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 TAXATION FOR
ECONOMIC DEVELOPMENT

EDITORS:
MUHAMMAD AKARO MAINOMA
GODWIN EMMANUEL OYEDOKUN
SULEIMAN A. SALIHU ARUWA
TAIWO OLUFEMI ASAOLU
RAFIU OYESOLA SALAWU
 TAXATION FOR ECONOMIC DEVELOPMENT

ISBN: 978-978-991-390-9

Copyright © 2022 – OGE Business School

All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted in any form or by any means, electronic, mechanical, photocopying,
recording, or otherwise without the prior joint permission of the Author.

Published in Nigeria by:

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NATIONAL LIBRARY OF NIGERIA CATALOGUING-IN PUBLICATION DATA

TAXATION for Economic development
1, Taxation—Nigeria –periodicals
2, Taxation—study and teaching—Nigeria
i, Mainoma, Akaro Mohammad
ii,Oyedokun, Godwin Emmanuel
iii, Aruwa, Suleiman, A, Salihu
iv, Asaolu, Taiwo Olufemi
v, Rafiu Oyesola Salawu

HJ 3081. TAX. 336.209669

ISBN 978-978-978-734-0. Pbk AACR 2

ii
 CHAPTER ONE

TAXATION FOR ECONOMIC DEVELOPMENT

Oyedokun Godwin Emmanuel

Professor of Management & Accounting
Faculty of Management & Social Sciences
Lead City University, Ibadan, Nigeria.
godwinoye@yahoo.com; +2348033737184

ABSTRACT
Taxation refers to wealth from households or businesses to the government whose effects could
increase or reduce economic growth and economic welfare. On the other hand, a country's economic
development is usually indicated by an increase in citizens' quality of life. This chapter discussed the
concept, classes, purposes, history, effects, forms and principles of taxation, analyze the concept,
goals and policies of economic development, made a distinct difference between economic growth and
economic development. Reviewed the roles of taxation in financing economic development and why
tax is essential for development. It also presented taxation as a tool for economic management and
development, itemized the Schedule to Nigeria Taxes and Levies, objectives and guiding principles of
the National Tax Policy, and reviewed the revenue statistics in Africa 2020, focused on Nigeria as
well examine the tax-to-GDP ratio. It will also enable reader understood economic development
indicators and indices among many others.

Keywords: Economic development, Economic growth, Taxation.

INTRODUCTION
Revenue generated by an individual, organization or government determines the extent of
socio-economic infrastructural provision as well as the living standard of the people. From
ancient times, public finance is majorly funded through taxes often imposed on subjects by
the government in power. Revenues may be derived from tax and non-tax sources, oil and
non-oil, internally and externally generated, among other sources or classification.
Whatever the source or classification, taxation revenue is the most potent, reliable and
efficient source of revenue to both developed and developing economies (Konrad, 2014).
Taxation as a major source of government revenue is meant to foster growth and
development of individual nation if adequately collected and properly utilized. This
manual will be guided concepts of taxation, economic development and how taxation can
foster development.

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Taxation For Economic Development

LITERATURE REVIEW
Concept of Taxation
While tax is a compulsory financial charge or some other type of levy imposed on a taxpayer
(an individual or legal entity) by a governmental organization in order to fund government
spending and various public expenditures. A failure to pay, along with evasion of or
resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may
be paid in money or as its labour equivalent. The first known taxation took place in Ancient
Egypt around 3000–2800 BC.

Taxation on the other hand is the imposition of compulsory levies on individuals or entities
by governments. Taxes are levied in almost every country of the world, primarily to raise
revenue for government expenditures, although they serve other purposes as well.

Oyedokun (2019) defined taxation as the concept and science of imposing tax on taxable
income of tax payers within a particular jurisdiction. Through taxes collected on these
taxable incomes, government ensures that resources are channeled towards important
projects in the society, while giving relief to the weak.

Abomaye (2017) is of the view that tax is a compulsory contributions made by animate and
inanimate beings to government being a higher authority either directly or indirectly to
fund its various activities and any refusal is meted with appropriate punishment. He went
on to say that Tax is an involuntary payment made by a resident of a state in obeisance to
levy imposed by a constituted authority of a sovereign state at a particular period of time;
and that Taxation is the process put in place by government (whichever tier) to exercise
authority on and over the imposition and collection of taxes based on enacted tax laws with
which projects are financed. Taxation is therefore seen as the transfer of resources as income
from the private sector to the public sector for its utilization to achieve some if not all the
nation's economic and social goals such as provision of basic amenities, social services,
educational facilities, public health, transportation, capital formation etc.

Most countries have a tax system in place to pay for public, common, or agreed national
needs and government functions. Some levy a flat percentage rate of taxation on personal
annual income, but most scale taxes based on annual income amounts. Most countries
charge a tax on an individual's income as well as on corporate income. Countries or
subunits often also impose wealth taxes, inheritance taxes, estate taxes, gift taxes, property
taxes, sales taxes, payroll taxes or tariffs.

In economic terms, taxation transfers wealth from households or businesses to the

government. This has effects which can both increase and reduce economic growth and
economic welfare. Consequently, taxation is a highly debated topic.
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Taxation For Economic Development

In modern economies taxes are the most important source of governmental revenue. Taxes
differ from other sources of revenue in that they are compulsory levies and are unrequited
i.e., they are generally not paid in exchange for some specific thing, such as a particular
public service, the sale of public property, or the issuance of public debt. While taxes are
presumably collected for the welfare of taxpayers as a whole, the individual taxpayer's
liability is independent of any specific benefit received.

Purposes and Effects of Taxation

During the 19th century the prevalent idea was that taxes should serve mainly to finance the
government. In earlier times, and again today, governments have utilized taxation for other
than merely fiscal purposes. One useful way to view the purpose of taxation, attributable to
American economist Richard A. Musgrave, is to distinguish between objectives of resource
allocation, income redistribution, and economic stability. (Economic growth or
development and international competitiveness are sometimes listed as separate goals, but
they can generally be subsumed under the other three.) In the absence of a strong reason for
interference, such as the need to reduce pollution, the first objective, resource allocation, is
furthered if tax policy does not interfere with market-determined allocations. The second
objective, income redistribution, is meant to lessen inequalities in the distribution of income
and wealth. The objective of stabilization—implemented through tax policy, government
expenditure policy, monetary policy, and debt management—is that of maintaining high
employment and price stability.

There are likely to be conflicts among these three objectives. For example, resource
allocation might require changes in the level or composition (or both) of taxes, but those
changes might bear heavily on low-income families—thus upsetting redistributive goals.
As another example, taxes that are highly redistributive may conflict with the efficient
allocation of resources required to achieve the goal of economic neutrality.

The levying of taxes aims to raise revenue to fund governing or to alter prices in order to
affect demand. States and their functional equivalents throughout history have used
money provided by taxation to carry out many functions. Some of these include
expenditures on economic infrastructure (roads, public transportation, sanitation, legal
systems, public safety, education, health care systems), military, scientific research, culture
and the arts, public works, distribution, data collection and dissemination, public
insurance, and the operation of government itself. A government's ability to raise taxes is
called its fiscal capacity.

When expenditures exceed tax revenue, a government accumulates debt. A portion of taxes
may be used to service past debts. Governments also use taxes to fund welfare and public

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Taxation For Economic Development

services. These services can include education systems, pensions for the elderly,
unemployment benefits, and public transportation. Energy, water and waste management
systems are also common public utilities.

According to the proponents of the Chartalist theory of money creation, taxes are not
needed for government revenue, as long as the government in question is able to issue fiat
money. According to this view, the purpose of taxation is to maintain the stability of the
currency, express public policy regarding the distribution of wealth, subsidizing certain
industries or population groups or isolating the costs of certain benefits, such as highways
or social security.

