Okon (2017) states that income tax can be regarded as a tool of fiscal policy used by

government all over the world to influence positively or negatively particular type of economic

activities in order to achieve desired objectives. The primary economic goals of developing

countries are to increase the rate of economic growth and hence per capita income, which leads

to a higher standard of living. Progressive tax rate can be employed to achieve equitable

distribution of resources. Government can also increase or decrease the rates of tax, increase or

decrease the rate of capital allowances (given in lieu of depreciation) to encourage or discourage

certain industries (e.g. in the area of agriculture, manufacturing or construction) or may give tax

holidays to pioneer companies. Income tax therefore can be used as an of social change if

employed as a creative force in economic planning and development.

Taxation like most topics or subject matter in management sciences is difficult to give a

universal definition acceptable to everyone. Despite this fact however, some literature on

taxation have attempted to define it in such a way that it will at least give insight or a general

picture of what it is all about. The international Encyclopedia of social sciences defines taxation

as “A general concept or device used by government to extract money or other valuable things

from people and organization by the use of law. Che-Azmi & Kamarulzaman (2014) Defined tax

8
as a compulsory levy imposed on individuals and organizations by government. He concluded

that tax is a good source of revenue to government, thereby bring about economic growth

Udabah (2012) sees tax as a levy necessary to meet the cost of services and

infrastructural development desired by the community which should be provided by the

government. Primarily, he argued that taxation was initially introduced to raise revenue to meet

government expenditure. From the definitions above among several of its kind, it could clearly

be seen that taxation is therefore, one among other means of revenue generation of any

government to meet the desires of the citizens. The purpose of taxation as stated by the French

law is for the provision of the armed forces and administrative expenditures. Miller and Oats

(2006) maintain “taxation is required to finance public expenditure “however there are other

sources of revenue generation for government these includes but not limited to Fines and

Charges, Foreign aides and grants, Loans etc.

Taxation is seen as a burden which every citizen must bear to sustain his or her

government because the government has certain functions to perform for the benefits of those it

governs. A précised definition of taxation by Farayola (2017) is that taxation is one of the

sources of income for government, such income as used to finance or run public utilities and

perform other social responsibilities. Ochiogu (2014) defines tax as a levy imposed by the

government against the income, profit or wealth of the individuals and corporate organizations.

According to Adams (2011) taxation is the most important source of revenue for modern

governments, typically accounting for ninety percent or more of their income. Taxation is seen

by Aguolu (2014), as a compulsory levy by the government through its agencies on the income,

consumption and capital of its subjects. These levies are made on personal income, such as

salaries, business profits, interests, dividends, discounts and royalties. It is also levied against

9
company’s profits petroleum profits, capital gains and capital transfer. Whereas, Ojo (2018)

stresses that, taxation is a concept and the science of imposing tax on citizens. According to him,

tax is itself a compulsory levy which is required to be paid by every citizen. It is generally

considered as a civic duty. The imposition of taxation is expected to yield income which should

be utilized in the provision of amenities, both social and security and creates conditions for the

economic well-being of the society.

2.2.1.1 Objectives of Taxation

Although the tax structure in the various developing countries differs widely, the

objectives of taxation in these countries are virtually the same. Cutt (1969) therefore, states that a

brief discussion on the objectives of taxation as outlined below would be a gainful exercise.

(A). Raising of Revenue: The classical function of a tax system is the raising of the revenue

required to meet government expenditure. This income is required to meet the expenditure which

are either the provision of goods and services which members of the public cannot provide such

as defense, law and order to the provision of goods and services which the federal and state

governments feel are better provided by itself such as health services and education.

(B) Wealth Redistribution: In modern times, great emphasis has come to be placed on the

objective of redistribution of wealth. This has two quite distinct forms. The first is the doctrine

that taxation should be based on ability to pay and is summarized by the saying that “the greatest

burdens should be borne by the broadest backs.” The second form presupposes that the present

distribution is unjust and concludes that this should therefore be undone. This second principle

sees confiscation as a legitimate objective of taxation.

(C) Economic Price Stability: It has been said that the most fundamental reason a government

has for taxing its citizens is to provide a reasonable degree of price stability within the nation

10
(Summerfield, et al, 1980). Most spending by the public and private sectors without taxes

generates high demand, which is inflationary. In such a situation, the basic function of taxation is

to reduce private expenditure in order to allow government to spend without causing inflation.

Thus, taxation is basically a deflationary measure. On the other hand, when aggregate demand is

lower than the deserved level, government has two options which are to increase government

spending with increasing taxes or to reduce taxes while leaving government spending stable.

(D) Economic Growth and Development: The overall control or management of the economy

rests on the central government and taxation plays an important role in this direction. In addition

to maintaining reasonable price stability, governments are determined to promote the near-full

employment of all the resources of the country (including human resources i.e. labour) and

ensure a satisfactory rate of economic growth. Economic growth and development programmes

are geared towards raising the standard of living of the masses of a country through the

improvement of their economic and social conditions.

According to Soyode and Kajola (2006) the responsibilities or objectives of government

using taxation are as follows:-

(a) Revenue Generation: The primary objective of a modern tax system is generation of

revenue to help the government to finance ever-increasing public sector expenditure.

(b) Provision of Merit Goods: An important objective of tax system is the promotion of social,

economic and good governance through provision of merit goods. Examples of merit goods are

health and education. These must not be left entirely to private hands though, private

participation should be encouraged. Private enterprises will push the cost of providing education

and health services beyond the reach of common people if left entirely in their hands.

