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The purpose of this study is to find out if actually there is an impact of taxation as aid to economic development and my study is based on the survey of Enugu State, using Oji River as a case study.  This research also became necessary in order to bring to the proper understanding of the enquirer the best ways to solve such problems connected with the taxation especially: what is taxable, which system of tax is acceptable, the rate of tax evasion and avoidance and the assessment of Nigeria tax system.The primary function of every government is to make provision for its citizens in terms of infrastructural facilities.  The provision of this enormous work cannot be carried out adequately by the government due to its limited resources therefore, there is the imposition of tax on all citizens, companies to augment government financial position.  Government have always enacted various tax laws and reformed to stand the taste of time.



1.1     OVERVIEW:

One of the major functions of any government especially developing countries such as Nigeria is the provision of infrastructural services such as electricity, pipe-borne water, hospitals, schools, good roads and as well as ensure a rise in per capital income, poverty alleviation, maximize the utility of its citizens, improve their standard of living and so on.

According to Azubike (2009), tax is a major player in every society of the world. The tax system is an opportunity for government to collect additional revenue needed in discharging its pressing obligations. A tax system offers itself as one of the most effective means of mobilizing a nation’s internal resources and it lends itself to creating an environment conducive to the promotion of economic growth. Nzotta (2007) argues that taxes constitute key sources of revenue to the federation account shared by the federal, state and local governments. This is why Odusola (2006) stated that in Nigeria, the government’s fiscal power is divided into three-tiered tax structure between the federal, state and local governments, each of which has different tax jurisdictions. The system is lopsided and dominated by oil revenue. For these services to be adequately provided, government should have enough revenue put in place to finance them.  The task of financing these enormous responsibilities is one of the major problems facing the government of which it is of great necessity for these services to be provided to citizens of a state.  Based on the limited resources of government, there is need to carry the governed (citizens) along via the imposition of tax on all taxable individuals and companies to augment government financial position.  To this end, government have enacted various tax laws and reformed existing ones to stand the taste of time.  They include:  Federal Inland Revenue Service (FIRS), State board of internal revenue (SBIR), Income Tax Management Act (ITMA), Companies Income Tax Decree (CIID), Joint Tax Board (JIB) etc.

All these are aimed at ensuring adherence to tax payment and discouraging tax evasion and avoidance by citizens.  For the purpose of this study, the researcher would be concerned with the impact of taxation on economic development in Nigeria.


Obviously, the first need of any modern government is to generate enough revenue which is indeed “the breath of its nostril”.  Thus taxation is by far the most significant source of revenue for the government.  Nigerians regard payment of tax as a means whereby government raises revenue on herself at the expense of their sweat.

It is good to note that no tax succeeds without the taxpayer’s co-operation and that every government expects its citizens to see it as a duty to pay up their taxes.  Here, we can ask some thought-provoking questions such as: what makes taxation such a difficult issue?  Why do people feel cheated when it comes to tax?  Is government making judicious use of taxpayer’s money?  In view of these questions above, this study is being carried out to offer solution to them. We shall also look at the following issues and offer recommendations.

1.       Problems affecting the successful operation of tax system in Nigeria.

2.       How to determine the Assessable income.

3.       Process of tax administration in Nigeria.


The general objective of the study is to assess the contribution of  taxes towards the growth and development of the Nigerian economy.

However, the specific objective of the study includes:

1.       To examine the relevance of taxation in Nigeria.

2.       To determine why people feel cheated when it comes to paying their taxes.

3.       To determine the extent to which federal government has been using the revenues generated from tax.

4.       To examine how tax rate affects the rate of investment in the Nigeria economy.

5.       To know general desirability of firms to invest as a result of tax incentive measures. Generally, this study is carried out to know if tax constitutes the bulk of government revenue and to erase the erroneous that is the exploitation by government for their selfish interest.