Effects can be divided in two fundamental categories:

i. Taxes cause an income effect because they reduce purchasing power to taxpayers.
ii. Taxes cause a substitution effect when taxation causes a substitution between taxed
goods and untaxed goods.

Classes of Taxes
In the literature of public finance, taxes have been classified in various ways according to
who pays for them, who bears the ultimate burden of them, the extent to which the burden
can be shifted, and various other criteria. Taxes are most commonly classified as either
direct or indirect, an example of the former type being the income tax and of the latter the
sales tax. There is much disagreement among economists as to the criteria for
distinguishing between direct and indirect taxes, and it is unclear into which category
certain taxes, such as corporate income tax or property tax, should fall. It is usually said that
a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an
indirect tax can be, they are:

i. Direct Taxes
Direct taxes are primarily taxes on natural persons (e.g., individuals), and they are typically
based on the taxpayer's ability to pay as measured by income, consumption, or net wealth.
What follows is a description of the main types of direct taxes.

Individual income taxes are commonly levied on total personal net income of the taxpayer
(which may be an individual, a couple, or a family) in excess of some stipulated minimum.
They are also commonly adjusted to take into account the circumstances influencing the
ability to pay, such as family status, number and age of children, and financial burdens
resulting from illness. The taxes are often levied at graduated rates, meaning that the rates
rise as income rises. Personal exemptions for the taxpayer and family can create a range of
income that is subject to a tax rate of zero.

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Taxation For Economic Development

Taxes on net worth are levied on the total net worth of a person—that is, the value of his
assets minus his liabilities. As with the income tax, the personal circumstances of the
taxpayer can be taken into consideration. Personal or direct taxes on consumption (also
known as expenditure taxes or spending taxes) are essentially levied on all income that is
not channeled into savings. In contrast to indirect taxes on spending, such as the sales tax, a
direct consumption tax can be adjusted to an individual's ability to pay by allowing for
marital status, age, number of dependents, and so on. Although long attractive to theorists,
this form of tax has been used in only two countries, India and Sri Lanka; both instances
were brief and unsuccessful. Near the end of the 20th century, the “flat tax”—which
achieves economic effects similar to those of the direct consumption tax by exempting most
income from capital—came to be viewed favourably by tax experts. No country has
adopted a tax with the base of the flat tax, although many have income taxes with only one
rate.

Taxes at death take two forms: the inheritance tax, where the taxable object is the bequest
received by the person inheriting, and the estate tax, where the object is the total estate left
by the deceased. Inheritance taxes sometimes take into account the personal circumstances
of the taxpayer, such as the taxpayer's relationship to the donor and his net worth before
receiving the bequest. Estate taxes, however, are generally graduated according to the size
of the estate, and in some countries they provide tax-exempt transfers to the spouse and
make an allowance for the number of heirs involved. In order to prevent the death duties
from being circumvented through an exchange of property prior to death, tax systems may
include a tax on gifts above a certain threshold made between living persons (see gift tax).
Taxes on transfers do not ordinarily yield much revenue, if only because large tax payments
can be easily avoided through estate planning.

ii. Indirect Taxes

Indirect taxes are levied on the production or consumption of goods and services or on
transactions, including imports and exports. Examples include general and selective sales
taxes, value-added taxes (VAT), taxes on any aspect of manufacturing or production, taxes
on legal transactions, and customs or import duties.

General sales taxes are levies that are applied to a substantial portion of consumer
expenditures. The same tax rate can be applied to all taxed items, or different items (such as
food or clothing) can be subject to different rates. Single-stage taxes can be collected at the
retail level, as the U.S. states do, or they can be collected at a pre-retail (i.e., manufacturing
or wholesale) level, as occurs in some developing countries. Multistage taxes are applied at
each stage in the production-distribution process. The VAT, which increased in popularity
during the second half of the 20th century, is commonly collected by allowing the taxpayer

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Taxation For Economic Development

to deduct a credit for tax paid on purchases from liability on sales. The VAT has largely
replaced the turnover tax; a tax on each stage of the production and distribution chain, with
no relief for tax paid at previous stages. The cumulative effect of the turnover tax,
commonly known as tax cascading, distorts economic decisions.

Although they are generally applied to a wide range of products, sales taxes sometimes
exempt necessities to reduce the tax burden of low-income households. By comparison,
excises are levied only on particular commodities or services. While some countries impose
excises and customs duties on almost everything from necessities such as bread, meat, and
salt, to nonessentials such as cigarettes, wine, liquor, coffee, and tea, to luxuries such as
jewels and furs, taxes on a limited group of products, alcoholic beverages, tobacco
products, and motor fuel yield the bulk of excise revenues for most countries. In earlier
centuries, taxes on consumer durables were applied to luxury commodities such as pianos,
saddle horses, carriages, and billiard tables. Today a main luxury tax object is the
automobile, largely because registration requirements facilitate administration of the tax.
Some countries tax gambling and state-run lotteries have effects similar to excises, with the
government's “take” being, in effect, a tax on gambling. Some countries impose taxes on
raw materials, intermediate goods (e.g., mineral oil, alcohol), and machinery.

Some excises and customs duties are specific i.e., they are levied on the basis of number,
weight, length, volume, or other specific characteristics of the good or service being taxed.
Other excises, like sales taxes, are ad valorem levied on the value of the goods as measured by
the price. Taxes on legal transactions are levied on the issue of shares, on the sale (or
transfer) of houses and land, and on stock exchange transactions. For administrative
reasons, they frequently take the form of stamp duties; that is, the legal or commercial
document is stamped to denote payment of the tax. Many tax analysts regard stamp taxes as
nuisance taxes; they are most often found in less-developed countries and frequently bog
down the transactions to which they are applied.

The Proportional, Progressive, and Regressive Taxes

Taxes can be distinguished by the effect they have on the distribution of income and wealth.
A proportional tax is one that imposes the same relative burden on all taxpayers i.e., where
tax liability and income grow in equal proportion. A progressive tax is characterized by a
more than proportional rise in the tax liability relative to the increase in income, and a
regressive tax is characterized by a less than proportional rise in the relative burden. Thus,
progressive taxes are seen as reducing inequalities in income distribution, whereas
regressive taxes can have the effect of increasing these inequalities.

6
Taxation For Economic Development

The taxes that are generally considered progressive include individual income taxes and
estate taxes. Income taxes that are nominally progressive, however, may become less so in
the upper-income categories especially if a taxpayer is allowed to reduce his tax base by
declaring deductions or by excluding certain income components from his taxable income.
Proportional tax rates that are applied to lower-income categories will also be more
progressive if personal exemptions are declared.

Income measured over the course of a given year does not necessarily provide the best
measure of taxpaying ability. For example, transitory increases in income may be saved,
and during temporary declines in income a taxpayer may choose to finance consumption
by reducing savings. Thus, if taxation is compared with “permanent income,” it will be less
regressive (or more progressive) than if it is compared with annual income.

Sales taxes and excises (except those on luxuries) tend to be regressive, because the share of
personal income consumed or spent on specific good declines as the level of personal
income rises. Poll taxes (also known as head taxes), levied as a fixed amount per capital
obviously regressive.

It is difficult to classify corporate income taxes and taxes on business as progressive,

regressive, or proportionate, because of uncertainty about the ability of businesses to shift
their tax expenses (see below Shifting and incidence). This difficulty of determining who
bears the tax burden depends crucially on whether a national or a sub-national (that is,
provincial or state) tax is being considered.

