CHAPTER ONE 
INTRODUCTION  
1.1 Background of the study 
A Tax is a fee charged or levied by a government on a product, income, or activity. If it is levied directly on personal or corporate income, it is called a direct tax. If it is levied on the price of a good or service, then it is called an indirect tax. The main reason for taxation is to finance government expenditure and to redistribute wealth which translates to financing development of the country (Ola, 2001 Jhingan, 2004, Musgrave and Musgrave, 2004. Bhartia, 2009). Whether the taxes collected are enough to finance the development of the country will depend on the needs of the country and. countries can seek alternative sources of revenue to finance sustainable development (Unegbu and Irefin. 2011). 
Government collects taxes in order lo provide an efficient and steadily expanding non-revenue yielding services, such as infrastructure-education, health, communications system etc, employment opportunities and essential public services (such as the maintenance of laws and order) irrespective of the prevailing ideology or the political system of a particular nation. Tax is also the nexus between state and its citizens, and tax revenues are the lifeblood of the social contract. The very act of taxation has profoundly beneficial effects in fostering better and more accountable government (Tax Justice Network (TJN)S revenue 2012). 
Musgrave and Musgrave (2004) also stated that the economic effects of tax include micro effects on the distribution of income and efficiency of resource use as well as macro effect on the level of capacity output, employment, prices, and growth. However, the use of tax us an instrument of fiscal policy to achieve economic growth in most less develops countries cannot be reliable because of dwindling level of revenue generation. Consequent upon this, changing or fine-tuning tax rates has been used to influence or achieve macroeconomic stability, A critical examples of governments that have influenced their economic development through revenue from tax are; Canada. United States, Nethcriand. United Kingdom. They derive substantial revenue from Company Income tax. Value Added Tax. Import Duties and have used same to create prosperity (Qluba 2008), A significant share of the tax revenue increase in Africa stems from natural resource taxes. This included income from production sharing, royalties, and corporate income tax on oil and mining companies (Pfister, 2009). Nigeria is a developing country whose major export is mainly crude oil. Also endow with other natural resources such as; natural gas, lin. iron ore. coal, limestone, lead, zinc and arable land (Economy Watch, 2011). A& a sovereign nation, Nigeria has a land mass that covers about 923. 768 £q km and have a population of about 149,229,090. 
According to Tran (200K), emerging economies are nations that have large territories and populations; and they are undertaking extraordinary development projects that call for new infrastructure, such as power-generating plants and telecommunications systems. Also, United Nations (20(15) asserts that, achieving the Millennium Development Goals (MDGs)} for instance, low-income countries (LICs) arc required to increase their domestic revenues by around 4 percent of the GDP. Also, to meet the MDGs, OECD countries have been urged to raise their level of aid to LICs to about 0.7 percent of their Gross National Income - but this is as nothing when compared to potential tax revenues. The infrastructural developments demand a lot of resources and funding. In many rich countries, tax constitutes 30-40 percent of the GDP (Golit. 2008 and TIN, 2012). Nigeria with a budget of N4,97 trillion for the year 2011, representing 12% increase of 2010 annual budget ( Uneghu and Irefin, 2011) shows that taxation is one of the ways of funding infrastructural developments specified in the budget.             
The tax base in Nigeria since had been on the increase in order to mobilize the resources needed to execute infrastructure project. According lo Kaldor (3963), those who believe that insufficient growth and investment is mainly a consequence of a lack of resources arc chiefly concerned with increasing the resources available for investment through additional taxation. The availability and mobilization of tax is the fundamental factor on which an economic development is sustained and managed. As noted by TIN (3012), tax is the most important, the most beneficial, and the most sustainable source of finance for development. Tax in Africa, for example, is worth ten limes the value of foreign aid. The long-term goal of poor countries must be to replace foreign aid dependency with tax self-reliance. 
However, in Nigeria the contribution of tax has not been encouraging, thus expectations of government are being cm short. Corruption, evasion, avoidance and lax haven indicators arc strongly associated with low revenue (Attila, Chambas, and Combes, 2U08) and indeed, corruption functions like a tax itself. According to Adegbie and Fakile. 2C11), the more citizens lack knowledge or education about taxation in the country, the greater the desire and the opportunities for tax evasion, avoidance and non-compliance with relevant lax laws. In this respect, the country will be more adversely affected because of absence of tax conscience on the part of individuals and the companies and the (allure of tax administration to recognize the importance of communication and dialogue between the government and the citizens in matters relating to taxation. 