Upon completion of this research, the following are the questions generated from the above research objectives:

1.       Is taxation relevant in Nigeria?

2.       Do people feel cheated when it comes to paying their taxes?

3.       What is the extent to which federal government has been using the revenues generated from tax?

4.       How does tax rate affect the rate of investment in the Nigeria economy?

5.       Do firms generally desire to invest as a result of tax incentive measures?


One of the most frequently discussed issues in Nigeria is how to solve the economic hardship in the country and how to create an industrial base that can be guarantee self sustaining economic development.  Also one wonders why a country which is richly endowed with the necessary human and material resources and which the people pay tax has been turned a heavily indebted country.

The study will afford us the opportunity to know the roles taxation play in the Enugu State economy such roles includes:

1.         Taxation is a major source of revenue to the government.

2.         Revenue generated from tax enables government performs its functions effectively.

3.         Taxation acts as an instrument of fiscal policy.

4.         The impact of tax on small business in the state.

5.         The study will in addition reveal if there are other better sources of government funding.


The scope of this study covers critical examinations on the impact of taxation on Enugu State economic development.  It will also analyse other related issues such as structure and administrative machinery of tax in Enugu State and their associated problems.  The essence of this digression is to possibly find out the obstacles if any, that hinder the effective collection and administration of tax in the State.


The researcher in carrying out this study will make the following assumptions:

1.         That the data that will be used are true and fair figures of taxes actually collected by the Federal Government in each year of assessment.

2.         That the data will be authentic and can be relied on for further research work on the topic.

3.         That the data is going to form the basis of the research work.


To enable the researcher test if there exist any correlation between revenue generated from tax and its impact on the Enugu State economy, some statistical  model will be used based on the response from the oral interview carried out and the questionnaire distributed, the data gathered from here will be used to test the following hypothetical statement (assumption).


The Null Hypothesis (Ho):  Revenue generated from tax does not make any impact on the economic development of Enugu State

The Alternative Hypothesis (HA):  Revenue generated from tax has a positive impact on the economic development of Enugu State.


The Null Hypothesis (HO):  That tax evasion and avoidance do not affect tax revenue.

The Alternative Hypothesis (HA):  that tax evasion and avoidance do affect tax revenue.


The Null Hypothesis (HO):  That revenue generated from tax is so merger compared to revenue from other sources as such, government can do with tax.

The Alternative Hypothesis (HA):  That tax is a major source of government revenue and as such government cannot do without tax.


TAX:              A compulsory levy by the government on its citizen for the provision of public goods and services.

TAX BASE:  The object which is taxed for instance personal income, company profit.

TAX RATE:  The rate at which tax is charged.

TAX INCIDENCE:  It offers to the effect of and where the burden is finally rested.

FBIRS:            Federal Board of Inland Revenue Services.  It is an operational arm of Federal Board of Inland Revenue which is responsible for the Federal Tax matters.

CITA:             Company Income Tax Act (CITA) is a federal law operated by the FIRS, which deals with the taxation of all limited liability companies in Nigeria with the exception of those engaged in petroleum operations.

JTB:                Joint Tax Board (JTB) is established under Section 85(1) of Decree 104 of 1993 to arbitrate on tax disputes between one state tax authority and another.

VAT:              Value Added Tax is a multistage tax levied and collected on transactions at all stages of sales and distribution.

CGTA:            Capital Gain Tax Act is an act that stipulates that all capital gains arising on disposal of asset of individual partnership and limited companies should be taxed.

PPTA:             Petroleum Profit Tax Act is an act that regulates the petroleum profit tax and also specifies how profit from petroleum will be taxed.

WITHHOLDING TAX:        This is tax charged on investment income namely: rents, interest, royalties and dividends, presently it is charged as the tax offset.

PROGRESSIVE TAX:          This is a tax incidence that increases as the size of income increases.

REGRESSIVE TAX: A tax is regressive when its tax rate decreases as the income increases.

EXCISE DUTIES:     These are taxes on some goods manufactured within a country.

PERSONS:     It includes all taxable persons whether it be individual or corporate bodies.

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