Tax Laws and Economic Development
Musa (2009) opined that economic and social development laws and policies provide the basis
for effective state action that lifts society from underdevelopment, improves the standard of
living and facilities for the realization of the millennium development goals. Nigeria is in dire
need of solution to its development challenges. Good laws that are well implemented would
contribute to the resolution of these challenges. The first thing to do in this scenario is an attempt
to review the implementation of the identified laws like the company income tax, petroleum
income Act and tax reform Act. The second thing is to get the relevant legislative committees
and ministers, departments and agencies involved give account of their respective
stewardship/roles in implementation of the law. Ariyo (1997) in his study on productivity of the
Nigerian tax system and reports a satisfactory level of productivity of the tax system before the
oil boom. The advent of the oil boom encouraged some laxity in the management of non-oil
revenue sources like the company income tax, which was rectified to a reasonable extent with the
commencement of the structural adjustment programme. The report underscores the urgent need
for the improvement of the tax information system to enhance the evaluation of the performance
of the Nigerian tax system and facilitate adequate macroeconomic planning and implementation.
Sani (2005), the Executive Governor of Zamfara State stated that tax system as a whole is an
embodiment of contention and controversy whether in its policy and formulation, legislation or
administration. Similarly,the objectives of the tax system are multi-dimension in nature which
include revenue generation, resources allocation, fiscal tool for stimulating economic growth and
development, social function, like redressing the rural-urban population drift as well as making
everybody to be a responsible citizen in the society.
The Joint Tax Board was created in the tax law by section 27 of Income Tax Management Act
of 1961 to harmonize the tax administration of the country. It needs to be appreciated that the
tax system offers itself as one of the most effective source of revenue and that it tends to create
an environment conducive to the promotion of economic growth. However, the potency of the
tax system will depend greatly on the tax measures and policies adopted. Sani(2005) opined at
prompting ambition, rewarding success, encouraging private savings and investments needed to
create new jobs and kindling in the people that spirit of enterprise. The regulation of Nigerian
economy should also be the basic function of the tax system. Taxes should in the main be aimed
at creating the proper atmosphere for economic growth. According to the traditional Keynesian
philosophy, one of the most effective ways of doing this is to adopt taxes that affect consumption
and demand. The idea is to use taxes as a deflationary device. As a developing economy with
small and insufficient internal productive capacity, we are likely to import the greater percentage
of prevailing inflation from abroad; we will also need to restrain imports with the use of taxes
where circumstances demand. Taxes should further be used selectively to induce and encourage
nationally desirable economic activities, and may be offered to promote the development of
backward areas of Nigeria. Sani concluded that tax concessions must be given and framed so as
to ensure the companies actually carry out the underlying intention of increased economic
development if the tax authority is to avoid the criticism that tax concessions only offer tax
loopholes through which the agile tax prayer can maneuver.
United Nations (2000), expert group stated that tax revenue contributes substantially to
development and therefore, there is the need to streamline a nation tax system so as to ensure the
realization of optimal tax revenue through equitable and fair distribution of the tax burden. The
stark reality in most developing countries is that whilst there is severe budgetary pressure as a
result of ever increasing demand for government expenditure, there is a limited scope for raising
extra tax revenues. Non-compliance problems with corporate persons result from technicalities
and tax avoidance, poor record keeping and cash transactions.
Desai, Foley and Hines (2004) stated that governments have at their disposal many tax
instruments that can be used singly or in concert to finance their activities. These tax alternatives
include personal and corporate income taxes, sales taxes, value added taxes, capital gain taxes
and numerous others. It is not uncommon for a country to impose all of these taxes
simultaneously. In choosing what tax instruments to use and what rates to impose, governments
are typically influenced by their expectations of the effects of taxation on investment and
economic activity, including Foreign Direct Investment (FDI) they stated that there is extensive
empirical study that high corporate income tax rates are associated with low levels of FDI. The
empirical results indicate that high tax rates on company income tax are associated with reduced
foreign direct investment by multinational organizations.
