The aim of this study was to investigate on taxation and economic development in Nigeria. One of the objective carried out by the researcher was to examine peoples perception on taxation. Taxation is seen as a tool aimed at improving the performance of the national economy by such means as altering the balance between current consumption and capital investment.It looked at the work of other authors in order to make the exercise richer. Their different views were seen in different books and other materials (journal) which made this study much better than similar works in this area.In carrying out this study, the researcher used both primary and secondary data. CBN statistical bulletin were used in generating the primary data while the secondary data were obtained through library researcher and other sources. The purposive sample of 147 respondents were randomly selected for the study to avoid numerous errors in the calculation. From the data collected and analysed, it was evident that tax collection plays a great role in the development of the Nigeria economy. Conclusively, discussion, summary, conclusion, and recommendations were made to achieve the purpose of this work.


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1.1   Background to the Study

In Nigeria, taxation dates back to 1904 when the personal income tax was introduced in northern Nigeria before the unification of the country by the colonial masters. It was later implemented through the national revenue ordinances to the western and eastern regions in 1917 and 1928, respectively.

Taxation is the system of raising money in form of taxes paid by the citizens of the country in return for the services rendered by the government.

It could be recalled that taxation is instituted by God, this is traced back to “Matthew chapter 22 vs. 17-21”, when the Pharisees asked Jesus whether it is lawful to pay taxes or not. The Pharisees were later told render therefore to Caesars the things that are Caesar’s and to God the things that are to God.

According to Lekan .S. etal (2006), tax was described and not defined in the statues, but according to Cambridge international dictionary of English, it is “an amount of money paid to the government usually a percentage (%) of personal income or company profits”.

According to Okpe I.I (2000) tax is the transfer of resources and income from the private sector to the public sector in order to achieve some of the nation’s economic and social goals.

Taxation is universally accepted as a powerful tool in the hands of any government to raise income for its services and to ensure equitable distribution of income among its citizens.

Therefore, in every modern community, a large amount of taxation is necessary for a public expenditure to increase to promote social progress, taxation which is the main sources of funds also increases.

On the other hand, economic development is the process of improving the standard of living and well being of the population of developing countries by raising per capita income. Economic development was narrowly seen as economic growth which was typically taken to mean an increase in the real output of goods and services. As the interest of the study of economics increased, some developmental economist were able to separate economic development, concentrate with the well being of the population and not the actual increase in the output of goods and services.

Taxation is the most significant source of funds, because of the power and the role it plays in an economy, without which most state could not exist and meet up with their statutory functions. The power to tax is one great power upon which the whole nations depend on. The subject of taxation is an important aspect of fiscal policy measure of any country because the Nigerian tax system is basically structured as a tool for revenue collection. It is necessary to the existence and prosperity of the national economy.

In Nigeria, with a similar structure of government (Federalism), funding power is rested in the executive arm of government through its agents in the federal ministry of finance and economic planning which have the responsibility of generating both internal and external funds as provided for in the federal government constitution.

In view of these, the board of internal revenue, under the control of the ministry of finance is vested with the responsibility of generating internal revenue through tax.

This research work therefore intends to give a clear picture of the impact of taxation in economic development.

1.2   Statement of Problem

Empirical studies like those of (Sanni, 2002) and (Dotun 1996) have reported different views on taxation as a catalyst for economic development. A school of thought believe that taxation encourages economic development while another believes that it reduces revenue to the government. As a result of this, it does not stimulate economic development. It must be noted that some of these measures taken so far by the government to improve the economy have not produced good results.

The poverty alleviation programme aimed at reducing the rate of poverty among Nigerians was introduced. This programme covered provision of jobs for able and unemployed youths, provision of loans to small and medium scale enterprises at a medium lending rate. Functions of government are no longer limited but are expanded by adding new ones. The task of financing these enormous functions by government presents the major problem of our time. This includes ignorance of people as regards to taxation, evasion and avoidance of tax and lack of enlightenment programmes which could have helped in broadening the knowledge of the populace in respect to tax. This may affect the amount of revenue collectible by the government for the running of its administration.

With all these measures and polices taken so far, Nigerian economy has not shown any appreciable progress. Nigeria still remains one of the developing nations. Given this gap, the study seeks to examine the nature of tax incentives that is extended to deserving companies and the interactions that exists between taxation and economic development.


The following objectives are set out in this research work.

1). To evaluate the degree of tax contribution to the growth of per capita income in Nigeria.
2). To ascertain whether its contribution is positive or negative.


Ho: there is no significant relationship between taxation and per capita income growth in Nigeria.


The topic “taxation and economic development in Nigeria”, will educate the entire public on how the federation could encourage economic development and also how a reduced tax could promote the standard of living of the tax payer and increases his capital formation and investment thereby, resulting in a higher gross National Product (GNP) of the economy (country) and also promote the industrial development of the country.

This study will critically examine the adequate assessment and collection procedures of the internal board of revenue services and attitude of tax payers. It will also recommend effective means of revenue generation that will be free from these problems. These, when implemented will maximize the revenue base of the country.

Finally, this study will be of immense benefit to researchers and academicians as a reference material. It will also add to the existing stock of knowledge in the academic field of study.


The scope of the research work covers taxation and development in Nigeria from 1990-2011. The study also covers the internal revenue service and will be limited to its revenue generation and management because the researcher is more concerned about the Nigerian tax system and the operation of revenue generation of the country and they will give needed information.

This research is limited to data gotten from CBN Bullion, Internal Board of Revenue, articles and journals from the internet which will span from 1990-2011.The major constraint to this research work is time and finance.

Time: there is only a little time which might not be enough to get adequate contribution internal board of revenue.

Finance: financial constraint is one of the greatest limitation that researchers faces in carrying out a project. The researcher is limited to travel to laces to extract data that would facilitate the process of writing a project.

The study will be limited also in its scope to analysing taxation in Nigeria in regards to economic development in Nigeria, highlighting some of the taxation variables such as: GEX, INF among others that will enhance economic growth and development (GDP).


Taxation: this is the payment compulsorily collected from individuals or firms by the government.

Development: from economic point of view, development is defined as the capacity of the national economy to generate and sustain annual increase in its GNP at the rate of 5% or more.

Economic Development: Economic development is the process of improving the standard of living and well being of the population of developing countries by raising per capita income.

Tax Avoidance: This is the clever manipulation of the existing tax laws to minimize tax liabilities.

Tax Evasion: tax evasion is a complete avoidance or refuse to disclose a taxable income to the tax collectors or authorities.

Tax Rate: tax rate is the amount or percentage of the base which has to be paid as tax. The tax rate may be flat or variable with income.

Internal Revenue: Internal revenue refers to those income collected by the constituted body of internal revenue department.

Tax Incidence: It is a burden of tax by reference to who suffers from its imposition.


This work has been organized in five chapters each of which contains several sections and subsections.

Chapter one is basically the introduction and it has the following; statement of problem, objectives of the study, hypothesis testing, significance of the study, limitation and scope of the study, definitions of terms and organisation of the study.

The second chapter contains the review of related literature under it we have empirical literature.

Chapter three deal with research methodology. In it, the methods to which data are collected are stated.

The fourth chapter deals with presentation and analysis of data, those data collected in chapter three will be collected and analysed in chapter four.

Finally, the last chapter contains summary, conclusion, recommendations and appendix.


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