A CRITICAL INVESTIGATION OF THE PROBLEMS AND PROSPECTS OF TAXATION AS A SOURCE OF REVENUE TO THE NIGERIA FEDERAL GOVERNMENT

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Throughout the 1970s and late 1980s, a considerable amount of Nigeria's focus was placed on oil revenue, as the country did not consider taxation to be a sustainable revenue stream. During this period, each state in the nation was significantly reliant on funds obtained from the Federation Account. During the global recession that began in 2014, there was a significant decrease in oil prices and, as a result, reduced revenues for the Federation. As a consequence of an inordinate dependence on oil income, specific fiscal policies were implemented inconsistently. In light of impending insolvency in the states, local, state, and federal governments initiated an inward shift, prioritising Internally Generated Revenue (IGR) as a viable and enduring funding stream (Richard, 2018). Throughout the years, the federal government of Nigeria has been substantially deprived of sufficient crude revenues to cover the escalating social and public expenditures required to foster economic growth and development. Nigeria turned to taxation as a substitute means of generating revenue following the collapse of the global petroleum oil market. If the government's objective is to increase the money supply in circulation, taxation will be reduced to support private and individual sectors' purchasing power. On the contrary, should the government choose to decrease the quantity of currency in circulation, taxation policies will be surreptitiously and clandestinely planned and executed with the intention of augmenting taxation, thus unavoidably enhancing the government's revenue generation (Soetan 2021). 

The tax revenue generated by the Federal Government of Nigeria is of the utmost importance given the country's substantial reliance on hydrocarbon exports and the volatile nature of global oil prices. Tax revenue is generated in Nigeria via various channels, including but not limited to value-added tax (VAT), personal income tax, customs duties, excise duties, corporate income tax, and other levies and charges. The collection of federal, state, and local taxes is the purview of the Federal Inland Revenue Service (FIRS), which is tasked with their administration. The revenue generated through taxation has a significant impact on the budgetary allocations of the Federal Government for critical sectors such as education, healthcare, infrastructure, security, and poverty alleviation programmes (Udeaja & Okolo-Obasi, 2021). 

A lack of consistent tax revenue inflows may serve as an indication of systemic inefficiency, record falsification, leakages, government negligence, tax evasion, or avoidance. Over the years, the generation of tax revenue has been hindered by these factors. In analysing the tax system as a source of revenue for the federal government of Nigeria, this study will consider the obstacles it encounters and the opportunities it presents for growth. Despite the presence of these challenges, the Nigerian tax system also presents prospects for improvement and reorganisation. The administration has exhibited a dedication to tax reform endeavours with the aim of updating tax procedures, broadening the tax base, and enhancing compliance (Olusegun & Ajiboye, 2019). According to Oboh and Olusanmi (2020), the adoption of innovative tax policies, such as the Voluntary Assets and Income Declaration Scheme (VAIDS), demonstrates a proactive approach to combating tax evasion and encouraging taxpayers to voluntarily disclose their income. 

The intricacies of policy, institutional, and economic elements interact to produce the difficulties and opportunities for improvement associated with taxation as a source of revenue for the federal government of Nigeria. Through the efficient resolution of systemic challenges that plague the tax system and the strategic utilisation of emerging opportunities for reform and modernization, Nigeria possesses the capability to completely exploit the potential of taxation as an environmentally friendly and equitable method of generating governmental funds. This, consequently, would foster growth and development that are inclusive.

1.2 Statement of the Problem

A lack of consistent tax revenue inflows may serve as an indication of systemic inefficiency, record falsification, leakages, government negligence, tax evasion, or avoidance.Over the years, the generation of tax revenue has been hindered by these factors. A significant incidence of tax evasion and avoidance on the part of taxpayers leads to a reduction in government revenues, consequently resulting in a contraction of government expenditure. The aforementioned descending trajectory ultimately has an impact on the spending and savings habits of businesses and households, thereby hindering economic expansion and activity (Cornelius, Ogar & Oka 2020). 

Recent tax collection initiatives include the implementation of a treasury single account and a management informatics system (PPT, VAT, CIT, personal income tax, and customs and excise duties). The primary aim is to discourage tax evasion and avoidance in order to augment revenue generation. This could have potentially incited riotous disorder and allegations that the government had taken advantage of the people by imposing a variety of levies.It is imperative to recognise that taxation, a substantial mechanism employed to regulate inflation, encourage investment, and finance government expenditure, has been disregarded ever since the inception of oil revenue. Due to this oversight, the economy is now vulnerable to economic instability, public disgrace, crises, and ultimately, catastrophe. The implementation of taxation, which is one of the fiscal instruments utilised by the government to achieve economic stability, has been insufficient. As stated previously, the objective of this study is to examine the Nigerian tax system as a source of federal revenue, including its challenges and improvement opportunities (Ojo 2018).

1.3 Objective of the study

The primary objective of the study is to examine the problems and prospects of taxation as a source of revenue to the Nigeria federal government. The specific objectives is as follows:

Ascertain the sources of tax revenue to the Nigerian Federal Government. 

Identify the problems impeding the collection of tax revenue in the Federal Level of the Nigerian Government. 

Ascertain the relevance of tax revenue to the Nigerian Federal Government. 

Assess the prospects of tax revenue generation to the Nigerian Federal Government.

1.4 Research Question

The study will be guided by the following questions;

What are the sources of tax revenue to the Nigerian Federal Government?

What are the problems impeding the collection of tax revenue in the Federal Level of the Nigerian Government?

What are the relevance of tax revenue to the Nigerian Federal Government?

What are the prospects of tax revenue generation to the Nigerian Federal Government?

1.5 Research Hypothesis

Ho: Tax revenue is of no significant use to the Nigerian Federal Government.

Ha: Tax revenue is of a significant use to the Nigerian Federal Government.

1.6 Significance of the Study

The significance of this study lies in its critical role in shaping the country's fiscal landscape, economic development, and social welfare outcomes. Understanding the dynamics of taxation and its implications for government finances is essential for policymakers, economists, tax practitioners, and other stakeholders in Nigeria.

The study will facilitate the identification of opportunities and challenges in the Nigerian tax system. By examining these challenges in-depth, this research can provide valuable insights into potential reforms and interventions to strengthen tax administration, broaden the tax base, and improve revenue mobilization efforts.

1.7 Scope Of The Study  

This research investigates the problems and prospects of taxation as a source of revenue to the Nigeria federal government. Geographically the study will be conducted at Federal Inland Revenue Service, Abuja, FCT of Nigeria. 

1.8  Limitation of the study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing to the nature of the discourse thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. Additionally, the researcher will simultaneously engage in this study with other academic work. More so, the choice of the sample size was limited  to extention teachers as few respondent were selected to answer the research instrument hence cannot be generalize to other aspect of agriculture. However, despite the constraint  encountered during the  research, all factors were downplayed in other to give the best and make the research successful.

1.9       Definition of terms

Taxation: This is an instrument employed by the government for generating public funds.

Source of Revenue: In this study denotes the origin or means through which the Federal Government of Nigeria obtains funds to finance its activities, programs, and expenditures.