In considering the economic effects of taxation, it is important to distinguish between

several concepts of tax rates. The statutory rates are those specified in the law; commonly
these are marginal rates, but sometimes they are average rates. Marginal income tax rates
indicate the fraction of incremental income that is taken by taxation when income rises by
one dollar. Thus, if tax liability rises by 45 cents when income rises by one dollar, the
marginal tax rate is 45 percent. Income tax statutes commonly contain graduated marginal
rates i.e., rates that rise as income rises. Careful analysis of marginal tax rates must consider
provisions other than the formal statutory rate structure. If, for example, a particular tax
credit (reduction in tax) falls by 20 cents for each one-dollar rise in income, the marginal rate
is 20 percentage points higher than indicated by the statutory rates. Since marginal rates
indicate how after-tax income changes in response to changes in before-tax income, they are
the relevant ones for appraising incentive effects of taxation. It is even more difficult to
know the marginal effective tax rate applied to income from business and capital, since it
may depend on such considerations as the structure of depreciation allowances, the
deductibility of interest, and the provisions for inflation adjustment. A basic economic

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Taxation For Economic Development

theorem holds that the marginal effective tax rate in income from capital is zero under a
consumption-based tax.

Average income tax rates indicate the fraction of total income that is paid in taxation. The
pattern of average rates is the one that is relevant for appraising the distributional equity of
taxation. Under a progressive income tax the average income tax rate rises with income.
Average income tax rates commonly rise with income, both because personal allowances
are provided for the taxpayer and dependents and because marginal tax rates are
graduated; on the other hand, preferential treatment of income received predominantly by
high-income households may swamp these effects, producing regressively, as indicated by
average tax rates that fall as income rises.

History of Taxation
The first known system of taxation was in Ancient Egypt around 3000–2800 BC in the First
Dynasty of Egypt of the Old Kingdom of Egypt. The earliest and most widespread form of
taxation was the corvée and tithe. The corvée was forced labour provided to the state by
peasants too poor to pay other forms of taxation (labour in ancient Egyptian is a synonym
for taxes). Records from the time document that the Pharaoh would conduct a biennial tour
of the kingdom, collecting tithes from the people. Other records are granary receipts on
limestone flakes and papyrus. Early taxation is also described in the Bible. In Genesis
(chapter 47, verse 24 of the New International Version), it states “But when the crop comes
in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and
as food for yourselves and your households and your children”. Joseph was telling the
people of Egypt how to divide their crop, providing a portion to the Pharaoh. A share (20%)
of the crop was the tax (in this case, a special rather than an ordinary tax, as it was gathered
against an expected famine) The stock made by was returned and equally shared with the
people of Egypt and traded with the surrounding nations thus saving and elevating Egypt.
Samgharitr is the name mentioned for the Tax collector in the Vedic texts. In Hattusa, the
capital of the Hittite Empire, grains were collected as a tax from the surrounding lands, and
stored in silos as a display of the king's wealth.

In the Persian Empire, a regulated and sustainable tax system was introduced by Darius I
the Great in 500 BC; the Persian system of taxation was tailored to each Satrapy (the area
ruled by a Satrap or provincial governor). At differing times, there were between 20 and 30
Satrapies in the Empire and each was assessed according to its supposed productivity. It
was the responsibility of the Satrap to collect the due amount and to send it to the treasury,
after deducting his expenses (the expenses and the power of deciding precisely how and
from whom to raise the money in the province, offer maximum opportunity for rich
pickings). The quantities demanded from the various provinces gave a vivid picture of their

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Taxation For Economic Development

economic potential. For instance, Babylon was assessed for the highest amount and for a
startling mixture of commodities; 1,000 silver talents and four months' supply of food for
the army. India, a province fabled for its gold, was to supply gold dust equal in value to the
very large amount of 4,680 silver talents. Egypt was known for the wealth of its crops; it was
to be the granary of the Persian Empire (and, later, of the Roman Empire) and was required
to provide 120,000 measures of grain in addition to 700 talents of silver. This tax was
exclusively levied on Satrapies based on their lands, productive capacity and tribute levels.
The Rosetta Stone, a tax concession issued by Ptolemy V in 196 BC and written in three
languages “led to the most famous decipherment in history—the cracking of
hieroglyphics”.

Islamic rulers imposed Zakat (a tax on Muslims) and Jizya (a poll tax on conquered non-
Muslims). In India this practice began in the 11th century.

Policy, Legal and Institutional Reforms: A Historical Overview

Policy, legislative and administrative reforms of the Nigeria tax system predate
independence and can be traced back to early twentieth century when the then High
Commissioner of the [then] Northern Protectorate issued the Stamp Duties Proclamation in
1903, followed immediately thereafter in 1906 by the Native Revenue Proclamation. This
latter Proclamation systematized all the pre-colonial taxes by defining taxable rates; and
procedures for assessment and collection, as well as penalties for default thus eliminating
arbitrariness that had hitherto characterized the Nigerian tax system. It introduced the four
certainties essential in tax practice: what to pay, when to pay, where to pay and who to pay
to. The same Proclamation was re-issued as the Native Revenue Ordinance in 1917 to cover
the Southern territories and by 1927, was applicable in the whole country. The year 1943 was
a watershed period in the history of the Nigerian tax system as it witnessed the creation of
the Inland Revenue Department (renamed the Federal Board of Inland Revenue in 1958),
the precursor to the present day Federal Inland Revenue Service (FIRS). Following
independence in 1960, other legal and institutional reforms were effected in 1961 through
the establishment of the Federal Board of Inland Revenue (FBIR) and the Body of Appeal
Commissioners as the first point of call for tax dispute resolution. In the same year, the Joint
Tax Board (JTB) was created with the primary responsibility of ensuring uniformity of
standards and application of Personal Income Tax.

Other major reforms to the tax system were effected in 1982 with the establishment of the
Chartered Institute of Taxation of Nigeria and 1993 with a review of the composition of the
FBIR and establishment of the present day Federal Inland Revenue Service (FIRS) as the
operational arm of the FBIR; as well as a review of the functions of the JTB. Further changes
were effected in 2007 with the granting of financial and administrative autonomy to the

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Taxation For Economic Development

FIRS following the recommendations of the 'Study and Working Group on Nigerian Tax
System' which had been set up in half a decade earlier. These and other reforms represented
the first major attempt at shifting focus away from oil to a more sustainable source of
revenue, that is, the non-oil sector. Since then, a raft of changes that cut across
organisational restructuring of the Federal and State authorities, the enactment of a
National Tax Policy, funding, legislation, taxpayer education, dispute resolution
mechanism, taxpayer registration, human capacity building, automation of key processes,
refund mechanism and several other areas have been effected.

Why so many reforms in our tax system? Given the low tax to GDP ratio, it is plausible to
assume that the need to address the problem of low tax returns motivated the Nigerian
Government to embark on these reforms. The scope of, and frequency with which tax
reforms have been implemented should however, be viewed within the broader context of
the structure of Nigeria's economy and the centrality of taxes to the attainment of national
development objectives. In specific terms, four main considerations seem to have informed
these frequent tax reforms: the need to diversify the revenue portfolio to safeguard against
the oil price volatility in the global market; the need for an accurate and reliable
determination of the optimal tax rate, since Nigeria operates on a cash budget system,
where expenditure proposals and overall fiscal management are anchored on revenue
projections; historical overreliance on petroleum and trade taxes while overlooking direct
and broad-based indirect taxes such as value added tax (VAT); and the ever-widening fiscal
deficit, an ever-present threat to macroeconomic stability.