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(c) Provision of Public Goods: Revenue generated from tax can be used to provide commonly

consumed goods and services for which an individual cannot be levied the cost of the goods or a

service consumed is one of the functions of government. Examples of public goods include:-

(i) Internal security through maintenance of law and order by police and other security agencies.

(ii) External security through defense against external aggression by Army, Navy and Air Forces.

(iii) Provision of street lights and roads.

(d) Discouraging consumption of demerit goods: Tax can be used to discourage consumption

of demerit or harmful goods like alcohol and cigarette. This is done to reduce external costs to

the society. These external costs include health risks and pollution.

2.2.2 Tax Reforms

Taxation has been defined as a compulsory levy imposed on the citizens of a country by

the government, in order to generate revenue that will be used in general administration

(Anyanwu, 2017). Ogundele (2019) defined taxation as the process of or machinery by which

communities are made to contribute in some agreed quantum and method for the purpose of

administration and development of the society. Tax is dynamic, so reforms are necessary to

effect the required changes in the national economy (Ola, 2011). Tax reform is considered an

ongoing process which policy makers and tax administrators continually adopt in the tax systems

to reflect changing economies, social and political circumstances in the economy (Azubuike,

2019).

Tax reform is a way of changing the way taxes are collected and managed by the

government. It is an attempt to correct weaknesses in the existing tax system, which may bring

about introduction of a new tax rate, a new legal clause, a new assessment system to enhance its

efficiency. Tax reform measures are undertaken to strengthen modern taxes and drastically

12
reduce the complexity and lack of transparency of the system (Oriakhi & Rolle, 2014; Odusola,

2006; Anyanwu, 2017). Furthermore, tax reforms are designed to reduce the burden of taxation

of all people by the government, make the tax system more progressive and less regressive and

simplify the tax system, by making it more accountable and understandable.

2.2.3 Company Income Tax (CIT)

Section 93 (1) of the Companies Income Tax Act CAP 60 Laws of the Federation of

Nigeria 2010 defined a company as ―any company or corporation other than a corporation sole,

established by or under any law in force in Nigeria or elsewhere‖. The Corporate Affairs

Commission (CAC) is responsible for the registration of limited liability companies in Nigeria. A

registered company is expected to end with the word Limited (Ltd) or Public Company (Plc).

The companies income tax is a subset of direct taxes because the incidence of payment and the

burden of the tax are borne by the companies and not transferable to third parties. The Federal

Inland Revenue Service (FIRS) under the supervision of the Federal Board of Inland Revenue

(FBIR) is the relevant tax authority saddled with the responsibility of assessing and collection of

companies‘income tax among others.

2.2.4 Petroleum Profit Tax (PPT)

Petroleum profit tax involves the charging of tax on the incomes accruing from petroleum

operations (Nwezeaku, 2015). Nigerian law by virtue of the Petroleum Profits Tax Act 1990

requires all companies engaged in the extraction and transportation of petroleum to pay tax

(Buba, 2017). Petroleum profits tax is charged, assessed and payable upon the profits of each

accounting period of any company engaged in petroleum operations during any such accounting

13
period, usually one year (January to December) (Anyanwu, 1993). Petroleum profit tax is a tax

applicable to upstream operations in the oil industry. It is particularly related to rents, royalties,

margins and profit sharing elements associated with oil mining, prospecting and exploration

leases.

Adegbie (2010) noted that the taxable income of a petroleum company comprises

proceeds from the sale of oil and related substances used by the company in its own refineries

plus any other income of the company incidental to and arising from its petroleum operations. It

is the most important tax in Nigeria in terms of its share of total revenue contributing 95 and 70

percent of foreign exchange earnings and government revenue, respectively (Odusola, 2016).

Nwadighoha (2017) also stated that the taxation of petroleum profit started in 1959 with the

enactment of the Petroleum Profit Tax Act 1959 which was meant to have a retrospective

effective date of 1st January 1958. This Act serves as a foundation for the present Petroleum

Profit Tax Act, 2004; which was further amended in 2007.

2.2.5 Value Added Tax

An important landmark in tax reform in Nigeria was the adoption of the value-added tax

(VAT) in January through the VAT Act No. 102 of 1993 but its implementation actually begs in

January 1994. Since its introduction, 15 of the 42 sections of the Act have been amended. VAT

was originally imposed on 17 categories of goods and 24 service categories. Such items as basic

foods, medical and pharmaceutical products, books, newspapers and magazines, house rent,

commercial vehicles and spare parts and services rendered by community and people ‘s banks,

however, were VAT- free. The revenue generated was to be shared 20:80 between the federal

and state government: currently it is shared 15:50:35 among the federal/state/local levels. The

14
state‘s allocation was to be earmarked as 30 per cent for the state of origin, 30 per cent for

consumption/destination and 40 per cent for equality of the state.

2.2.6 Personal Income Tax

Personal Income Tax (PIT) is a direct tax levied on personal income including wages and

salaries, director’s fees, dividends, royalties and rental income, amongst others. PIT is paid by

resident and non-resident individuals once they engage in taxable or income-generating activities

in the country in question. PIT rates may either be flat or graduated, meaning that the tax rate

increases as taxable income increases – those earning more pay a higher proportion of their

earnings towards taxes. In the graduated approach, which is the most commonly used, tax rates

are based on the income bracket of a tax payer. Individuals are taxed on income earned in an

accounting period, referred to as the year of assessment – usually a calendar year. Payroll

deductions, called Pay as you Earn (PAYE) in many countries, are used to deduct tax from

wages before they are paid to employees, and are mandatory in the formal sector of most

countries. But these generally do not cover other kinds of income such as dividends, or income

from self-employed people.

