IMPACT OF GOVERNMENT REVENUE ON ECONOMICS GROWTH IN NIGERIA (1980-2014)
Background to the Study
Revenue generation in Nigeria governments is principally derived from tax. Tax is a compulsory levy imposed by government on individuals and companies for the various legitimate function of the state (Olaoye, 2008). Tax is a necessary ingredient for civilization. The history of man has shown that man has to pay tax in one form or the other that is either in cash or in kind, initially to his chieftain and later on a form of organized government (Ojo, 2003). No system or rules can be effective whether foreign or nature unless it enjoys some measures of financial independence.
Policy makers and researchers have long been interested in how prospective changes to the revenue sources impact on the overall economic growth. According to Kiabel and Nwokah (2009), within the last decade, the issue of domestic resource mobilization has attracted considerable attention in many developing countries due to debt difficulties coupled with domestic and external financial imbalances. An understanding of this relationship is critical in the formulation of a sound or excellent fiscal policy to prevent or reduce unsustainable fiscal deficit (Eita and Mbazima, 2008). It is also highly consequential in evaluating government’s role in the distribution of resources (Chang, 2009). Revenue generated through tax is a major source of government revenue all over the world. A critical challenge of tax administration in the 21st century is how to advance the frontiers of professionalism, accountability and awareness of the general public on the imperatives and benefits of taxation in our personal and business lives which include: promoting economic activity; facilitating savings and investment; and generating strategic competitive advantage (Kiabel and Nwokah, 2009). Government use tax proceeds to render their traditional functions, such as the provision of public goods, maintenance of law and order, defense against external aggression, regulation of trade and business to ensure social and economic maintenance (Azubike, 2009).
Nigeria has been one of the most backward developing countries in terms of harnessing revenue owing to weak standard of good governance. In recent years, the most worrisome about Nigeria’s economy is that corruption and mismanagement prevented the strait of the country’s resources from taxation and other sources into lasting improvements in self-sustaining economy. Thus despite increasing revenue generation that supposedly have been plough into productive ventures, the economy is still characterized with high rate of unemployment of 21.4% and 23.9%, high rate of inflation of 11.8%, and 10.3%, high interest rate of 22.51% and 22.42%, low capacity utilization of oil industry of 24.33% and 24%, in 2010 and 2011 respectively (CBN, 2012).
There also exist low investment, high level of corruption, weak institutions, low per capita income, poor infrastructure, deteriorating economic activities, accumulated debt, still prevail. It is with a great dismay that the poor indices stated above is lack of provision of public goods as enshrined in theory of public goods popularized by Samuelson in 1954. As stated by Sanni (2007), Nigeria’s fiscal operations over the years have resulted in varying degrees of deficit; financing of which has had tremendous implications for the economy. Hence the country is faced with increasing budget deficits year in year out creating an ever increasing gap between public expenditure and the revenue generated. Deficit financing remains high at N 117.2 billion, N 47.4 billion and N810.0 billion in 2007, 2008, and 2009 respectively (CBN, 2010). Statistics shows that Nigeria’s oil GDP growth rate stood at 7.84% between 1986-1993, fell to 0.51% between 1994-1999, 4.75% between 2000-2002, and rose to 6.40% between 2003-2008 while non-oil GDP growth rate within the same period stood at 5.77%, 3.00%, 3.55% and 8.80% respectively with corresponding total GDP growth rate between 1986-1993 stood at 6.23%, 1994-1999 at rate of 2.33%, 2000-2002 at 4.75% and 2003-2008 at 6.40%. It is pertinent to note that, total oil revenue generated between 2000 and 2009 amounted to N34.2 trillion while non-oil was N7.3 trillion, representing 82.36% and 17.64% respectively (CBN Statistical Bulletin, 2009). This is a clear indication that our revenue generation potential is solely dependent on oil revenue even in the midst of several adjustment and implementation of various forms of tax revenue laws. This is an indication of high level of inefficiency in the tax administration in Nigeria, which is contrary to the tax-and-spend hypothesis put forward by Friedman (1978) which states that changes in government revenue bring about changes in government expenditure with sole aim of bringing growth in the economy. Besides, Naiyeju (1996) asserted that, the success or failure of any tax system depends on the extent to which it is properly managed; the extent to which the tax law is properly interpreted and implemented. Dickson and Presley (2013) further attribute this shortcoming to high rate of tax evasion, misguided tax exemptions and corruption in the administration of the tax system. Despite the tremendous growth recorded in the oil revenue, there are still reoccurring question as to whether government have fully utilized this revenue for the overall improvement of the economic activities. To this end, Storey (1953) wrote that “before independence, there have been cases of official misuse of resources for personal enrichment”.