According to the objectives of tax reforms in Nigeria include the need to bridge the gap
between the national development, needs and the funding of the needs; achieve improved
service delivery to the public; improve on the level of tax derivable from non-oil activities,
vis-à-vis revenue from oil activities; constantly review the tax laws to reduce/manage tax
evasion and avoidance; and improve the tax administration to make it more responsive,
reliable, skillful and taxpayers friendly, as well as achieve other fiscal objectives such as
managing inflation and improving balance-of-payment conditions. But the fiscal objectives
were only a means to an end. The end objectives of the tax policy reforms were to generate
revenue; promote growth and development; ensure effective protection for local industries
and encourage greater use of local raw materials; promote value addition and greater
geographical dispersion of domestic manufacturing capacities; and create jobs. And
although specific policy, legal and institutional measures have varied over time, these
objectives have remained relatively unchanged.

Schedule to Nigeria Taxes and Levies

Approved List for Collection of Taxes (ACT AMENDMENT) ORDER, 2015 (NBS, 2015).

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Taxation For Economic Development

1. Taxes Collected by the Federal Government

- Company income tax.
- Withholding tax on companies, residents of the Federal Capital Territory,
Abuja and non-resident individuals.
- Petroleum profits tax.
- Education Tax.
- Value Added Tax.
- Capital gains tax on residents of the Federal Capital Territory, Abuja,
corporate and non-resident individuals.
- National Information Technology Development Levy
- Stamp duties on bodies corporate and residents of the Federal Capital
Territory, Abuja.
- Personal income tax in respect of
a. Members of the armed forces.
b. Members of the Nigeria Police Force.
c. Residents of the Federal Capital Territory, Abuja; and
d. Staff of the Ministry of Foreign Affairs and non-resident individuals

2. Taxes and levies collected by the State Government.

- Personal income tax in respect of:
a. Pay-As-You-Earn (PAYE);
b. Direct taxation (Self-assessment)
- Withholding tax for Individuals
- Capital gains tax for individuals
- Stamp duties on instruments executed by individuals.
- Pools betting, lotteries, gaming and casino taxes.
- Road tax.
- Business premises registration
- Development levy for individuals
- Naming of street registration fees in State Capitals.
- Right of Occupancy fees on lands owned by the State Government.
- Market taxes and levies where State finance is involved.
- Hotel, Restaurant or Event Centre Consumption Tax, where applicable
- Entertainment Tax, where applicable
- Environmental (Ecological) Fee or Levy
- Mining, Milling and Quarry Fees, where applicable
- Animal Trade Tax, where applicable
- Produce Sales Tax, where applicable
- Slaughter or Abattoir Fees, where state finance is involved
- Infrastructure Maintenance Charge or Levy, where applicable
- Fire Service Charge
- Economic Development Levy, where applicable

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Taxation For Economic Development

- Social Services Contribution Levy, where applicable

- Signage and Mobile Advertisement, Jointly collected by States and Local
Governments
- Property Tax
- Land use charge, where applicable.
3. Taxes and Levies to be collected by Local Government
- Shops and, kiosks rates
- Tenement rates
- On and off liquor license fees
- Slaughter slab fees.
- Marriage, birth and death registration fees.
- Naming of street registration fee, excluding any street in the State Capital
- Right of Occupancy fee on lands in rural areas, excluding those
collectable by the Federal and State Governments.
- Market taxes and levies excluding any market where State Finance is
involved.
- Motor Park levies.
- Domestic animal license fees.
- Bicycle, truck, canoe, wheelbarrow and cart fees, other than a
mechanically propelled truck.
- Cattle tax payable by cattle farmers only.
- Merriment and road closure levy.
- Radio and television license fees (other than radio and television
transmitter).
- Vehicle radio license fee (to be imposed by the local government of the
State in which the car is registered.
- Wrong parking charges.
- Public convenience, sewage and refuse disposal fees.
- Customary burial ground permit fees.
- Religious places establishment permit fees.
- Signboard and advertisement permit fees
- Wharf Landing Charge, where applicable

Forms of Taxation
In monetary economies prior to fiat banking, a critical form of taxation was seigniorage, the
tax on the creation of money.
Other obsolete forms of taxation include:
i. Scutage, which is paid in lieu of military service; strictly speaking, it is a
commutation of a non-tax obligation rather than a tax as such but functioning as a
tax in practice.
ii. Tallage, a tax on feudal dependents.

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Taxation For Economic Development

iii. Tithe, a tax-like payment (one tenth of one's earnings or agricultural produce), paid
to the Church (and thus too specific to be a tax in strict technical terms). This should
not be confused with the modern practice of the same name which is normally
voluntary.
iv. (Feudal) aids, a type of tax or due that was paid by a vassal to his lord during feudal
times.
v. Danegeld, a medieval land tax originally raised to pay off raiding Danes and later
used to fund military expenditures.
vi. Carucage, a tax which replaced the danegeld in England.
vii. Tax farming, the principle of assigning the responsibility for tax revenue collection
to private citizens or groups.
viii. Socage/Burgage, a feudal tax system based on land rent.

Principles of Taxation
The 18th-century economist and philosopher Adam Smith attempted to systematize the
rules that should govern a rational system of taxation. In The Wealth of Nations (Book V,
chapter 2) he set down four general canons:
Although they need to be reinterpreted from time to time, these principles retain
remarkable relevance. From the first can be derived some leading views about what is fair
in the distribution of tax burdens among taxpayers. These are:
(i) The belief that taxes should be based on the individual's ability to pay, known as
the ability-to-pay principle, and
(ii) The benefit principle, the idea that there should be some equivalence between
what the individual pays and the benefits he subsequently receives from
governmental activities. The fourth of Smith's canons can be interpreted to
underlie the emphasis many economists place on a tax system that does not
interfere with market decision making, as well as the more obvious need to
avoid complexity and corruption.

Distribution of Tax Burdens

Various principles, political pressures, and goals can direct a government's tax policy. What
follows is a discussion of some of the leading principles that can shape decisions about
taxation.

Horizontal Equity
The principle of horizontal equity assumes that persons in the same or similar positions (so
far as tax purposes are concerned) will be subject to the same tax liability. In practice this
equality principle is often disregarded, both intentionally and unintentionally. Intentional
violations are usually motivated more by politics than by sound economic policy (e.g., the
tax advantages granted to farmers, home owners, or members of the middle class in

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Taxation For Economic Development

general; the exclusion of interest on government securities). Debate over tax reform has
often centered on whether deviations from “equal treatment of equals” are justified.

The Ability-to-pay Principle

The ability-to-pay principle requires that the total tax burden will be distributed among
individuals according to their capacity to bear it, taking into account all of the relevant
personal characteristics. The most suitable taxes from this standpoint are personal levies
(income, net worth, consumption, and inheritance taxes). Historically there was common
agreement that income is the best indicator of ability to pay. There have, however, been
important dissenters from this view, including the 17th-century English philosophers John
Locke and Thomas Hobbes and a number of present-day tax specialists. The early
dissenters believed that equity should be measured by what is spent (i.e., consumption)
rather than by what is earned (i.e., income); modern advocates of consumption-based
taxation emphasize the neutrality of consumption-based taxes toward saving (income
taxes discriminate against saving), the simplicity of consumption-based taxes, and the
superiority of consumption as a measure of an individual's ability to pay over a lifetime.
Some theorists believe that wealth provides a good measure of ability to pay because assets
imply some degree of satisfaction (power) and tax capacity, even if (as in the case of an art
collection) they generate no tangible income.

The ability-to-pay principle also is commonly interpreted as requiring that direct personal
taxes have a progressive rate structure, although there is no way of demonstrating that any
particular degree of progressivity is the right one. Because a considerable part of the
population does not pay certain direct taxes—such as income or inheritance taxes—some
tax theorists believe that a satisfactory redistribution can only be achieved when such taxes
are supplemented by direct income transfers or negative income taxes (or refundable
credits). Others argue that income transfers and negative income tax create negative
incentives; instead, they favour public expenditures (for example, on health or education)
targeted toward low-income families as a better means of reaching distributional
objectives.