The two types of Personal Income Tax are:

Pay-As-You-Earn (PAYE): This is a Scheme in which personal income taxes are deducted

from the salaries or wages of the employee by the employer and remitted it to the relevant tax

authority. The due date for remittance of PAYE is 10 th day of every succeeding month. The

deadline for filing returns for PAYE is the 31st of January of the succeeding year.

Direct Assessment: This Scheme applies to self-employed individuals. The self-employed

individual will without notice or demand, file a return of income earned in the preceding year

and pay the requisite PIT to the relevant tax authority. The due date for filing returns and

15
remittance is the 31st of March of every year. According to section 3 of PITA 2004 the incomes

chargeable to tax are Gain or profit from trade any trade, business, profession or vocation, for

whatever period as long as trade, business, profession or vocation may have been carried on or

exercised.

Any salary, wage, fee, allowance or other gain or profit from employment including

compensations, bonuses, premiums, benefits or other perquisites allowed, given or granted by

any person to any temporary or permanent employee other than so much of any sums as or

expenses incurred by him in the performance of his duties, and from which it is not intended that

the employee should make any profit or gain. Gain or profit including any premium arising from

a right granted to any other person for the use or occupation of any property.

Dividend, interest or discount.

Any pension, charge or annuity.

Any profit or other payment not failing within paragraphs (a) to € inclusive of this

subsection. PIT is calculated using the graduated tax table/scale with rates ranging between 7% –

24%, depending on the amount of chargeable income. However, the maximum tax payable by

any individual, regardless of the income, is 19.2% of such individual’s gross income. An

individual is entitled to a Consolidated Relief Allowance of N200,000 or 1% of gross income

whichever is higher plus 20% of gross income. Individuals are subject to minimum tax of 1% of

gross income where the income is less than N300,000 per annum.

PENALITIES

An employer shall file return of remunerations and tax deducted from the employees in

the preceding year not later than 31st January of every year. Any individual who fails to file a

16
return shall be liable on conviction to a fine of N5,000 and a further sum of N100 for every day

during which the failure continues or imprisonment of six (6) months or both.

Any employer who fails to file a return, shall be liable on conviction to a penalty of

N500,000 for body corporate and N50,000 in the case of individual.

ADVANCEMENT TO THE PAYMENT OF PIT

Technology has paved the way for taxes to be paid easily. With TaxITPay

(www.taxitpay.com.ng) individuals and employers can now make PIT remittances to the relevant

tax authorities and generate their authenticated receipts

2.2.7 Features of the Nigerian Tax System

Somorin (2011) stated the features of the Nigerian tax system as follows:-

(i) Simplicity, certainty and clarity: Tax payers should understand and trust the tax system and

this can only be achieved if Nigerian tax policy keeps all taxes simple, creates certainty through

considerable restrictions certainty through considerable restrictions on the need for discretionary

is therefore imperative that the Nigerian tax system should be simple (easy to understand by all),

judgments and produces clarity by educating the public on the application of relevant tax laws. It

certain (its laws and administration must be consistent) and clear (stakeholders must understand

the basis of its imposition).

(ii) Low Cost of Administration:- A key feature of a good tax system is that the cost of

administration must be relatively low when compared to the benefits derived from its imposition.

There must therefore be a proper cost- benefit analysis before the imposition of any taxes and the

entire machinery of Tax Administration in Nigeria should be efficient and cost effective.

17
(iii) Fairness:- Nigeria’s tax system should be fair and as such observe the objective of

horizontal and vertical equity. Horizontal equity ensures equal treatment of equal individuals.

The Nigerian tax system should therefore seek to avoid discrimination against economically

similar entities. Vertical equity on the other hand addresses the issue of fairness among different

income of fairness among different income categories. In this regard, the Nigerian tax system

shall recognize the ability to pay principle, in that individuals should be taxed according to their

ability to bear the tax burden.

(iv) Flexibility:- Taxes in Nigeria should be flexible enough to respond to changing

circumstances. Prevailing circumstances should also be considered before the introduction of

new taxes or the review of existing ones.

(v) Economic Efficiency:- The Nigerian tax system shall at all times strive to minimize the

negative impact of taxes on economic efficiency by ensuring that the marginal tax rates do not

distort marginal propensity to save and invest.

2.2.8 Taxation as a tool for Wealth Creation and Employment

Somorin (2011) stated that taxation is recognized as a very important tool for National

Development and growth in most societies. Taxation can play a vital role in the creation of

wealth and employment in the Nigerian economy in the following ways:-

1. Stimulating growth in the economy, by increased trade and economic activities: In this

regard, tax revenues should be used to provide basis infrastructure such as power, roads,

transportation and other infrastructure which would facilitate trade and other economic activities.

2. Stimulating domestic and foreign investment: It is necessary to mention that where the tax

system creates a competitive edge for investments in the economy, local investments would be

18
retained in the country while also attracting foreign investments. Increased investment would

generate employment and provide wealth in the hands of individuals.