With this persistent variance one may not be wrong to question the outlook of the revenue generation base – the Gross Domestic Product (GDP) and its attendant growth rate in the light of the 2008 global economic recession and recently the fluctuation of crude oil price at the international market with its devastating effect on revenue base where Nigeria government is seeking external loans worth $5.7bn (N2.97tn) from World Bank, African Development Bank, Islamic Development Bank and China Export-Import Bank to finance 2015 budget (Iweala, 2015) in midst of existing debt profile of about N712billion recorded in 2014 and currently stand at N943billion as at January 2015. Excellent fiscal policy – as noted by Eita and Mbazima (2008), Wolde-Rufael (2008), and Fasano and Wang (2002) – is essential in bring about improved revenue generation sources and sustainable economic growth. It is also suggested (Wicken and Uctum, 1990) that the sustainability of a fiscal deficit profile is essential if it must stimulate growth. Most times when expected revenue exceeds expenditure, it is expected to stimulate growth but in Nigeria, it is the opposite giving excessive and over bloated cost of governance. To this end, Ariyo (1993) expressed the view that given the current trend, Nigeria may not be able to sustain the level of her fiscal deficit in the long-run.
Statement of the Problem
The government is faced with myriads of problems ranging from corruption and embezzlement, poor financing, mismanagement of funds to poor leadership. This has deterred the development of government in Nigeria. The major issues are; what has contributed to the non-performance; is it because of total dependence on federal and state statutory allocation? Is it as a result of poor internally generated revenue drive? Is it because of ineffective utilization of available scarce resources or mismanagement by public office holder? Among others, certain percentage of the statutory allocation has always been deducted by the state government thereby causing the local government to underperform which includes;
- Dilapidated infrastructural facilities
- Unavailability of social services to rural populace.
iii. Underdevelopment of local communities.
Based on the above stated problems, it has become necessary to conduct an analysis on revenue generation in Nigeria.
Objectives of the Study
The broad objective of this research is to evaluate the impact of government revenue on economic growth in Nigeria.
The specific objectives are;
- To appraise revenue sources and its effect on economic growth in Nigeria
- Examine causal/direction of relationship between revenue sources and economic growth in Nigeria.
- Does revenue sources has effect on economic growth in Nigeria?
- Is there any causal relationship between revenue sources and economic growth in Nigeria?
- H0: Revenue sources has no significant effect on economic growth in Nigeria.
- H0: There is no significant relationship between revenue sources and economic growth in Nigeria.
Significance of the Study
From the outlook, there is need for the government to improve their performance. However, the research is significantly considering the closeness of government to the grassroots’ people and the need to utilize substantial revenue for its various sources in addition to federal, state and local statutory allocation for developmental purpose. The study will help to identifying some means of generating revenue that has been neglected over years. It will also be beneficial to the grassroots because improved revenue generation means improved standard of living in form of provision of social amenities such as road, hospital, park, drinkable water, rural electrification etc. The study will be educative as it will be a reference point for researchers.
Scope of the Study
The study would appraise the revenue generation for the period of thirty four years (1980-2014) in Nigeria Government. The research is intended to be carried out using secondary data. Secondary data will be obtained from central bank of Nigeria Bulletin.
Limitation of the Study
This study has some limitations most especially in the area of data collection which is to be covered and has time duration of thirty four years (i.e. 1980–2014).
Financial constraints as well as time available for the completion of the study are among other factors that would limit the scope of the study.
Definition of Terms
Some concepts require proper explanations to enhance our understanding of the theme where necessary opinion of scholars will be cited to explain the terms. The researcher will also give some fundamental definition of terms.
Revenue: Public revenue could be defined as the funds generated by the government to finance its activities. In other words revenue is the total fund generated by government (Federal, state, local government/ to meet
their expenditure for a fiscal year. This refers also to the grand total of money of income received from the source of which expenses are incurred. Revenue could
be internal or external revenue.
Generation: This is the process of sourcing revenue for the government in carryout their aim and objectives.
Expenditure: Public expenditure refers to the expenses which the government incurs for its own maintenance, in the interest of the society and the economy in order to help other countries.
Tax: Tax can be defined as a compulsory levy by government on goods, services, income and wealth. It provides definite source of revenue for government
expenditure. (Udeh 2008). It is the way by which government obtain extra money. It spent from income of individual and companies. Tax could be direct or indirect
tax. A tax is a payment made by the taxpayers and used by the government for the benefits of all the citizens.
Development: According to Ake (2001) Development is thus the process by which people create and recreate themselves and their life circumstances to realize higher levels of civilization in accordance with their own choice and values.
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