Importance of Taxation in Nigeria

Taxation is a veritable tool for sustainable national development. In Nigeria, governments across the three tiers use the revenue generated from taxation to provide the needed goods and services for the Nigerian people. This article will highlight the importance of taxation in Nigeria.

Importance of Taxation in Nigeria

Here’s the importance of Taxation in Nigeria:

  • Sustainable Means of Government Revenue

Taxation in Nigeria is a stable source of revenue for the government as long as there are economic activities carried In by individuals and corporate citizens in the society. The taxation system in Nigeria makes it possible for the Government of the day to be able to generate revenue to meet the needs of the present generation without preventing the future generations from meeting theirs. Taxation ensures that the Government secures a stable flow of revenue which is employed in providing infrastructure, creating employment and growing investment, among other things, which ultimately improves the well-being of the citizens. Unlike other revenue generation sources such as levies, charges, and fees,  the tax system assured stability and certainty.

  • Redistribution of Income

Taxation ensures the redistribution of income in the local economy in that tax revenue realized from high-income earners is used by the government to provide public infrastructure and needed utilities that serve the citizens, even the lowest income earners among them. In other means of income redistribution, taxes are sometimes used to establish social safety nets for indigent members of the society and other classes of people who may need such interventions. Hence, taxation attempts to bridge the gap in living standards by redistributing wealth.

  • Stimulation of Investment in the Economy

One objective that the Nigerian tax system seeks to accomplish is the stimulation of domestic and foreign investment in the Nigerian economy. The local investments benefit from the competitive edge created by the Nigerian tax system in that these businesses are retained in the economy. Local businesses aren’t burdened with taxes beyond their capacity. The Nigerian tax system has created a conducive environment for foreign investment to thrive In Nigeria. This attracts foreign investments into the country. Tax breaks in select cases, as well as the Free Trade Zones, are some measures to attract investment into the Nigerian economy. With increased foreign investments in Nigeria, there would be employment opportunities thus citizens can earn satisfactory income, and create wealth while at it.

  • Promotes Fiscal Responsibility

The National Tax Policy which steers the taxation system in Nigeria ensures that the revenue generated by the citizens and corporate businesses, as well as foreigners living in Nigeria, are judiciously used by the Government to provide needed public infrastructure and services demanded by the Nigerians. The tax system serves as a vital tool for national development and growth.

  • Strives to Achieve Fairness and Equity

The taxation system of Nigeria attempts to promote horizontal and vertical equity. Horizontal equity in this context implies that equal individuals are treated equally. On the other hand, vertical equity ensures that fairness among various income groups is maintained. Though taxation strives to generate the needed revenue which would form part of government expenditures, the tax burden on taxable individuals and corporate businesses is according to what they can bear. The ability-to-pay principle is employed to know the tax burden an individual or corporate business can bear. For businesses, the National Tax Policy recognizes that there are gaps in infrastructural provisions and services needed for businesses to function at the optimum level in Nigeria. So, when businesses in Nigeria are taxed, it is done based on their ability to pay.

  • Aids in Achieving Stability in the Economy

In times when the economy experiences a volatile boom or when a recession hits, taxation usually plays a complementary role in correcting such economic instabilities. As taxation is dynamic, in times of economic instabilities, it can complement the efforts of monetary policies in achieving economic stability.

  • Contributes to Improvement of Public Tertiary Education

In the Nigerian tax system, there is a 2% Education Tax imposed on all corporate entities in the country. This Education Tax is devoted to developing the public-owned tertiary institutions across Nigeria. The Tertiary Education Trust Fund (TETFUND) has the responsibility of investing the proceeds of the Education Tax towards developing the general conditions of public tertiary institutions in Nigeria. TETFUND funds developmental projects across public tertiary institutions ranging from the construction of classrooms, laboratories, hostels, and many other infrastructural projects. In addition, TETFUND funds several programmes which are directed to training the academic staff of these institutions. Thousands of lecturers of varied levels have benefitted from the sponsored Master’s degree and Doctorate programmes for over a decade.

  • Taxation Addresses Market Failures in the Economy

When market imperfections and other distortions in the economic sector occur due to externalities and natural monopolies, taxation acts as an efficient tool to correct such anomalies. To correct these distortions in the economy, taxation is either reviewed upward or downward as may be necessary to achieve the Government’s intention.

  • Boosts Economic Growth of Nigeria

When the revenue accrued from tax is judiciously invested into providing infrastructures such as power, roads, healthcare, electricity, and other public services needed to facilitate trade and economic activities, it invariably boosts the local economy. The aforementioned infrastructure makes the business climate attractive to local and foreign investors alike, which in turn makes the local economy grow.

  • Supports the Development of Technology

The Technology Levy is imposed on telecommunication companies, internet service providers, pension managers, banks, and insurance companies within a specified profit and is aimed at contributing to the advancement of technology in Nigeria.

In Nigeria, tax is imposed on various bases. For individuals, tax takes the form of Personal Income Tax and Development Levy. For companies (corporate entities) in Nigeria, taxes imposed include Education Tax, Petroleum Profit Tax, Companies Income Tax, and Technology Levy. There are also taxes imposed on transactions such as Value Added Tax, Stamp Duty, Excise Duty, Import Duty Export Duty and Capital Gains Tax. Finally, properties in Nigeria are imposed with Property Tax and any other tax as may be imposed on land or landed property.

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