3. Revenue generated from taxes can also be applied directly to identify sectors of the

Nigerian economy to stimulate such sectors: Somorin (2011) emphasized that for this

statement to apply, the sectors must be those which have potential for creating employment,

developing the economy and creating wealth for the greater benefit of citizens and government

of this country.

4. Revenue earned from taxes can be used to develop effective regulatory systems,

strengthen financial and economic structures and address market imperfections and other

distortions in the economic sector: Taxes realized from specific sectors of the economy can be

channeled back to those sectors to encourage their continued growth and development.

5. Redistribution of income: Tax revenue realized from high income earners is used to provide

public infrastructure and utilities to the lowest income earners.

2.3 Theoretical Review

2.3.1 Ibn Khaldun’s theory of taxation

This study is anchored on the Ibn Khaldun’s theory of taxation. The hallmark of Ibn

Khaldun’s theory of taxation is to lower as much as possible the amounts of individual imposts

levied upon persons capable of undertaking cultural enterprises. In this manner, such persons

will be psychologically disposed to undertake them, because they can be confident of making a

profit from them. Thus, He advocates for decreasing the burden of taxation on businessmen and

producers, in order to encourage enterprise by ensuring greater profits to entrepreneur and

revenue to the government. In practice, he found that at the initial stage, the government relies on

19
low taxes, in keeping with Islamic law. As a result, enterprises increase in number and size and

thus permit tax base, tax revenue, and governmental surplus to grow.

This theory is explained from two-folds, that is, the arithmetic and economic effects. The

arithmetic effect states that if tax rates are lowered the tax revenue will be lowered by the

amount of the decrease in the rate. The reverse is the case for an increase in tax rates (Ishlahi,

2016). Conversely, the economic effect recognizes the positive impact of lower tax rate on work,

output and employment, thereby providing incentives to increase these activities. Whereas rising

tax rate has the opposite economic effect by penalizing participation in the taxed activities. Islahi

(2016), further stated that a very high tax rate has negative economic effect which dominates

positive arithmetic effect, thereby decreasing tax revenue.

The Khaldun’s theory of taxation is also faced with criticisms one of which is that, not all

tax-rates cut results in increased tax revenues. Revenue responses to a tax rate change will

depend upon the tax system in place, the time period being considered, the ease of movement

into underground activities, the level of tax rates already in place, the prevalence of legal and

accounting-driven tax loopholes, and the proclivities of the productive factors. If the existing tax

rate is too high - in the ‘prohibitive range’ - then a tax-rate cut would result in increased tax

revenues. The economic effect of the tax cut would outweigh the arithmetic effect of the tax cut

(Laffer, 2014). On the other hand, it is also very obvious that at a very high rate when people are

prohibited from reaping much of what they sow, they will sow more sparingly. Thus, when

marginal tax rates rise, some people, those with working spouses for example, will opt out of the

labor force. Others will decide to take more vacation time, retire earlier, or forgo overtime

opportunities while others will decide to forgo promising but risky business opportunities. These

reductions in productive effort shrink the effective supply of resources thereby retarding output.

20
High marginal tax rates also encourage tax shelter investments and other forms of tax avoidance

(Gwartney, 2016). Critics of the supply-side notion disagree with the notion that tax cuts can

lead to higher tax revenues.

This study holds that tax rate cuts especially in developing nations will negatively affect

the revenue generation base of the country but in turn, it will encourage business ventures to

spring out thereby positively affecting the economy. This will go a long way of increasing tax

payers’ ability to pay taxes levied on them. This study is hinged on the Ibn Khalduns theory

because tax administrators need to pay attention to tax cuts and possible consequences when

making tax policies as tax payers prefer lesser taxes while government requires more revenue.

Therefore, a good tax administration will be able to formulate tax policies that will be beneficial

to both the tax payers and government.

2.4 Empirical Review

Theobald (2018) examines the impacts of tax administration on government revenue in

Tanzania-case of Dares Salaam region using questionnaires administered to 85 targeted

respondents to access the required information. Findings of this study revealed that, Good tax

design, Effective tax policy and laws, Tax administrative structure, Tax collection methods,

Proper use of computerized system of maintaining taxpayer Register, Outsourcing revenue

collections to private tax collectors, Internal and external capacity building, Intensive

coordination with other entities and Proper maintenance of taxpayer’s records are the main

factors that enhance effective tax administration in Tanzania. This research was carried out in

Tanzania, while the current study aims at buttressing the Nigerian perspective as regards tax

administration and revenue generation.

21
 Chijioke, Leonard, Bossco & Henry (2018), evaluate the impact of E-Taxation on

Nigeria’s revenue and economic growth. The study made use of secondary data sourced from

Federal Inland Revenue Service, and Central Bank of Nigeria Statistical and Economic Reports

on quarterly basis from second quarter 2013 to fourth quarter 2016. Findings revealed that

Federally Collected Revenue and Tax-to-GDP ratio significantly decreased after e-taxation was

implemented. Also, Tax Revenue decreased after the implementation but the mean difference

was not statistically significant. This research focuses only on e-tax system an uprising tax

reform in Nigeria. The current study seeks to incorporate other viable reforms amidst e-taxation

in Nigeria.

Soetan (2017), examines the effect of tax administration on tax revenue generation in

Nigeria. Survey research design was employed and structured questionnaire was developed and

used to collect data for this study. One hundred and twenty-six (126) respondents participated in

the study. Collected data were processed with the help of SPSS tool and Descriptive statistics

and simple regression statistical techniques were used to analyze the data. The study found that

tax administration does not have significant effect on tax revenue generation in Nigeria. This

study covered the whole of Nigeria with a relatively small sample size. The current study

addresses this by focusing on Benue state with a much bigger sample size.