Indirect taxes such as VAT, excise, sales, or turnover taxes can be adapted to the ability-to-
pay criterion, but only to a limited extent—for example, by exempting necessities such as
food or by differentiating tax rates according to “urgency of need.” Such policies are
generally not very effective; moreover, they distort consumer purchasing patterns, and
their complexity often makes them difficult to institute.

Throughout much of the 20th century, prevailing opinion held that the distribution of the
tax burden among individuals should reduce the income disparities that naturally result

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Taxation For Economic Development

from the market economy; this view was the complete contrary of the 19th-century liberal
view that the distribution of income ought to be left alone. By the end of the 20th century,
however, many governments recognized that attempts to use tax policy to reduce inequity
can create costly distortions, prompting a partial return to the view that taxes should not be
used for redistributive purposes.

Challenges of Nigeria Tax System

Despite the potentials of taxation as a dynamic tool for sustainable national development,
Nigeria tax system has been unable to achieve its objectives due to the following challenges,
among others:
i. Lack of robust framework for the taxation of informal sector and high network
individuals, thus limiting the revenue base and creating inequity;
ii. Fragmented database of taxpayers and weak structure for exchange of information
by and with tax authorities, resulting in revenue leakage;
iii. Inordinate drive by all tiers of government to grow internally generated revenue
which has led to the arbitrary exercise of regulatory powers for revenue purpose;
iv. Lack of clarity on taxation powers of each level of government and encroachment on
the powers of one level of government by another;
v. Insufficient information available to taxpayers on tax compliance requirements
thus creating uncertainty and non-compliance;
vi. Poor accountability for tax revenue;
vii. Insufficient capacity which has led to the delegation of powers of revenue officials
to third parties, thereby creating complications in the tax system;
viii. Use of aggressive and unorthodox methods for tax collection;
ix. Failure by tax authorities to honour refund obligations to taxpayers;
x. The non-regular review of tax legislation, which has led to obsolete laws, that do not
reflect current economic realities; and
xi. Lack of strict adherence to tax policy direction and procedural guidelines for the
operation of the various tax authorities.

Theories of Taxation
The following are some of the theories of Taxation;
i. Diffusion Theory of Taxation
According to diffusion theory of taxation, under perfect competition, when a tax is levied, it
gets automatically equitably diffused or absorbed throughout the community. Advocates
of this theory, describe that when a tax is imposed on a commodity by state, it passes on to
consumers automatically. Every individual bears burden of tax according to his ability to
bear it. For instance, a specific tax is imposed on say, cloth. Manufacturer raises prices of
commodity by the amount of tax. Consumers buy commodity according to their capacity
and thus share burden of tax. The diffusion theory of taxation has never gained any

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Taxation For Economic Development

importance in the world of reality. It has never been seen that a tax gets automatically
equitably distributed among people. It is true that in some taxes, diffusion or absorption
does take place but that too is not throughout the community. Accordingly, another
criticism of the theory of taxation is that there are few taxes like income tax, inheritance tax,
toll tax in which there is no absorption at all.
ii. Benefit Theory of Taxation
According to this theory, the state should levy taxes on individuals according to the benefit
conferred on them. The more benefits a person derives from the activities of the state, the
more he should pay to the government. If, in accordance with the “benefits theory of
taxation,” we conceive of taxes as payments in exchange for government benefits, perhaps
states should be obliged to confer personal tax benefits on residents who contribute to their
tax coffers. The benefits theory would imply that a resident should be able to collect
personal tax benefits to the extent that her tax payments to the source state exceed the
money value of any source state government benefits she already receives, including
infrastructure, regulated labour and capital markets, and so on. Although intuitively
attractive, the benefits theory of taxation suffers from several major draw backs. It would be
impossible to implement precisely due to the difficulty of determining the amount of
government benefits, including diffuse benefits such as military protection received by
each resident and non-resident taxpayer.
iii. Ability to Pay Theory
The adjudged most popular and commonly accepted principle of equity or justice in
taxation is that citizens of a country should pay taxes to the government in accordance with
their ability to pay. The ability to pay principle, people with higher incomes should pay
more taxes than people with lower incomes. It appears very reasonable and just that taxes
should be levied on the basis of the taxable capacity of an individual. The economists are not
unanimous as to what should be the exact measure of a person's ability or faculty to pay. The
main viewpoints advanced in this connection are as follows:
a. Ownership of Property
Some economists are of the opinion that ownership of the property is a very good basis of
measuring one's ability to pay. This idea is out rightly rejected on the ground that if a
person's earns a large income but does not spend on buying any property, he will then
escape taxation. On the other hand, another person earning income buys property; he will
be subjected to taxation. It is therefore absurd and unjustifiable that a person, earning large
income is exempted from taxes and another person with small income is taxed.
b. Tax on the Basis of Expenditure
It is also asserted by some economists that the ability or faculty to pay tax should be judged
by the expenditure which a person incurs. The greater the expenditure, the higher should
be the tax and vice versa. The viewpoint is unsound and unfair in every respect. A person
having a large family to support has to spend more than a person having a small family. If

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Taxation For Economic Development

we make expenditure as the test of one's ability to pay, the former person who is already
burdened with many dependents will have to' pay more taxes than the latter who has a
small family. So this is unjustifiable.
c. Income as the Basics
Most of the economists are of the opinion that income should be the basis of measuring a
man's ability to pay. It appears very just and fair that if the income of a person is greater than
that of another, the former should be asked to pay more towards the support of the
government than the latter. That is why in the modern tax system of the countries of the
world, income has been accepted as the best test for measuring the 'ability to pay' of a
person.

Concept of Economic Development

Economic growth deals with an increase in the level of output, but economic development
is related to an increase in output coupled with improvement in the social and political
welfare of people within a country. Economic development refers to “a policy intervention
effort targeted at the economic and social wellbeing of people. The focus of economic
development is on improvement in the quality of life of people, introduction of new goods
and services using modern technological, mitigation of risk and dynamics of innovation
and entrepreneurship” (Hadjimchael, Kemeny & Lanadan, 2014). 'Economic development'
is a term that practitioners, economists, politicians, and others have used frequently in the
20th century. The concept, however, has been in existence in the West for centuries.
Modernization, Westernisation, and especially Industrialisation are other terms people
have used while discussing economic development. Economic development has a direct
relationship with the environment.

A country's economic development is usually indicated by an increase in citizens' quality of

life. 'Quality of life' is often measured using the Human Development Index, which is an
economic model that considers intrinsic personal factors not considered in economic
growth, such as literacy rates, life expectancy, and poverty rates. Having economic growth
without economic development is possible. Economic growth in an economy is
demonstrated by an outward shift in its Production Possibility Curve (PPC). Another way
to define growth is the increase in a country's total output or Gross Domestic Product
(GDP). It is the increase in a country's production.

In general context, economic development is the growth of the standard of living of a

nation's people from a low-income economy to a high-income economy, moving the poor
put of the poverty level. When the local quality of life is improved, there is more economic
development. “It is a process whereby the people of a country utilize the available resources
in such a way that the per capita income of the country increase”. This implies that the

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Taxation For Economic Development

people in a country becoming wealthier, healthier and with a longer average life expectancy
following improved productivity, higher literacy rates, and better public education.
In real terms, economic development is measured by the Human Development Index
(HDI), which the United Nations Development Programme (UNDP) (2014) described as “a
composite measure of long-term progress in three basic areas of human development
namely: access to safe and healthy life, access to education and a decent living standard”.
“It is a process by which a nation improves the economic, political and social well-being of
its people.” UNDP (2014) went further to explained that HDI “is an index that measures key
dimensions of human development which are: A long and healthy life-measured by life
expectancy, a decent standard of living-measured by Gross National Income per capita
adjusted for the price level of the country”.

