THE EFFECT OF INDIRECT TAXATION ON CONSUMPTION IN NIGERIA

Introduction

1.1 Background Of The Study

Taxation is a major instrument for the conduct of both developed and developing countries. Taxation is known to accomplish a number of objectives such as revenue generation for government, economic stabilization and income re-distribution. Taxation as an instrument of public policy is essentially concerned with the manipulation of financial operations of both the government and private sectors with a view to furthering certain economic objectives.

In Nigeria, these economic objectives include the attainment of appreciable level of full employment, avoidance of excessive inflation, achievement of satisfactory balance of payment position, appreciable increase in the national income and a reduction of extreme inequality among the citizens, provisions of essential necessities of life like water, school, building of bridges, roads and others.

In every country, there are certain services which the government must provide to the citizens because of their essential nature. The services are so indispensable in life that individuals or corporate bodies are not allowed to provide them or where they are allowed, they are not allowed to monopolize the supplies or the production. Government does this to ensure that the supply of such goods and services are evenly distributed in any given society so that the rich and the poor alike may benefit.

The provision of such essential goods and services involve huge expenditure. One may ask; how does government get such huge amounts to finance the supply of such essential goods and services to her citizens? It is true that government mints money but there are other important economic factors that should be considered so that excessive money is not in circulation in an economy. For an economic balance to be maintained in an economy, government must find ways of financing her activities. One source of such finance is the contribution made by the private sector to government coffers in form of fees, levies or taxes.

Question now arises, how does the funding of these activities come about?

The primary source of government revenue is tax. Taxes which loyal citizens pay account for more than seventy percent of government revenue in Nigeria.

The private sector is not left out in the fund generation because their own fund comes in form of borrowing and private savings etc.

The absence of well-organized and locally controlled money market for borrowing has faced private sectors in most developing countries especially Nigeria to rely primarily on fiscal measures to mobilize domestic monetary resources for revenue generation. For instance, if profit on taxation and the marginal efficiency of investment is not well declined, these will consequently bring a fall on investment and as well affect the economy especially where there is decrease in tax rate. (i.e. number of tax payers)

However, Dukeman (2003) said that for an effective tax system that government should encourage investors or individuals to pay tax to some extent for that will adhere to high rates of income thereby enabling government to carry out its function.

So therefore, as long as this is significantly quantitative and psychologically substantial, the suggestion may not augur well for investment activities especially where retained profit and savings from the bank of capital formation exaggerated.

Realizing the importance of tax to finance as the transfix of economic growth the government should initiate financial policies through annual budgets extension services for these business enterprises and also through several government financial enterprises.

We are now convinced that with all these sources of revenue by government they should contribute the largest proportion. With the consideration above, attention has been focused on the fiscal policy best suited to the economic development of the country. As part of the search for desirable fiscal policies high consideration is placed on the value of goods and services payable by the final consumers.

Nevertheless, the implementation of various governments is measured by the effects at most times, at variance with the objective of government. Some of the revenue collection agencies are either ill equipped to carry out their functions effectively or equipped with person of dubious character who trust laudable objectives of the government. Mostly, some tax payers don’t pay willingly, some take laws into their hands to either evade or avoid tax while others collide with some tax officials as well as employ the services of tax experts to explore the tax loophole. As a result of such ill activities towards taxation there is always a short fall in the government projected revenue.

In view of the importance to taxation as a principal source of government revenue as well as a powerful instrument in the conduct of public policies, all this fraudulent acts should be resolved.

1.2 Statement Of The Problem

Tax constitutes the greatest percentage of the internally generated revenue in Enugu State and as well the major source of revenue for the government in financing its activities.

Tax however has its fundamental problems in the area of administration.

There is some problem in planning, control and adequate information flow of tax collection generally. Since the government financial policy and objectives are to ensure adequate revenue and conducive environment for the people’s satisfaction through progressive taxation and other fiscal measures designed to aid the rapid growth and development of the society for the benefit of the citizenry.

It is therefore necessary that these avenues of fund are solidified. But on the other way round the implementation of the government taxation policy and the realization of the taxation goal most a times run at variances with the policy outlined in the annual as well as the tax laws provision.

Many individuals as well as organizations see taxation policy as being harsh and unfavorable. They argue that while few enterprises especially large company continues to benefit from the government support through grants, subsidiaries and other tax incentives, others find the policies unbearable and as a result any little opportunity by such people to evade or avoid tax is highly utilized.

The results of all these tax evasion and avoidance are that less revenue than envisaged is collected through tax by the government and thereby less social amenities than proposed are carried out.

It is in this regard that this study seeks to assess the effects of indirect taxation on consumption in Nigeria.

1.3 Purpose/objectives of the Study

The following are the objectives of this study:

1. To evaluate the effects of indirect taxation on consumption in Nigeria.
2. To identify various forms of indirect taxation imposed in Nigeria and their respective effects.
3. To determine other factors that affect prices of goods and consumption in Nigeria.

1.4 Research Questions

1. What are the effects of indirect taxation on consumption in Nigeria?
2. What are the various forms of indirect taxation imposed in Nigeria and their respective effects?
3. What are the other factors that affect prices of goods and consumption in Nigeria?

1.5 Research Hypothesis

HO: There is no significant relationship between indirect taxation and consumption in Nigeria

HA: There is significant relationship between indirect taxation and consumption in Nigeria

1.6 Significance of the Study

The following are the significance of this study:

The results of this study will provide a basis for minimizing the adverse effects of indirect taxation by the Federal government of Nigeria, while consolidating its benefits because this study will assess the macroeconomic impact of indirect taxation on general price levels and consumption in Nigeria.

This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic.

1.7 Scope of the Study

This study on the evaluation of the effect of indirect taxation on consumption in Nigeria will cover all types of indirect taxation on prices of goods and services, consumption and standard of living in Nigeria

1.8 Limitations of the Study

Financial constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9 Definition of Terms

Taxation:

A means by which governments finance their expenditure by imposing charges on citizens and corporate entities. Governments use taxation to encourage or discourage certain economic decisions.

Consumption:

The using up of a resource.

Revenue:

Income, especially when of a company or organization and of a substantial nature.

Inflation:

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.