Animasaun (2016), investigates the relationship between tax administration and revenue

generation from the perspective of Ogun State internal revenue service. The study employed a

survey research design and data were obtained using questionnaire administered to 70 staff of the

Ogun State Internal Revenue Service. The collected data were analysed by both descriptive and

inferential statistics. The result revealed that, in Ogun state, tax administration did not

22
significantly relate with the amount of revenue generated. This research was based on the

perspective of Ogun State Internal Revenue Service.

Ogbonna & Appah (2016), examine the effect of tax administration and revenue on

economic growth of Nigeria. Data was collected from primary and secondary sources. The

secondary sources were from scholarly books and journals while the primary source involved a

well-structured questionnaire. Data collected were analyzed using relevant regression analysis.

The results revealed that there is a significant relationship between Personal income tax revenue

(PITR) and per capita income, Company income Tax Revenue and Gross Domestic product of

Nigeria, VAT revenue and PCI of Nigeria, Petroleum Profit Tax revenue and GDP of Nigeria

and tax administration and Gross domestic product of Nigeria.

Asaolu, Dopemu & Monday (2015), assess the impact of tax reforms on revenue

generation in Lagos State of Nigeria using Time Series quarterly data between the period of 1999

and 2012, obtained from the records of Tax Payer Statistics and the Revenue Status Report of

Lagos State Internal Revenue Service (LIRS). Data collected were analyzed using ordinary least

square regression techniques (OLS). Findings indicate that there was a long run relationship

between the tax reforms and revenue generated in Lagos State; thus, the tax reforms had positive

and significant effect on the revenue structure of the State. The study employed time series

analysis and focused its scope in Lagos state.

Oriakhi & Ahuru (2014), ascertained the impact of tax reforms on tax revenue generation

in Nigeria. The study employed annual time series data spanning the years (1981-2011). The

various income taxes were used as a proxy for tax reforms. Findings revealed that tax reform by

improving the tax system and reducing tax burden enhances the ability of the government to

generate more revenue.

23
 Ifere & Eko (2014) investigated efficiency and effectiveness in the administration of tax

in Nigeria, using Cross River State as a case-study. The methodology to achieve this objective

was a qualitative technique using structured questionnaires to survey the three senatorial districts

in the state; the central limit theory was adopted as an analytical technique. Result shows a

significant degree of inefficiency in the administration of taxes.

Abiola & Asiweh (2012), examined the impact of tax administration on government

revenue in a developing economy using Nigeria as a case study. Data were obtained from 93

usable responses culled from an online survey program. The study found that increasing tax

revenue is a function of effective enforcement strategy which is the pure responsibility of tax

administration. The study also found that Nigeria lack enforcement machineries which include

among other things, adequate manpower, computers and effective postal and communication

system. The researcher made use of Nigeria as a case study with a relatively small sample.

Therefore, findings obtained may not be adequately generalized empirically. The current study

focuses on Benue state alone to give room for more participation within the population.

Enahoro & Olabisi (2012), examined the overall effectiveness of tax administration in

relation to assessment, collection and remittance of tax in Lagos State, Nigeria. Data were

obtained from a survey questionnaire administered to 130 civil servants directly connected with

tax administration in the five Local government areas of Lagos State (Somulu, Mushin, Ikeja,

Kosofe & Surulere). The study finding reveals that the tax administration in Lagos state is not

totally efficient. Hence, tax administration affects the revenue generated by the government. The

study also found that there is a significant relationship between tax administration, tax policies

and tax laws.

24
 Lai (2018) examined the effect of e-filling on revenue generation in Malaysia; it revealed

the extent to which tax revenue generation has contributed towards the economy’s revenue and

Gross Domestic Product and also the effect of tax evasion and tax avoidance on revenue

generation in Malaysia. The study employed both primary and secondary sources of data. Using

a survey research design, both descriptive and regression analysis were carried out on the data.

Findings from the study revealed that taxation has a significant contribution on revenue

generation, taxation has a significant contribution on Gross Domestic Product (GDP) and tax

evasion and tax avoidance have a significant effect on revenue generation in Malaysia.

Amabali (2019) studied the antecedents of paperless income tax filing by young

professionals in India using Regression analysis. The antecedents of young Indian professionals

depended on the perceived ease of the tax system, personal innovativeness in information

technology, relative advantage, performance of filing service, and compatibility

Pippin & Tosun (2014) examined electronic tax filing in the United State of America The

study summarizes and analyses the demographic, socio-economic, and geographic factors

affecting electronic tax filing (e-filing) in the United States for the years 1999, and 2004–2007

and the growth in e-filing between 1999 and 2007. Secondary data sourced from the IRS

Statistics of Income (“SOI”) Division and additional demographic and geographic information

from the Bureau of Economic Analysis (BEA), the Bureau of Labor Statistics (BLS) and the

census bureau were used; Analyses was carried out using regression, the rates of e-filling are

noticed to be lower in rural communities with low population and with a lower share of females,

Surprisingly, educational attainment is negatively correlated with e-filing rate and growth in e-

filing.

