Taxation

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International Journal of Accounting and Financial Reporting ISSN 2162-3082 2012, Vol. 2, No. 2

Analysis of Tax Formation and Impact on Economic Growth in Nigeria Ebiringa, O.T (Corresponding author) Management Technology Federal University of Technology, Owerri, Nigeria E-mail: otebiringa@yahoo.com

Emeh Yadirichukwu Department of Accounting Federal Polytechnic Nekede, Owerri, Nigeria E-mail: diriolisa@yahoo.com

Received: October 17, 2012

Accepted: December 13, 2012 DOI: 10.5296/ijafr.v2i2.3013

Abstract As a fiscal instrument, direct taxes are used to adjust people‟s disposable income and to reduce the parameter of unearned incomes. At the macroeconomic level, taxes are used to redistribute income and therefore contribute to the economic growth of the country. This paper examines the empirical forms of tax on the economic growth in Nigeria. Secondary data were sourced within the periods of 1985-2011 and Model was specified and estimated using some econometric. The result showed that the determinant factor of economic growth in the country through tax, only custom and exercise duties is capable of influencing but has an inverse relationship and significant to the GDP. It is observed that economic instability were experienced between 1986-1987 and 1993 to 1995 but evident in the stability in the economic growth from the graph in the rest of the years of the study around bench mark value of zero line of the GDP predicted graph based on tax generations in Nigeria. The study therefore recommended that the company income tax system should be generally restructured to bring about more yielded revenue results capable of contributing more significantly to the Nigerian economic as it is done in the advanced countries of the world. Custom service operations and revenue generations in the border is not practically reflected in the economy due to no accountability, transparency and leakages in the system. Keywords: Tax, Model, Granger, Ramsey Reset, Influence and Forecast

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International Journal of Accounting and Financial Reporting ISSN 2162-3082 2012, Vol. 2, No. 2

1. Introduction Different political systems have engendered different principles for sharing revenues that are derived from a state or region. In Nigeria, revenues have been allocated according to a formula recommended by ad-hoc Fiscal Commissions or based on a principle chosen by the state. From 1946 to date, a total of thirteen revenue allocation Commissions had been set up. Each Commission recommended a formula for revenue sharing depending on the economic fortunes and purposes, which the government wanted the revenue sharing formula to serve. The revenues are raised mainly through taxation to finance government expenditure and to influence other activities in the economy. A tax is a compulsory levy imposed on individuals, firms, commodities and communities by the government. But the feature of compulsory levy inherent in taxation is usually undermined because people dislike the civic responsibility that the payment of tax connotes. In Nigeria, people, especially the rich and the elites, deliberately dodge this civic responsibility and sometimes employ the service of tax specialists in order to pay less tax to the government. There is also the problem of falsification of ages and the number of children and dependents one has in order to reduce the amount of tax payable. The sub-national governments (state and local governments) contend that their currently assigned taxes are poor in terms of their bases and, therefore, accruable revenues are not enough to meet their expenditure targets. Also the statutory allocation from the Federation Account has been grossly inadequate. This invariably reduces their overall performance, considering their expenditure profiles. Nigeria became a sovereign state in 1960.The revenue sharing formula of the proceeds of the DPA was adjusted in 1961 following the pulling out of Southern...
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