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ABSTRACT
This research work evaluates the Impact of Taxation on Inequality in Nigeria from (1980-2010). From our finding, we found out that taxation does not have a statistical significant effect on inequality in Nigeria. Taxation is one of the most important and easy source of revenue to any government as the government possesses inherent power to impose taxes and levies. Inequality can be reduces in Nigeria if the government will take a special look at the rural areas than in the urban areas and help to bridge the gap between the have and the have not (rich and the poor). Finally, a tax reduce inequality if it lightens the tax burden on the poor and ensures a greater burden on the better – off.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Taxation is a form of compulsory levy imposed by government on
individuals, corporate bodies, goods and services in order to finance
its expenditure and create condition for the economic well being of the
society. Taxation is a compulsory levy imposed on a subject or upon his
property by the government to provide security, social amenities and
create condition for the economic well being of the people (Appah and
Oyandonghan, 2011). Anyanwu (1997) stated that tax are imposed to
regulate the production of certain goods and services, protection of
infant industries, control business and curb inflation, reduce income
inequalities etc. According to Anyanfo (1996), the principle of taxation
means the appropriate criteria to be applied in the development and
evaluation of the tax structure. Such principles are essentially on
application of some concepts derived from welfare economists, in order
to achieve the broader objectives
of social justice. The tax system of a country should be based on sound
principle. Ihingan (2004), and Osiegbu et al., (2010) listed the
principles of taxation as equality, certainty, convenience etc. Anyanfo
(1996) convenience principle of taxation states that the time and manner
should be convenience to the tax payer. Nevertheless, principle of
taxation provides the rationale for pay-as-you earn (PAYE) system of tax
payable system of tax collection certainty principle of taxation states
that a tax which each individual is bound to pay ought to be certain,
and not arbitrary (Bhartia, 2009). Jhingan (2004) equity principles of
taxation states that every tax payers should pay the taxing proportion
to his income. The rich should pay more and at a higher rate than the
other person whose income is less. However, these sagacious and
magnanimous intention of the government are dedevited by a number of
draw backs ranging from unfairness of tax payments to tax payers,
arbitrary importation of taxes, show tax law development, inaccurate
presentation of income figure for assessment, indirect taxation,
poverty, illiteracy, poor vehicle as a tool for tax collection etc
indeed the above short coming engender inequality taxation in Nigeria
(HalimAli2010). The term inequality according to Longman dictionary of
contemporary English (2000), Third edition, is an unfair situation, in
which some groups in
society have less money influence or opportunity than others. In the
same view inequality means “the unfair difference between groups of
people in society when some have more wealth, status, or opportunities
than others (Oxford Advanced Learners Dictionary 2001) sixth edition
inequality with respect to taxation is the unfairness and disparity
resulting from the way and manner Nigerians and inhabitants from the way
also individuals pay taxes. It is not out of place to say that taxes
causing inequality in Nigeria is as old as the Nigerian tax system. In
so far there was a time variance between when the North, West and the
eastern pan began tax payment while the Northern and Western regions
began payment of taxes before 1904 through the already defined way of
leadership of the Emires and Obas respectively. The eastern regions
which believed in family head syndrome had no such constituted leaders
and resultantly lagged behind for about 23 years later before taxation
was planted in the area. But the bottom line is that while some
Nigerians paid tax to them, others never paid, this increasing
inequality level in Nigeria. On the same vain the evil of inequality
taxation was still unleashed on those Nigerians and resident tax payers
between 1904 and 1957 when taxes were collected at various times from
individuals and companies without distinctions. The basic of assessment
allowable deduction and tax
rates were the same. The period under review was be deviled by show tax
law development, arbitrary imposition of taxes and multiplicity of tax
liability and protests by tax payers were examples. They were actually
engendered by inequality taxation. Widening income inequality in Nigeria
has triggered a debate over the extent to which taxes are to used as a
means of curbing inequality. Generally taxes can cause inequality as
well as being used to reduce inequality. According to Black et al., 1999
Taxation are considered as the dominant way of reducing inequality.