In the face of resource deficiency in financing long term development, Nigeria has heavily resorted to foreign capital, such loans and aid as the primary means to achieve rapid economic growth. Thereby accumulate huge external debt in relation to gross domestic product and serious debt servicing problems in terms of foreign exchange flow and, as such majority of the populace live in abject poverty. Government has expressed concern over these and has vowed to expand taxation in order to meeting its mandate. Kiabel and Nvokah (2009) argue that the increasing cost of running government coupled with the dwindling revenue has left all tiers of government in Nigeria with formulating strategies to improve taxation, Also, Ndekwu (1991) noted that, more than ever before, there is now a great demand for the optimization of revenue from various tax sources in Nigeria. This probably influenced the decision of the Federal Government of Nigeria (FGN), which in 1991 set up a Study Group on the Review of the Nigerian Tax System and Administration.             Also, that an accurate estimation of the optimal level of expenditure requires knowledge of the productivity of the tax system and that it will assist in identifying a sustainable revenue profile for the country. As noted by IMF (cited in TJM, 2012): ''Developing countries must be able to raise the revenues required to finance the services demanded by their citizens and the infrastructure (physical and social) that will enable them to move out of poverty. Taxation will play the key role in this revenue mobilization.             
As a means of meeting their expenditure requirements, many developing countries undertook, tax reforms in the 1980s. However, most of these reforms focused on tax structure rather than on tax administration geared towards generating more revenue from existing tax sources (Osoro. 1991). 
1.2 Statement of research problem             
The attitude of Nigerians towards taxation is worrisome as many prefer not to pay tat if given the opportunity the economy continues to lose huge amount of revenue through the unwholesome practice of tax avoidance and tax evasion, these loss of revenue can change the fortune of many economy particularly, developing countries like Nigeria. This problem has been lingering for so long which urgent attention and solution is overdue. The cost of collecting tax in Nigeria both social and economic cost is too high to the extent that if left unchecked the cost may soon out weight the benefit or value, derived from such operation and that will not be appropriate for the system. The government spends more to realize a miserable pittance. The rate of corruption on the part of tax officials is alarming as most of them connive and collude with supposed tax payer to evade and avoid tax. Sometimes, the tax officials art; not properly trained on the modern ways of tax administration. The inadequate social infrastructures in Nigeria call for attention as to how tax revenue generated is to be expanded and accounted Tor especially where those in authority continue to spend these hand earned resources with reckless abandon.             
This study therefore attempts to address the issues on the impact of tax on government capital expenditure and economic growth with the view for remedying the country's revenue potentials for enhanced wealth creation and development In the light of the above, the research seek the answer the following questions: 
1.      What is the impact of lax on government capital expenditure and economic growth? 
2.      Is there any relationship between tax revenue and government capital expenditure?
3.      Does government capital expenditure have any impact on the economic growth in Nigeria? 
1.3 Objective of the study             
Given the foregoing, the primary objective of this study is to establish empirically whether tax have any impact on government capital expenditure on the growth of "Nigerian economy. The specific objectives of this study include to: 
1.      Examine the impact of tax  on government capital expenditure and economic growth in Nigeria; 
2.      Establish the relationship that exists between tax revenue and government capital expenditure.
3.      Examine if government capital expenditure has any impact on the economic growth in Nigeria?   
1.4 Research hypothesis 
In the light of the above, the following hypotheses are formulated. It's important that hypotheses are logical speculations based on available information. We hypothesize in the null and alternative hypotheses format ho and h1 respectively: 
H0:  Tax   has   a   significant   impact on government capital expenditure and economic growth in Nigeria.             
H1:  Tax has no impact on government capital expenditure and economic growth in    Nigeria. 
H0:  There is a significant relationship between tax revenue and government capital      expenditure.  
Hi: There is no significant relationship between tax revenue and government capital      expenditure.                                                     
1.5 Significance of the study             
The study will assist the government in policy formulation at it relates to the impact of taxation on government capital expenditure, it will help to strength the operation of the relevant government agencies such as federal board of inland revenue, central bank of Nigeria, joint tax board and others. This study will bring government attention to other sources of revenue apart from the over dependence on revenue from petroleum.   
1.6 Scope of the study             
The view of its primary objective, this study focuses mainly on the impact of tax on government capital expenditure and economic growth in Nigeria. The study covers a period of 
1.7 Limitation of the study             
This research was limited by certain constraints which include difficulty in sourcing data from certain relevant organization, non availability of data on certain variables, restrictions n accessing certain materials on the internet and insufficient financial resources for the study. Lastly, this study was also constrained by inadequate time on the part of (he researcher, since attention had to be given to other course work.