25
 Nasir (2015) examined implementing electronic tax fillings and payments in Malaysia;

the main objective was to point out the benefits of maintaining a good e-tax system as opposed to

a manual system. The study made use of secondary data from Malaysian Inland Revenue report

from 2004 to 2011 using trend analysis to highlight the increase in tax returns since the adoption

of an e-tax system in 2004. For the first two years, the number of taxpayers using the e –filling

system remained far below expectation at about 5% and the tax authorities were still tackling the

challenges posed by the new system such as timely and costly adaptation of the system,

uncertainty and security problems, lack of technological exposure in the country etc. all of which

had little or no impact on tax returns. 2006 to 2011 brought an increase in the users of the system

from the disappointing 4% to an Encouraging 34% and37% in 2012, over the same period tax

returns increased from 14.5% of 52GDP to 15.3%. It also showed how compliance was increased

and fewer hours used in collecting taxes. The conclusion of the study was that Electronic systems

for filling and paying taxes, if implemented well and used by most taxpayers, benefit both tax

payer and tax authorities and guarantees a better standard of living for all citizens.

Allahverd, Alagoz, & Ortakapoz (2017) examined the effect of e-taxation system on tax

revenue and cost in Turkey, the study used secondary data gotten from the Turkish revenue

authority, the data were examined in two groups which are pre-electronic tax period of 1993-

2014 and post-electronic tax period of 2005-2016. Mann-Whitney U Test was used to analyze

the data. The research also provided information on the electronic transformation of the tax

system and the Turkish Tax System. According to the empirical result of the research, the

transition to the electronic tax system positively affected the tax revenues and reduced the cost

per tax.

26
 Barati & Bakhshayesh (2015) examined electronic tax system and the challenges facing

kermansah province tax payers in Iran, the researcher made used of primary data gotten from

questionnaires administered to resident of kermansah province, analyses were carried out using

Spearman correlation coefficient, variance analysis, superiority indexes, the agent exploring

analysis, structural equations model, in which high sensitivity is used to check their compliance

and review. Results show that: technical and infrastructural variables (95/0), social influence

(90/0), the expected effort (51/0), legal issues (40/0), expected performance (32/0), information

access (18/0) and perceived risk (11/0) are factors of importance and more influence on the

affecting factors for the adoption of electronic tax, respectively.

CHAPTER THREE

METHODOLOGY

3.1 Introduction

27
 This chapter deals with the strategies and techniques used in carrying out the research on

the effect of Taxation on Revenue generation in Nigeria. It involves a detail presentation of the

study design, population and sample of the study, sources of data, data analysis techniques,

instrument(s) of data collection and model specification.

3.2 Study Design

In an attempt to carry out a research study, there must be a thorough knowledge of the

various methods the researcher would use as a tool for solving the problem. This research is

quantitative in its approach as statistical models are used for analyzing data obtained in the

process of the research study. For the purpose of this research work, descriptive research method

was employed. This method is concerned with well detailed information on the nature of the data

that is collected and its interpretation, which is the basis of this research as it gives a detail

description on the relationship between taxation and revenue generation.

3.3 Population and Sample of the Study

The population of this study is Nigeria, and the selected sample of the study are tax

payers of personal income tax, company income tax and value added tax in Nigeria for the

period of 2010 to 2019.

3.4 Sources of Data

This study made use of the secondary source of data, this source is effective for the study

as it allows for compilation of information from events that have already occurred. Hence, data

was source from Central bank of Nigeria (CBN) Statistical bulletin.

3.5 Data Analysis Techniques

The data analysis techniques that are employed are the correlation techniques and

Regression Analysis. The correlation technique help in knowing how each variable relate with

28
each other either positively or negatively. Regression analysis refers to the determination of the

significant relationship between variables both independent and dependent variables and the

prediction of the feline dependent variables value, if the future independent variables value were

inserted. For the purpose of this research study, an accounting software package would be made

use of for easy computation and accuracy of data which is statistically package for social

sciences (SPSS).

3.6 Instrument(s) of Data Collection

The specific metrics used in this study are in two categories: The Taxation is represented

by Personal Income Tax (PTA), Company Income Tax (CIT) and Value Added Tax (VAT), and

the second part being Revenue Generation (RG).

3.7 Model Specification

The model specifications of the study are as follows:

RG=f(PIT,CIT,VAT)

Where, RG= Revenue Generation

PIT= Personal Income Tax

CIT= Company Income Tax

VAT= Value Added Tax

β0=Constant intercept

Hence, the estimating equation used in this model is;

RG=βo+β1PTA+β2CIT+β3VAT+µ1

β0 and µ are the constant and error term respectively while, β1, β2 and β3 are the

coefficients of Personal Income Tax, Company Tax and Value Added Tax respectively.

29
 CHAPTER FOUR

PRESENTATION AND ANALYSIS OF DATA

4.1 Data Presentation and Analysis

Table 4.1: Descriptive Statistics of Dependent and Independent Variables

30
 Table 4.1 presents the descriptive statistics of all the variables. The CIT, which is an

official tax rate, ranges between a minimum of 30% and maximum of 35%. While PIT ranges

from a minimum of -17% and maximum of 81%, and VAT ranges from minimum -19% to

maximum 55% within the study interframe.