Taxes are imposed for a variety of purpose, they can be used to correct
distortion in the market, they can raise revenue for the government,
taxes can also be used for redistribution of income, thus in this work
we will concentrate on taxes as a tool for income distribution in the
country. In Nigeria federal income tax is administered by the federal
inland revenue service (FIRS). In Nigeria inequality which exist in
arrange of dimension like mortality rate, poverty rate, life expectancy
and so on has been on the increase. In fact, inequality in Nigeria is
multifaceted and has manifested inform of inadequate shelter, lack of
access to other basic needs of life, such as good food, water, good
health etc. Argbokhan (1999) found that income inequality worsened after
structural adjustment programme
(SAP) of 1986. Also a high level of inequality exist between Nigeria’s
rural and urban areas. This is because most communities depend on
Agriculture while urban engage mostly in paid jobs. The Nigerian
government in a way to reduce income inequality has introduced policies
like (PAP) poverty alleviation programme, NEEDs – National economic
empowerment and development programme etc also taxation policies like
PAYE (pay as you earn) and all forms of progressive tax system like
inheritance tax, property tax etc. All these policies and programmers
have not yet achieved its main objective. Using the head count index the
study found that an increasing number of Nigerians were living or
absolute poverty over the study periods: 38% in 1985, 43% in 1992, 47%
in 1996, 35% and 37% in urban areas, and 41%, 49% and 51% in rural
areas. The depth and security of poverty generally increased over the
study period, but the trend was not uniform over geopolitical zones.
During the 1990s the depth of poverty increased in the middle belt,
Northeast and northwest while it declined in other areas. The increase
was more pronounced in rural areas than in the urban areas.
1.2 Statement of the Problem
A tax reduces inequality if it lightens the tax burden on the poor and
ensures a greater burden on the better-off. The relationship between a
country’s income distribution and taxation is not far from consensus
that is to a large extent; the method of income distribution in a
country can enhance or reduce inequality. In Nigeria, inequality which
exists in a range of dimension like mortality rate, poverty, life
expectancy and so on has been on the increase. In fact, inequality in
Nigeria is multifaceted and has manifested inform of outbreak of
diseases such as Aids, measles, small pox, chicken pox and so on.
Inequality has also manifested inform of inadequate shelter (poor home)
lack of access to other basics needs of life, such as food, water etc.
The Nigerian government in a view to solve or reduce this inequality had
adopted a lot of policies like SAP-structural adjustment programme of
1986, poverty alleviation programme (PAP), Needs-National Economic
Improvement and development Strategy etc. Also some taxation policies
that the government adopted include PAYE (pay as you Earn) property and
inheritance taxes as well as other progressive tax systems. All these
programmes and policies has not yet achieve its desired objective which
is to curb inequality, maybe due to implementation problem thus leading
to high rate of inequality.
The aim of this research work is as follows: – To determine the nature
of relationship between taxation and Inequality – To test whether there
is a causal relationship between inequality and Taxation in Nigeria.
– To determine the extent in which taxes affects inequality.
1.3 Objective of the Study Our interest in this research work is to know the impact taxation has on inequality. The specific objective includes;
1) To ascertain the nature of relationship between taxes and inequality.
2) To determine the extent in which taxes can be used in curbing inequality.
3) To find out whether there is any causal relationship between taxes and inequality.
1.4 Statement of Research Hypothesis For the purpose of answering the questions raised at the end of our statement of problem the following working hypothesis were employed.
H0: There is no casual relationship between taxes and inequality
HI: There is casual relationship between taxes and inequality.
H0: Taxes cannot be used in solving inequality problem
Hi: Taxes are used in solving inequality problem.
1.5 Scope and Limitation of Study
The scope of study is from 1980 to 2010. Basically, this study focuses
on only inequality in taxation as a factor to the failure and
non-actualization of the tax system in Nigeria. What is more, the study
fails to look at other factors hindering the progress and success of
Nigeria tax system. Also, the study is limited to Nigeria and it also
includes time and financial constraints. 1.6 Significance of the Study
The crucial role played by taxation towards inequality in our society
today is indispensable. This study is significant because it is
interested on the role taxation has played in creating a big gap between
the have and the have not’s (inequality) in the society. This study
advocates for taxation prudence on the side of government so as to bring
about adequate tax policy in the country.
This study also encourages flexible tax policy such that based on the
condition of the economy the poor does not pay more than the rich in
terms of tax. The result of this study would also assist policy makers
and other researchers and students working on related fields to do more
in-depth work and it would be significant in policy forecasting.
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