The aforementioned measures of economic development and the key features of Human
Development Index (HDI) justify the adoption of the variable as proxy for economic
development in this study. The implication is that if government faithfully and
purposefully channels tax revenues to socio-economic projects, it is transcending to a
higher standard of living among the citizens.

Economic Development Goals

The development of a country has been associated with different concepts but generally
encompasses economic growth through higher productivity, political systems that
represent as accurately as possible the preferences of its citizens, the extension of rights to
all social groups and the opportunities to get them and the proper functionality of
institutions and organizations that are able to attend more technically and logistically
complex tasks (i.e. raise taxes and deliver public services). These processes describe the
State's capabilities to manage its economy, polity, society and public administration.
Generally, economic development policies attempt to solve issues in these topics.

With this in mind, economic development is typically associated with improvements in a

variety of areas or indicators (such as literacy rates, life expectancy, and poverty rates), that
may be causes of economic development rather than consequences of specific economic
development programs. For example, health and education improvements have been
closely related to economic growth, but the causality with economic development may not
be obvious. In any case, it is important to not expect that particular economic development
programs be able to fix many problems at once as that would be establishing
unsurmountable goals for them that are highly unlikely they can achieve. Any
development policy should set limited goals and a gradual approach to avoid falling victim
to something Prittchet, Woolcock and Andrews call 'premature load bearing' (Pritchett,
Woolcock & Andrews, 2013).

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Taxation For Economic Development

How Economic Development Works

Now we know that the goal of economic development is to improve the well-being of
everyone, irrespective of race, background or class, but how does it actually work?

As Britannica.com points out, there is no single definition of what constitutes the process of
economic development. But there are key indicators and learnings that have shown
success. It might sound like a pretty big project to try to improve the social and political
well-being of a country through economic strategies, and it is. That's why it's important to
not try to solve it all at a national or international level, but at the local and regional levels.
As Michael Porter, a professor at the Harvard Business School puts it: “While macro policies
and regulatory reforms set important conditions for growth and access to opportunity, it is
ultimately the role of local and regional actors and institutions to address the unique
market failures and opportunities in their community.” This is why local and regional
economic development organizations are so vital. Every metropolitan area has its own
unique set of circumstances, and there's no blanket approach that will work across the
diverse economic landscape of a country like the United States (or anywhere else, for that
matter).

Denver's challenges in providing affordable housing, for example, are going to be much
different than in New York City. Construction costs are different, timelines will vary based
on weather, and managing relationships between private and public sectors will be subject
to unique regional policies.

Economic Development Policies

In its broadest sense, policies of economic development encompass two major areas:
i. Governments undertaking to meet broad economic objectives such as price
stability, high employment, and sustainable growth. Such efforts include monetary
and fiscal policies, regulation of financial institutions, trade, and tax policies.
ii. Programs that provide infrastructure and services such as highways, parks,
affordable housing, crime prevention, and K–12 education.
iii. Job creation and retention through specific efforts in business finance, marketing,
neighborhood development, workforce development, small business
development, business retention and expansion, technology transfer, and real
estate development. This third category is a primary focus of economic
development professionals.

Development Indicators and Indices

There are various types of macroeconomic and sociocultural indicators or "metrics" used by
economists and geographers to assess the relative economic advancement of a given region
or nation. The World Bank's "World Development Indicators" are compiled annually from
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Taxation For Economic Development

officially recognized international sources and include national, regional and global
estimates.
a. GDP Per Capita: Growing Development Population
GDP per capita is gross domestic product divided by midyear population. GDP is the sum
of gross value added by all resident producers in the economy plus any product taxes and
minus any subsidizes not included in the value of the products. It is calculated without
making deductions for depreciation of fabricated assets or for depletion and degradation of
natural resources.
b. Modern Transportation
European development economists have argued that the existence of modern
transportation networks- such as high-speed rail infrastructure constitutes a significant
indicator of a country’s economic advancement: this perspective is illustrated notably
through the Basic Rail Transportation Infrastructure Index (known as BRTI Index) and
related models such as the (Modified) Rail Transportation Infrastructure Index (RTI).
c. Introduction of the GDI and GEM
In an effort to create an indicator that would help measure gender equality, the UN has
created two measures: the Gender-related Development Index (GDI) and the Gender
Empowerment Measure (GEM). These indicators were first introduced in the 1995 UNDP
Human Development Report.
i. Gender Empowerment Measure
The Gender Empowerment Measure (GEM) focuses on aggregating various indicators that
focus on capturing the economic, political, and professional gains made by women. The
GEM is composed of just three variables: income earning power, share in professional and
managerial jobs, and share of parliamentary seats.
ii. Gender Development Index
The Gender Development (GDI) measures the gender gap in human development
achievements. It takes disparity between men and women into account in through three
variables, health, knowledge, and living standards.
d. Community Competition
One unintended consequence of economic development is the intense competition
between communities, states, and nations for new economic development projects in
today's globalized World. For example, when Amazon was looking for the next location to
place their second headquarters (Amazon HQ2), cities and regions across the nation began
submitting bids to Amazon. Other countries, such as Canada and Mexico, also submitted
proposals in an attempt to win. With the struggle to attract and retain business, competition
is further intensified by the use of many variations of economic incentives to the potential
business such as: tax incentives, investment capital, donated land, utility rate discounts,
and many others. IEDC places significant attention on the various activities undertaken by
economic development organizations to help them compete and sustain vibrant
communities.
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Taxation For Economic Development

Additionally, the use of community profiling tools and database templates to measure
community assets versus other communities is also an important aspect of economic
development. Job creation, economic output, and increase in taxable basis are the most
common measurement tools. When considering measurement, too much emphasis has
been placed on economic developers for “not creating jobs”. However, the reality is that
economic developers do not typically create jobs, but facilitate the process for existing
businesses and start-ups to do so. Therefore, the economic developer must make sure that
there are sufficient economic development programs in place to assist the businesses
achieve their goals. Those types of programs are usually policy-created and can be local,
regional, statewide and national in nature.

Evidence of Economic Growth and Economic Development

a. Economic Growth occurs when:
i. There is a discovery of new mineral/metal deposits.
ii. There is an increase in the number of people in the workforce or the
quality of the workforce improves. For example, through training and
education.
iii. There is an increase in capital and machinery.
iv. There is an improvement in technology.

b. Measures of Economic Development will look at:

i. An increase in real income per head – GDP per capita.
ii. The increase in levels of literacy and education standards.
iii. Improvement in the quality and availability of housing.
iv. Improvement in levels of environmental standards.
v. Increased life expectancy.

Role of Taxation in Financing Economic Development

Tax policy plays two important roles in financing economic development. One is to
maintain an economy at a higher employment level so that the saving capacity of the people
is raised with an increase in income per head. The second is to raise the marginal propensity
to save of the community as far above the average propensity to the maximum extent
possible without discouraging work effort or violating canons of equity. Savings can be
generated in two ways: by increasing real output or by a reduction in real consumption.
At the early stage of development, when the rate of raising is low, there is need for
compulsion in forcing people to consume less and save more. Only through taxation it is
possible to generate forced saving which is so essential for accelerating the rate of capital
formation which is the sine qua non of high rate of per capita income growth. Tax policy to
raise the MPS above APS is concerned with the design and implementation of taxes to
reduce private consumption. Tax revenue as a percentage of GNP is low in most developing

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Taxation For Economic Development

countries, averaging between 15—20%, compared to 25—30% in developed countries.

Moreover, direct taxes especially taxes on income, are a minor source of tax revenue com-
pared with indirect taxes.

