Full Project-IMPACT OF TAXATION AS A TOOL OF FISCAL POLICY IN NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The major source of government revenue in any country is from taxation. Any government, that really wants to succeed and fulfill its economic, legal, political, and technological objectives must ensure that its taxation system is not only expansive but rather possesses the principles of equity, certainty, convenience, economy, simplicity, neutrality and efficiency as propounded by Adam Smith (1776) and other modern experts in public finance. Federal, State and Local Governments have Constitutional powers to assess, impose or levy taxes, collect, account for such taxes and utilize the taxes so collected for the administration of government activities as stipulated by the Constitution. The tax system therefore should be robust enough to generate adequate revenue to be used to finance public utilities and perform other government social-cultural responsibilities. Taxation is a powerful tool of economic reform and a major player in every economy of the world. It is never static, but dynamic and should reflect current realities prevailing in the economy. The tax system is an opportunity for government to collect additional revenue besides other sources of income, which is needed in discharging its pressing obligations. A good system of tax also offers itself as one of the most effective means of mobilizing a nation’s internal resources and it lends itself to creating enabling and conducive environment for the promotion of economic growth and development. A tax is a compulsory payment imposed on income, profits, wealth, estate, property, goods and services for individuals and corporate bodies by the government for the sustenance of the government and for which there is no guaranteed direct benefit. Taxes represent a potent instrument of fiscal policy used by government to manage the economic development of the state. Payment of taxes is considered a primary civic responsibility of every citizen and foreigner who do business in Nigeria. As the saying goes, among the American, “the only sure things in life are death and taxes.” Hence, Halliburton (1992) states that Taxes and Death are inevitable in America and that is how it should be in Nigeria. Taxation is a veritable and sustainable source of revenue for government and a tool for fiscal policy and macro-economic management. This fact was underscored by Okezie (2003) who states that tax is a burden which every citizen must bear in order to sustain his or her government, thus enabling that government perform certain basic functions to the benefit of those it governs. It follows that for any public payment to qualify as a tax, it must be backed by an enabling law and has an element of compulsory imposition. Generally, the tax is indeed a licentious octopus and a potent tool of economic and social reform and development. It pervades every aspect of the economy and individuals, companies, citizens and foreigners, manufacturers and marketers, workers and pensioners etc. It can be used positively in the interest of the people or otherwise.

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