1 Background to the Study
For development and growth of any society,
the provision of basic infrastructure is quite necessary. This perhaps explains
why the government shows great concern for a medium through which funds can be
made available to achieve their set goals for the society. Government needs
money to be able to execute its social obligations to the public and these
social obligations include but not limited to the provision of infrastructure
and social services. According to Murkur (2001), meeting the needs of the
society calls for huge funds which an individual or society cannot contribute
alone and one medium through which fund is derived is through taxation. Tax is
a major source of government revenue all over the world. Government use tax
proceeds to render their traditional functions, such as the provision of public
goods, maintenance of law and order, defence against external aggression,
regulation of trade and business to ensure social and economic maintenance
(Azubike, 2009; Edame, 2008). In Nigeria, tax revenue has accounted for a small
proportion of total government revenue over the years. This is because the bulk
of revenue needed for development purposes is derived from oil. Crude oil
export has continued to account for over 80% of the total federal government
revenue, while the remaining 20% is contributed by non-oil sector in which
taxation is a part. For instance, Oil sector share in total revenue was 54.4%
in 1972 against 45.6% share from non oil sector the same year. By 1974 oil
share of total revenue had reached 82.1% while only 17.9% accrued from non oil
sector. Following the glut in the world oil prices in the later part of the
1970s, the oil share in total revenue fell to 61.8% in 1978 while non oil
sector‟s share rose to 38.2%. And since 1984, the oil sector share in total
revenue has continued to rise, though with occasional falls in between periods.
By 2006, oil share of total revenue had reached 88.6% against non oil share of
11.4%. As at 2009, oil sector share in total revenue stood at 78.8% while
non-oil sector accounted for just 21.3% of the total revenue (CBN, 2010). From
the above picture, it is evidenced that revenue from the non-oil sector (in
which taxation is a part) has not contributed significantly to total output.
Thus, the study is an attempt to examine the effect of tax revenue on economic
growth in Nigeria.
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