Variables Obs. Mean Std Dev. Min Max

PIT 30 0.2093 0.1442 -0.1758 0.8153

CIT 30 0.3074 0.0178 0.3000 0.3500

VAT 30 0.1720 0.156 -0.1943 0.5538

Source: Compiled from CBN public finance

The table above revealed the state of personal income tax, company income tax and value

added tax. From the result, it could be clearly seen that the mean and standard deviation of

personal income tax were 0.2093 and 0.1442 respectively, the minimum and maximum values of

personal income tax were -0.1750 and 0.8153. The outcome above shows that the mean and

standard deviation values of company income tax were 0.3074 and 0.0178 respectively.

Similarly, the minimum and maximum values of company income tax revenue were 0.300 and

0.3500 respectively for the periods covered. From the result, it could be clearly seen that the

mean and standard deviation values of value added tax were 0.1720 and 0.156 respectively.

Similarly, the minimum and maximum values of value added tax were -0.1943 and 0.5538

respectively for the periods covered.

Table 4.2: Correlation Matrix of the Variables

Table 4.2 shows the correlation between the dependent and independent variables. As evidenced

from the table, the correlation coefficients are generally low with the highest being 0.2503,

which is the correlation between RG and VAT.

31
 VARIABLES RG CIT VAT PIT

PIT 0.3500 0.2437 0.0022 1.0000

CIT 0.4110 1.0000

VAT 0.2503 0.1977 1.0000

RG 1.0000

Source: Compiled from CBN public finance

The correlation table presents the relationship between dimensions of performance

measured by personal income tax, company income tax, value added tax and revenue generation.

The results show that all the dimensions relate positively. Specifically, personal income

tax, company income tax, value added tax and revenue generation (RG = 0.3500, p < 0.01;

CIT = 0.2437, p < 0.01; VAT = 0.0022, p < 0.01) relates positively with the effect of

taxation on revenue generation. These suggest that the independent variables (personal

income tax, company income tax, value added tax and revenue generation) relate positively

with financial performance.

Multicollinearity test

Table 4.3: Tolerance Value and Variance Inflation Factor

Variables Tolerance Value Variance Inflation Factor

PIT 0.7211 1.3800

32
 CIT 0.6425 1.5000

VAT 0.5410 1.8400

Source: Compiled from CBN public finance

To corroborate the absence of multicollinearity, the tolerance value and Variance

Inflation Factor results are shown in Table 4.3 below and considered statistically acceptable.

Personal income tax in multicollinearity test as a tolerance value of 0.7211 which is

higher > 0.5 is a low multicollinearity, and it also has a variance inflation factor of 1.3800 which

is higher than 1, which is moderately correlated.

Also Company income tax in multicollinearity test as a tolerance value of 0.6425 which

is higher > 0.5 is a low multicollinearity, and it also has a variance inflation factor of 1.5000

which is higher than 1, which is moderately correlated.

Lastly value added tax in multicollinearity test as a tolerance value of 0.5410 which is

higher > 0.5 is a low multicollinearity, and it also has a variance inflation factor of 1.8400 which

is higher than 1, which is moderately correlated

Stationarity Tests

Just like in other times series data, the variables company income tax (CIT), value added

tax (VAT) Revenue Generation (RG) must be tested for stationarity before running the relationship

test. For this purpose, the study uses some of the most recent unit root tests, namely the Phillips-

33
Perron. The results of the stationarity tests on differenced variables are presented in the Table 4.4

below.

Table 4.4: Results of Phillip-Perrons Unit Root Test for Stationarity

Variables PP Test Critical Value at Lag Order of Remarks

Statistic 5% Integration

PIT -4.123682 -3.3350 2 I(1) Stationary

CIT -3.503529 -3.3350 2 I(1) Stationary

VAT -4.060648 -3.3350 2 I(1) Stationary

GDP -3.665208 -3.3350 2 I(1) Stationary

Source: Compiled from CBN public finance

The results reported in Table 4.4 above shows that after differencing the variables once,

all the variables were confirmed to be stationary. Since all the variables are stationary at 5%

critical value which is lower than the PP test values. It is, therefore, worth including that all the

variables are stationary.

Cointegration Test

The cointegration approach has widely been used to establish long-run relationship

among certain variables. Johansen cointegration test is used in this study to estimate the long run

34
relationship between the variables.

Table 4.5: Results of Cointegration Test

Variables Trace Critical Max-Eigen Critical Value

Statistic Value at 5% Statistic at 5%

RG (Tax 21.86859 12.53 19.15881 11.44

Mechanisms)

Trace test indicates 1 cointegrating equation(s) at the 5% level

Max-Eigen value test indicates 1 cointegrating equation(s) at the 5%

level

Source: Compiled from E-view result

The results reported in Table 4.5 shows that there is long run relationship between stock

market development variables used in this study and the RG at 5% Critical value in both Trace

test and Max-eigenvalue test. Size of the stock market which is represented by VAT in the

cointegrated with the RG.

Regression Result

RG= 4.661980 + 4.089154CIT+ 4.156342VAT+ 3.986513PIT....................(4)

35
 The equation indicates that an increase in company income tax (CIT) size by N1million

will positively increase GDP by N4.089154 million.

Table 4.6: Ordinary Least Squares Regression Result

Dependent Variable: RG

Method: Least Squares

Date: 04/07/20 Time: 11:10

Sample: 1989-2019

Included observations: 30

Variable Coefficient Std Error t-Statistics Prob.