The proportion of the population that pays income tax in developing countries is
correspondingly low, averaging about 10% compared to the vast majority of the working
population in developed countries which constitutes between 20 to 40% of the total
population. There would, therefore, appear to be a greater scope for using tax policy to raise
the level of aggregate saving relative to income. Two important points may be noted in this
context.
i. Nature of Tax System
First, the rudimentary nature of the tax system in developing countries is partly a reflection
of the stage of development itself. Thus, the scope for increasing tax revenue as a proportion
of income may in practice is limited.
ii. Measuring the Tax Base
Secondly, there are the difficulties of defining and measuring the tax base and of assessing
and collecting taxes in circumstances where the population is scattered throughout the
country, and primarily engaged in producing for subsistence and where the illiteracy rate is
also high. There is also the fact that, as far as income tax is concerned, the income of the vast
majority of income-careers is so low that they fall outside the scope of the tax system.
Whereas 70% of national income is subject to income tax in developed countries, only about
50% is subject to such taxation in developing countries.

In this context, A.P. Thirwall has argued that, “even if there was scope for raising
considerably more revenue by means of taxation, whether the total saving would be raised
depends on how tax payments are financed — whether out of consumption or saving —
and how income (output) is affected. It is often the case that taxes which would make tax
revenue highly elastic with respect to income are taxes which would be met mainly out of
saving or have the most discouraging effects on incentives.”

Taxation as a Tool for Economic Management and Development

According to the National Tax Policy (2017), the tax system should support sustainable
growth and development at all times. In this regard, the tax system should be geared
towards meeting the following goals:

a. Wealth Creation and Employment

The tax system should be designed to promote social, political and economic development.
Accordingly,
i. Tax policies shall promote employment, export and local production;
ii. Tax policies and laws shall not be retroactive;

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Taxation For Economic Development

iii. Tax policies and laws should ensure equal investment opportunities and support
for businesses whether local or foreign;
iv. Tax policies and laws on investments should be long term focused and tenured to
enable investors plan with reasonable certainty;
v. Any incentive to be granted should be broad, sector based, tenured and
transparent. Implementation should be properly monitored, evaluated,
periodically reported and kept under review;
vi. Revenue forgone from tax incentives or concessions should be quantified against
expected benefits and reported annually. Where the benefits cannot be quantified,
qualitative factors must be considered; and
vii. Tax policies on investments should not promote monopoly such as entry barriers
or otherwise prevent competition.

b. Taxation and Diversification

There should be concerted efforts to attract investments in all sectors of the economy, with
more focus on promoting investment in specific sectors as may be identified by government
in the overall interest of the country from time to time. This will boost the revenue base for
optimum revenue generation.

c. Focus on Indirect Taxation

The tax system should focus more on indirect taxes which are easier to collect and
administer and more difficult to evade.

Tax rates should be progressive and should be designed to promote equality. The tax
system should gradually seek a convergence of personal income tax and capital gain tax
rates with corporate income tax rates to reduce opportunities for tax avoidance.

d. Convergence of Tax Rates

Tax rates should be progressive and should be designed to promote equality. The tax
system should gradually seek a convergence of the highest marginal rate of personal
income tax, capital gains tax rates and the general companies income tax rates to reduce
opportunities for tax avoidance.

e. Special Arrangements and Other Incentives

Special arrangements should be sector based and not directed at entities or persons. Also,
special arrangements such as free zones and other tax incentives or waivers should not be
arbitrarily terminated except as provided in the enabling legal framework or treaties at the
time of creation. Government may provide tax incentives to specific sectors or for such
specific activities in order to stimulate or retain investment in the sector.

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Taxation For Economic Development

The process of granting and renewing incentives, waivers and concessions shall be
transparent and comply strictly with legislative provisions and international treaties.

f. Creating a Competitive Edge

i. Reduction in the Number of Taxes
Taxes should be few in number, broad-based and high revenue-yielding. The
administration of the taxes should also be simplified for ease of enforcement
and compliance.
ii. Avoidance of Multiple Taxation
Taxes similar to those being collected by a level of Government should not be
introduced by the same or another level of Government. The Federal, State and
Local Governments shall ensure collaboration in harmonizing and eliminating
multiple taxation.

g. International and Regional Treaties

A wide network of International and Regional treaties would be beneficial to the economy.
In this regard, Nigeria shall continue to expand its treaty network in the best interest of the
Nigerian State. Generally, treaties should prevent double taxation without creating
opportunities for non-taxation.

Existing treaties should be reviewed regularly and where necessary renegotiated in line
with international best practices. New treaties should consider benefits to Nigeria both in
the short, medium but more importantly long term.

Nigeria's model double tax treaty should be regularly reviewed to adequately cater for the
best interests of the country. Appropriate measures shall be taken to ensure that all treaties
duly signed and ratified are implemented.

The National Tax Policy

One of the remarkable efforts of the Nigerian Government towards a streamlet a tax
administration was the National Tax Policy which provides the fundamental guidelines for
the orderly development of the Nigeria tax system. The Policy has the following specific
objectives, among others;
a. guide the operation and review of the tax system;
b. provide the basis for future tax legislation and administration;
c. serve as a point of reference for all stakeholders on taxation;
d. provide benchmark on which stakeholders shall be held accountable; and
e. Provide clarity on the roles and responsibilities of Stakeholders in the tax System.

With the following guiding principles:

a. Equity and Fairness: Nigeria tax system should be fair and equitable devoid of
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Taxation For Economic Development

discrimination. Taxpayers should be required to pay according to their ability.

b. Simplicity, Certainty and Clarity: Tax laws and administrative processes should be
simple, clear and easy to understand.
c. Convenience: The time and manner for the fulfillment of tax obligations shall take into
account the convenience of taxpayers and avoid undue difficulties.
d. Low Compliance Cost: The financial and economic cost of compliance to the taxpayer
should be kept to the barest minimum.
e. Low Cost of Administration: Tax Administration in Nigeria should be efficient and
cost-effective in line with international best practices.
f. Flexibility: Taxation should be flexible and dynamic to respond to changing
circumstances in the economy in a manner that does not retard economic activities.
g. Sustainability: The tax system should promote sustainable revenue, economic
growth and development. There should be a synergy between tax policies and other
economic policies of government.

Why is Tax Essential for Development

According to the World Bank, illicit flows of cash from developing economies amount to
between $500-$800 billion a year. How much of this is in the form of tax evasion is unclear,
but it is not unreasonable to estimate that the lost revenue is equivalent to many times
global bilateral development aid and more than the national income of several poor
countries combined. It is money foregone that could be spent on healthcare, education and
infrastructure. It means lives are lost that could be saved.

The ratio of tax to GDP in poorer countries is only about half of what it is in the developed
world. Though sub- Saharan Africa is not expected to match Scandinavian levels of
taxation, many low-income countries could boost their tax take by improving their fiscal
systems, and by doing so reinforce development. This is not a theory, as, for example,
reforms in Rwanda have shown. The Rwandan Revenue Authority, with strong
international support, carried out changes to strengthen internal organisational structures
and training, as well as relationships with local government. The result was a sharp increase
in domestic revenue from 9% of GDP in 1998 to nearly 15% in 2005 in what has been one of
Africa's better performing economies.

