THE EFFECT OF TAXATION ON ECONOMIC DEVELOPMENT (TIME SERIES 2011-2019)

INTRODUCTION

This chapter is the primary chapter of this study consisted of nine sections, in the first section, it would present background related to the study where as in the second section the problem statement, the third section researchers were consider research purpose, and the fourth section the study would present research objectives, the fifth section research questions, The sixth section, the study was discussed the scope of the study, The seventh section the study provided significance of the study, The eighth, the study described the operational definitions of key terms of the study, Finally, Conclusion of the chapter.

BACKGROUND OF STUDY

Taxation is the central part of modern economic development. Its significance arises not only from the fact that it is by far the most important of all revenues but also because of the gravity of the problems created by the present-day heavy tax burden. Taxation by the central or local government as a levy on an individual or corporate body to finance that government's spending as well as to implement its fiscal policy. The state can thus move funds from private consumption to public investment through taxation (Greene, 2011). Taxation is the act of setting a tax, i.e., the method through which a local, state, and central government, through its legislative body, raises income to defray the government's needed costs. Taxation can be described, according to Anyanwu (1997), as the obligatory transfer or payment (or sometimes of products and services) from private people or organizations to government. The purpose and importance of taxation is to raise funds with which to promote the general welfare and protection of its citizens, and to enable it to finance its multifarious activities and to redistribute wealth and management of the economy (Ogbonna and Ebimobowei,2012).

According to Musgrave (2008), taxation is used as a tool to achieve certain social goals, i.e. as a means to redistribute wealth and thus reduce inequalities. Therefore, taxation in a contemporary government is needed not only to increase the revenue needed to satisfy its ever-increasing administrative and social services spending, but also to decrease income and wealth inequalities. Taxation is also needed to draw away money that would otherwise go into consumption and cause inflation to rise(Adejare, 2017).

Taxes are obligatory payments related to certain activities. Revenues collected through taxation are used to buy the inputs needed to produce goods and services supplied by the government or to redistribute purchasing power among citizens. Taxation reallocates resources in two distinct steps from private to government use. First, individuals ' ability to command resources is reduced as taxation reduces revenue for market goods and services expenditure. Second, government revenues are then used to bid for resources needed to deliver government goods and services, and to provide income support payments to recipients of government transfers such as pensions for social security(David, 2014). According to Ogbonna and Ebimobowei (2012) “the political, economic and social development of any country depends on the amount of revenue generated for the provision of infrastructure in that given country”. They further stated that a well-structured tax system would boost the generation of the income for a meaningful development of such country.

The most commonly used tax bases can be grouped into three broad categories: income, consumption, and wealth. These are economic bases; their values depend on decisions made by individuals. For instance, individuals make daily choices that affect their income. They also can control the allocation of their income between saving and consumption. Because most individuals must save to accumulate wealth, their choices regarding consumption also affect their wealth (David, 2014). There were many taxes needed from the provinces to administrate the Roman Empire these taxes paid for a good system of good roads, law and order, security, religious freedom, a certain amount of self-government and other benefits. The provisions of these basic amenities depend on the amount of revenue being generated( Kiabel and Nwokah (2009)).According to him, the increase in the price of running government, combined with the steady decline in revenue, left all levels of government with strategies to enhance the income base. Taxation is one such strategy.

According to PricewaterhouseCoopers, has made some improvement to the tax system. The major objective of taxation is to Finance government expenditure and to redistribute wealth, which will have a positive causation effect on development of the country. According to IMF “Developing countries must be able to raise the revenue 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”( Jhingan 2004 ).