PIT 3.986513 0.476541 2.987032 0.000781

CIT 4.089154 0.674541 6.062128 0.000016

VAT 4.156342 0.542761 3.654324 0.000512

C 4.661980 0.389531 1.196820 0.2488

R-squared 0.977807 Mean dependent var 3.458089

Adjusted R-squared 0.973646 S. D. dependent var 0.649253

S.E. of regression 0.105399 Akaike info criterion -1.485272

Sum squared residual 0.177743 Schwarz criterion -1.286125

Log likelihood 18.85272 F-statistic 234.9857

Durbin-Watson stat 2.045859 Prob (F-statistic) 0.000001

Source: Compiled from CBN public finance

4.2 Test of Hypothesis

H01: There is no significant relationship between personal income tax and revenue generation in

36
Nigeria

Decision rule:- Since the p-value 0.001 is less than 0.05 we reject H0 and conclude that

personal income tax has a significant contribution on revenue generation at 0.05 significant level.

H02: There is no significant relationship between company income tax and revenue generation in

Nigeria.

Decision rule: Since the p-value 0.000 is less than 0. we reject H0 and conclude that company

income tax has a significant contribution on revenue generation at 0.05 significant level.

H03: There is no significant relationship between value added tax and revenue generation in

Nigeria

Decision rule: Since the p-value 0.000 is less than 0. We reject H0 and conclude that value

added tax has a significant contribution on revenue generation at 0.05 significant level.

The overall fitness of the regression measured by R-squared indicates moderate fit since

the value of the 0.973646 R-squared is close to

1. Adjusted R-squared 0.973646 indicates that the model used is good enough since the

independent variables account for 97.4% variance in the dependent variable. Durbin-Watson

statistic value 2.045859 reported above is indicative that there is no presence of serial correlation

in the residuals of the estimated equation since the value is closer to

2. In other words, since the Durbin-Watson statistic value is higher than R-squared,

which indicates that the result cannot be spurious. The standard deviation of the dependent

variables 0.649253 is larger than the standard error of the regression 0.05399 which indicates

that the regression has explained most of the variance which is exactly the same result with the

37
R-squared. The corresponding p-value 0.000016 of the CIT which represent market

capitalization ratio (size) indicates that CIT contributes significantly to the regression. This

indicates significant relationship between the tax mechanisms (Company Income Tax, Value

Added Tax and Personal Income Tax) and the RG.

CHAPTER FIVE

SUMMMARY, CONCLUSION AND RECOMMENDATIONS

38
5.1 SUMMARY

The objective of this study is to empirically investigate the effect of the various taxation

with the introduction of value-added tax in 1993 and the National tax policy of 2011 on federally

collected revenue in Nigeria. It goes further to examine whether tax reforms on various taxes,

companies’ income tax, personal income tax, value added tax and others affect the revenues

generated by the federal government. It is obvious from the findings that the pursuit of tax

reform policy objectives concerning enhancement of a good tax system, improvement in general

tax administrative machinery, removal of disincentives to tax compliance and promotion of

investment opportunities increases tax revenues. Besides, it revealed that tax reform policy

objectives exert significantly different impacts on tax revenues from the various taxes sources

but there are still setbacks militating against increased receipts of tax revenues to Nigerian

Government. Based on the statistical analysis made in chapter four, this study therefore arrives at

the conclusion that taxation have a significant effect on revenue generation in Nigeria which

implies that, as taxes increases, revenue generation increases and vice versa.

5.2 CONCLUSION

An increase in revenue generation may be linked to an effective and efficient tax

administration. The way and manner in which taxpayers are identified and registered, tax returns

are processed, and the examination of completeness and correctness of tax returns, assessment of

tax obligations, tax collection and provision of services to taxpayers is of great significance to

tax revenue generation. This study examines the effect of taxation on revenue generation in

Nigeria. In line with the findings, the study concludes that taxation significantly affects revenue

generation in Nigeria.

5.3 RECOMMEDTIONS

39
 In order to ensure that effective and efficient tax is maintained at all government levels,

the following recommendations are proffered.

1. Companies income tax goes to show that tax reform by improving the tax system,

reducing tax avoidance and evasion, reducing tax burden by scaling down the company

income tax (CIT) from 30 to 20 percent improve the ability of the government to generate

more revenue through taxation. This has the potential to improve both the quantity and

quality of public expenditure, and de-link Nigeria ‘s public expenditure from the

happenings in the international oil market, thereby hedging the economy away from oil

price volatility. However, in order to consolidate the benefits from tax reforms effort

should be made to achieve full autonomy for the Federal Inland Revenue Service (FIRS),

tackle the hydra-headed monster of multiple taxation and promote accountability and

transparency in government business so as to restore the confidence of the tax payer in

the tax system.

2. There is also need for adequate tax equipment and facilities to sustain the rapidly

evolving electronic tax system. Failure of this will bring about loss of confidence by tax

payers on the tax system.

3. With regards to VAT, there should be an upward review of the VAT, from the current

7.5% to about 10% on luxury goods while the current rate of 7.5% may be maintained on

necessities. Also, developing a sound billing habit, increasing consumers‘ consciousness

on demanding bills, easing the tax reduction and VAT refund process, discouraging the

sellers‘ trend of demanding huge amount of tax credit, developing cooperate and positive

thinking of VAT personnel to correct mistakes of the sellers on maintaining the account

and relevant training for the VAT personnel are some measures to be taken into

40
 consideration.

5.4 Suggestion for further studies

The study greatly relied on secondary data for analysis. Secondary sources of data were

not considered for analysis. A similar research may be carried to examine the internal revenue

figures of Benue state during the period using secondary sources of data.

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