Tax is more than just a source of revenue and growth. It also plays a key role in building up
institutions, markets and democracy through making the state accountable to its taxpayers.
Just as excessive tax burdens might hinder growth in wealthier countries, in developing
economies a lack of tax structures is a major cause of weak, unresponsive governance. It also
leads to an overreliance on aid. With tax, the public can hold governments to account for
their decisions, and not feel tied to the will of aid donors. And because tax revenues are
relatively predictable, governments can plan ahead with greater certainty.
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Taxation For Economic Development

True, developing countries need aid and will continue to do so, but they can also use it to
help strengthen their tax capacity, increase their autonomy and reduce their long-term
dependence on external assistance. This idea is not new. Indeed, rich and poor country
governments have agreed on the importance of tax for development for years. The 2002
Monterrey Consensus, for instance, which launched a new focus on development,
recognised the key role of taxation in mobilising domestic resources-90% of domestic
revenue is usually derived from tax. However, recognising the importance of tax is one
thing, improving its impact and operation is another bearing in mind cultural barriers,
institutional weaknesses, and corruption, as well as international factors including capital
flight, aggressive tax planning and trade pressures. Consider tariffs, which many African
countries rely on for over half of their government revenue.

Though opening up trade is expected to bolster long-term economic growth, countries

participating in initiatives such as Doha are required to cut their tariffs. This presents a
major challenge to maintaining current revenue bases, let alone increasing them. In other
words, trade talks are more than just about reducing tariffs and subsidies to improve
market access, but about tax systems too. Before removing tariffs on cross-border trade,
governments must feel assured that alternative sources of revenue are already in place.

This is a complex task, which is why weak tax administrations must be strengthened.
Corruption is just one major obstacle. Developing countries have the misfortune to have tax
systems run by poorly trained and underpaid officials working in antiquated
administrative structures, often still based upon the old colonial models, with their
separate departments to deal with income and consumption taxes. A dramatic
improvement in these administrations is needed if developing countries are to move
beyond the poverty trap, with the confidence to reduce tariffs and carry out reforms, such as
broadening the tax base. Improvement requires independent revenue services led by
strong visionary tax commissioners, working with better paid officials within an integrated
administration.

It requires clear direction and focus including risk management systems that strike a
balance between enforcement and taxpayer service, as well as between public and business
demands. These improvements will be extremely hard to achieve without renewed and
carefully targeted efforts on the part of aid agencies and civil society groups, as well as
donor governments, to support projects aimed at improving tax capacity in poorer
countries. In 2006 less than 0.1% of aid went into the tax area. If development is to take off in
the years ahead, this ratio will have to be dramatically increased. Aid used in this way can
provide the seeds for African driven development.

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Taxation For Economic Development

The recent initiative of African tax commissioners from 30 countries to create an African Tax
Administration Forum deserves strong support. This is an initiative designed by Africans,
for Africa with bilateral and multilateral donors, including the African Development Bank
and the OECD, playing a supportive role. The International Tax Dialogue-a grouping of the
EU, IMF, Inter-American Development Bank, World Bank, the OECD and the UK's
Department for International Development-can also help co-ordinate donor efforts and
provide benchmarks for measuring and guiding progress among tax administrations. This
work would be reinforced if the UN and more national aid agencies joined the grouping.

Strengthening and improving tax administration will not happen overnight. In the
meantime, the pressure on tax havens must continue. Tax havens which have no or nominal
taxation and lack transparency, effective exchange of information and "real activities" are
everywhere, and those with wealth to invest from developing and developed countries
have easy access to them. If taxes on income flowing to these jurisdictions were collected by
the rightful authorities, then billions of dollars would become available to finance
development.

The OECD knows this, which is why for over a decade we have been leading the fight
against tax havens by encouraging countries to agree to higher standards of transparency
and exchange of information in tax matters. Our tax standards have achieved a global
endorsement from the G20 and the UN, and implementation is moving forward.

There is much left to be done of course, including on the technical side. New efforts are
required to develop an internationally accepted methodology to measure the actual size of
the offshore sector and the precise amounts of revenue lost to tax havens too. After all,
though we may have a handle on the global loss of revenue to tax havens generally, for
policy responses to be effective, we need to know how many specific countries, and
particularly developing countries, are losing to particular offshore jurisdictions (Nipun,
2015).

The global economic crisis has refocused public and political attention on the importance of
defeating illicit tax abuse and improving bank transparency. It has ushered in a long-
overdue public and political intolerance of regimes that flout tax laws and standards and
deprive countries of their rightful earnings and assets. Properly and transparently
organised tax systems are now accepted as engines of development, not constraints.
Accepting this message is important for all countries, and implementing it would be a
major step forward for developing countries.

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Taxation For Economic Development

Revenue Statistics in Africa 2020 Nigeria

Tax Revenues: Tax-to-GDP Ratio
The tax-to GDP ratio in Nigeria increased by 0.6 percentage points from 5.7% in 2017 to 6.3%
in 2018. In comparison, the average for the 30 African countries increased by just under 0.1
percentage points over the same period, and was 16.5% in 2018. Since 2010, the average for
the 30 African countries has increased by1.4 percentage points, from 15.1% in 2010 to 16.5%
in 2018. Over the same period, the tax-to-GDP ratio in Nigeria has decreased by 1.0
percentage points, from 7.3% to 6.3%. The highest tax-to-GDP ratio in Nigeria was 9.6% in
2011, with the lowest being 5.3% in 2016.

RESULTS
Figure 1

* The Africa (30) average was 16.5% in both 2017 and 2018 due to rounding. The Africa (30) average is not available
before 2009 due to missing data in some countries. In 2009, it is calculated based on estimated tax-to-GDP ratios for
Chad and Nigeria in that year, as data were not available prior to 2010 in these countries.
Source: NBC; Tax-to-GDP ratio, 2018
Nigeria's tax-to -GDP ratio in 2018 (6.3%) was lower than the average of the 30 African countries in
Figure 1 (16.5%) by 16.7 percentage points and also lower than the Latin America and the Caribbean
(23.1%).

Figure 2

NO SOURCE
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Taxation For Economic Development

Tax Revenues: Structure

Tax structure refers to the share of each tax in total tax revenues. The highest share of tax
revenues in Nigeria in 2018 was contributed by corporate income tax (50%). The second-
highest share of tax revenues in 2018 was derived from value added taxes (VAT) (14%).

Figure 3

NB: The data for the OECD are for 2017 as the data for 2018 are not available
.
NB: The data for the OECD are for 2017 as the data for 2018 are not available.

Non-Tax Revenues
In 2018, Nigeria's non-tax revenues amounted to 3.1% of GDP. This was lower than the
average non-tax revenues for the 30 African countries (6.5% of GDP). Rents and royalties
represented the largest share of non-tax revenues in 2018, amounting to 2.0% of GDP and
66.6% of non-tax revenues.
Figure 4

Source: Revenue Statistics in Africa, 2020

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Taxation For Economic Development

Figure 5

Source: Revenue Statistics in Africa, 2020

CONCLUSION
In modern economies, taxes are the most important source of governmental revenue. Taxes
differ from other sources of revenue in that they are compulsory levies and are
unrequited—i.e., they are generally not paid in exchange for some specific thing, such as a
particular public service, the sale of public property, or the issuance of public debt. While
taxes are presumably collected for the welfare of taxpayers as a whole, the individual
taxpayer's liability is independent of any specific benefit received.

The contributions of tax revenue to the Nigerian pulse is evidently very low and must be
enhanced and efficiently allocated if this country must attain development. The process
must start from registration of all taxable persons to ensuring that they comply with the
provision of the tax to pay and remit as at when due. Efficient administration of tax laws,
creating technology that will work and foster the operation of administration, and also a
dispute resolution system that is structured to serve the people.

In addition, Chapter 2 of the Constitution of the Federal Republic of Nigeria 1999 contains
Fundamental Objectives and Directive Principles of State Policy which are relevant to the
NTP, appropriate tax laws, administrative processes and procedure should therefore be
made to advance the Constitutional provisions. Hence the effective implementation of the
National Tax Policy is very crucial for Nigeria to attain development.

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Taxation For Economic Development

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