TAXATION POLICIES AND ECONOMIC DEVELOPMENT IN NIGERIA: COMPARATIVE ANALYSIS OF NIGERIA AND GHANA FROM 2000 TO 2022

CHAPTER 1

INTRODUCTION

1.1 Background to the Study

Tax policies remains a major fiscal policy instrument of the government for generating income and revenue to meet their expenditures and creating capital formation towards enhancing economic growth in country (Ogbanna, and Bimobowei, 2021). Tax policies is defined as the guidelines and principles established by a government for the imposition and collection of taxes. It encompasses both microeconomic and macroeconomic aspects. In Nigeria, the it is assumed that the benefit of tax policies are enormous in the country. For instance,,tax policy is used to determine how the funds required to finance government spending will be collected so as to ensure a stable and sufficient supply of revenues. Tax policies can also be used as a regulatory tool when its aim is to stimulate or slow economic growth by lowering or raising income tax and other taxes and the various contributions that affect individuals' disposable income and ultimately their consumption (Ogiogio, 2020).. Likewise, tax policy can, through tax incentives, influence resource allocation. Tax policies can encourage or discourage certain decisions by individuals and businesses and thus foster certain behaviours and financial flows. Lastly, the funds collected by a government can be redirected towards certain categories of citizens to compensate for or offset the disparities inherent in market economies. Similarly, by taking the economic situation of individual taxpayers into account, the tax system can modulate their tax burden

Tax policies instrument in Nigeria comprises of three main categories namely direct taxes, indirect taxes and payroll taxes. Direct taxes instrument are tied to the creation and possession of wealth and the revenues derived from the factors of production represented by labour and capital. They are borne directly by the taxpayers (individuals and corporations) to whom they are charged. The most common types of direct taxes are income tax, petroleum profit tax, personal income tax, corporate tax and property tax. Indirect taxes target transactions and apply to production and consumption activities .In Nigeria, over the years, has undergone remarkable and significant changes over time. The tax policy have been reviewed with the sole aim of repelling obsolete provisions and simplifying the incumbent one. Under the current Nigerian tax policy , tax is enforced by the three tiers of government, which are Federal, State and Local government with each having its jurisdiction clearly spelt out in the taxes and levies (Ola, 2021):

In Ghana, considering the issue of tax policies, there is no much different with Nigeria tax policy system. In fact Ghanaian government used tax policies as one of their fiscal policy to regulate the flow of funds in circulation in their economy (Appah, and Oyandonghan, 2019).. This tax policy regulation has help the country to experienced significant improvement in tax revenue performance due to incessant tax policies reviewed in their country . These increases consequently contributed to the massive restoration of economic growth . For instance, the budget deficit was reversed from 2.6 per cent of GDP to a surplus of 1.5 per cent in 1983 and 2021 respectively(Appah, 2021).. Hence, the study will examines taxation policies and economic development a comparative study in Nigeria and Ghana.

1.2. Statement of the Problem

Ghanaian government have carried out different tax policies reform to enhance the economic growth of the country. As a result the country is heavily depend on tax revenue from difference sources of tax to fund government expenditure in the quest to promote economic growth.. However, in attempt to enhances the economic growth, tax revenue mobilization has been impeded by challenges such as tax evasion and avoidance, other corrupt practices and a growing informal sector (Bonu,. and Pedro 2019). To overcome these challenges, Ghana’s tax policies have undergone broadly three main overlapping stages, namely: restoration of the tax base, strengthening production incentives and enhancing efficiency and equity in the tax administration (Kusi, 2020). In spite of these tax policies reforms, the growth in tax revenue from the difference sources of taxes such as company tax, personal income tax, petroleum profit tax, value added tax, lags behind government expenditure in Ghana and it is assumed to constitute adverse effect on the gross domestic product of the country.(Engen, and Skinner , 2020).

Also, in Nigeria, in spite of tax policies reform carried out in the country over the years, The attitude of Nigerians towards taxation is worrisome as many are yet to understand the importance of commitment in tax payment, as many prefer not to pay tax. As a result of this negligence to pay tax as well as tax evasion, the economy therefore continues to lose huge amount of revenue. The fact is that if this lost revenue is employed back into the economy and well utilized, it can change the fortune of the nation and enhances the gross domestic product of the country. This problem has lingered for so long and requires urgent attention and solution especially in developing country like Nigeria and in spite of tax policies reform going on in the country. Hence, it is assumed that taxation polices have adveser on the gross domestic product of the county.

Finally, despite the growing interest in the effects of tax policy on economic growth, there are limited or no empirical evidence on comparative study on the effect of taxation policies on economic growth in Nigeria and Ghana.Hence, the study examines taxation policies and economic development a comparative study in Nigeria and Ghana.

1.3. Objectives of the Study

The broad objective of the study is to compare the effect of company tax,petroleum profit tax ,value added tax personal income tax on economic development in Nigeria and Ghana. The specific objectives of the study are;

1.To compare the effect of company tax,petroleum profit tax , value added tax , personal income tax on gross domestic product of Ghana and Nigeria

2. To compare the effect of company tax, petroleum profit tax ,value added tax personal income tax on human poverty Index of Ghana and Nigeria

3.To compare the effect of company tax, petroleum profit tax ,value added tax personal income tax on human development Index of Ghana and Nigeria

1.4. Research Questions

1.What are the significant difference of company tax, petroleum profit tax , value added tax , personal income tax on gross domestic product of Ghana and Nigeria

2. What are the significant difference between company tax, petroleum profit tax ,value added tax personal income tax on human poverty Index of Ghana and Nigeria

3. What are the significant difference between company tax, petroleum profit tax ,value added tax personal income tax on human development Index of Ghana and Nigeria

1.5. Research Hypotheses

The following hypotheses were stated in null form

H0₁: Thereis nosignificant difference between company tax, petroleum profit tax , value added tax , personal income tax on gross domestic product of Ghana and Nigeria

H0₂: The is significant difference between company tax, petroleum profit tax ,value added tax personal income tax on human poverty Index of Ghana and Nigeria

H0₃: The is significant difference between company tax, petroleum profit tax ,value added tax personal income tax on human development Index of Ghana and Nigeria

1.6. SIGNIFICANCE OF THE STUDY

The study focuses on taxation policies and economic growth, comparative study between Nigeria and Ghana.. This study was of immense assistance to the following group,

Government: This study will assists government in implementing right policy that will bring about the needed economic growth in the country.

Economic planner; This study will assists the economic planners to identify the strength and weakness of tax policies and hence carry out the policy that suits the economy best and this will definitely enhance economic growth and development of the economy.

Researchers and Students

Finally, Researchers and students interested in a similar field of study in future will find this work useful, conceptual guide and reference material.

1.7.Scope of the Study

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