Musa (2009) opined that economic and social development laws and policies provide the basis
for effective state action that lifts society from underdevelopment, improves the standard of
living and facilities for the realization of the millennium development goals. Nigeria is in dire
need of solution to its development challenges. Good laws that are well implemented would
contribute to the resolution of these challenges. The first thing to do in this scenario is an attempt
to review the implementation of the identified laws like the company income tax, petroleum
income Act and tax reform Act. The second thing is to get the relevant legislative committees
and ministers, departments and agencies involved give account of their respective
stewardship/roles in implementation of the law. Ariyo (1997) in his study on productivity of the
Nigerian tax system and reports a satisfactory level of productivity of the tax system before the
oil boom. The advent of the oil boom encouraged some laxity in the management of non-oil
revenue sources like the company income tax, which was rectified to a reasonable extent with the
commencement of the structural adjustment programme. The report underscores the urgent need
for the improvement of the tax information system to enhance the evaluation of the performance
of the Nigerian tax system and facilitate adequate macroeconomic planning and implementation.
Sani (2005), the Executive Governor of Zamfara State stated that tax system as a whole is an
embodiment of contention and controversy whether in its policy and formulation, legislation or
administration. Similarly,the objectives of the tax system are multi-dimension in nature which
include revenue generation, resources allocation, fiscal tool for stimulating economic growth and
development, social function, like redressing the rural-urban population drift as well as making
everybody to be a responsible citizen in the society.
The Joint Tax Board was created in the tax law by section 27 of Income Tax Management Act
of 1961 to harmonize the tax administration of the country. It needs to be appreciated that the
tax system offers itself as one of the most effective source of revenue and that it tends to create
an environment conducive to the promotion of economic growth. However, the potency of the
tax system will depend greatly on the tax measures and policies adopted. Sani(2005) opined at
prompting ambition, rewarding success, encouraging private savings and investments needed to
create new jobs and kindling in the people that spirit of enterprise. The regulation of Nigerian
economy should also be the basic function of the tax system. Taxes should in the main be aimed
at creating the proper atmosphere for economic growth. According to the traditional Keynesian
philosophy, one of the most effective ways of doing this is to adopt taxes that affect consumption
and demand. The idea is to use taxes as a deflationary device. As a developing economy with
small and insufficient internal productive capacity, we are likely to import the greater percentage
of prevailing inflation from abroad; we will also need to restrain imports with the use of taxes
where circumstances demand. Taxes should further be used selectively to induce and encourage
nationally desirable economic activities, and may be offered to promote the development of
backward areas of Nigeria. Sani concluded that tax concessions must be given and framed so as
to ensure the companies actually carry out the underlying intention of increased economic
development if the tax authority is to avoid the criticism that tax concessions only offer tax
loopholes through which the agile tax prayer can maneuver.
United Nations (2000), expert group stated that tax revenue contributes substantially to
development and therefore, there is the need to streamline a nation tax system so as to ensure the
realization of optimal tax revenue through equitable and fair distribution of the tax burden. The
stark reality in most developing countries is that whilst there is severe budgetary pressure as a
result of ever increasing demand for government expenditure, there is a limited scope for raising
extra tax revenues. Non-compliance problems with corporate persons result from technicalities
and tax avoidance, poor record keeping and cash transactions.
Desai, Foley and Hines (2004) stated that governments have at their disposal many tax
instruments that can be used singly or in concert to finance their activities. These tax alternatives
include personal and corporate income taxes, sales taxes, value added taxes, capital gain taxes
and numerous others. It is not uncommon for a country to impose all of these taxes
simultaneously. In choosing what tax instruments to use and what rates to impose, governments
are typically influenced by their expectations of the effects of taxation on investment and
economic activity, including Foreign Direct Investment (FDI) they stated that there is extensive
empirical study that high corporate income tax rates are associated with low levels of FDI. The
empirical results indicate that high tax rates on company income tax are associated with reduced
foreign direct investment by multinational organizations.
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