Assessment of tax infrastructure and governance in Nigeria



The increasing size of government coupled with the ongoing global financial meltdown has renewed interest in the study of how the public sector can be used to provide a stimulus thereby remedying the situation and supporting the long-run growth of the Nigerian economy. The argument on how the public sector affects growth is polarized along two schools of thought. Those who believe that the public sector promote growth do so because of the provisions of public goods, the corrections of negative externalities and market failure by government etc. While those who think contrary to this, do so because they reason that taxes generate distortions in the economy and as such lead to lower growth, (Widmalm, 2001). The effect of taxation on growth depends on what is taxed, i.e. if the tax system extracts more or less resources from private agents (the tax level), or because they raise a given amount of revenue in more or less distortive ways (the tax structure), (Arnold, 2008). Taxation is thus, one of the most important variables that affect long term economic growth, but this simple truth has been neglected in the Nigerian economy because of the huge revenue generated from oil.

Tax structure refers to the mix of taxes on physical and human capital which satisfy a given government budget constraint, (Widmalm, 2001). Studies on tax structure have argued that the type of tax system adopted in every economy has implications on the economy through its effect on the supply of labour, investment in both physical and human capital and even savings, and since growth simply depends on the accumulation of capital and labour, so that any work studying tax effects on investment and labor supply do capture the relevant effects on growth. That is why the study of tax structure and economic growth is important in every economy especially an open economy like Nigeria that has to compete with other economies for investment.

According to Musgrave (1969), in the theory of tax structure, economic factors bear on the tax structure development in two ways. As the structure of the economy changes, the nature of the tax base changes as well, and with it the handles to which the revenue system may be attached. This change in either the tax base or tax handles subsequently leads to a change in the productivity of tax systems and economic growth. Some of the works done in this area include Ndekwu, 1988; Katz, 1983; Helms, 1985; Koester and Kormendi, 1989; Wang and Yip, 1992; Easterly and Rebelo, 1993; Devereux and Love, 1994; Milesi-Ferretti and Roubini, 1998; Widmalm, 2001; Bleaney et. al, 2001; Arnold, 2008; Cardia, 2003; Lee and Gordon, 2004; Anastassiou and Dritsaki, 2005; Loan, 2007; Arnold 2008; among others.

The Nigerian tax structure was initially defined to include only the direct and indirect taxes. The direct tax is made up of personal, corporate income and petroleum profit taxes. Indirect tax which was formerly made up of import, export and excise duties have undergone various reforms with the taxes under it joined together and called customs and excise duties. The tax handles under indirect taxes have increased, with the inclusion of withholding tax regime in 1978; value added tax (VAT) in 1993 and other tax systems. A study group and a working group were also inaugurated in 2002 and 2004 respectively to fashion out ways to entrench a better tax policy and improve tax administration in the country.

Available statistics shows that the link between taxation and economic growth in Nigeria since 1970 has been unstable. Between 1970 and 1990, the contribution of tax revenue to GDP was below 30 per cent, with the lowest being 9.7 per cent in 1970 and the highest of 24 per cent in 1982. While this is so, direct taxation has remained the highest contributor to this basket hovering around 28.1 per cent and 85.9 per cent within the period. Petroleum profit tax formed the bulk of this revenue from direct taxation with the highest contribution of 94.7 per cent in 1974. Udoh & Ebong (2009) highlighted the increasing importance of revenue from direct taxes relative to indirect taxes. This they adduced to the dominance of the oil sector in the economy. This sector showed a decreasing return between 1995 and 1999, thus affecting the shares of petroleum profit tax in direct tax revenue and also the total tax revenue. Beginning from 2003, the shares of direct tax revenue have been within the range of 72.0 percent and 84.7 percent. This is largely due to the high price of oil recorded in most part of the period 2003-2008. All these show that the tax system in Nigeria is still in a state of motion and will continue to be until a system that will generate the highest revenue to government without causing a distortion or deadweight loss to the economy is produced



It is true that problem of tax collection and administration is universal but the third world countries of which Nigeria is one, seem to be more plagued and inflicted both in weight and magnitude than the developed nations of the world.

The research work primarily involves identifying the problems of the personal income tax generation and administration in Nigeria taking a case study of Board of Internal Revenue, Enugu state. The specific problems of this research are as follows:

  1. Improper system of keeping accounts and records in the internal Revenue office, which was seen to be quite mechanical and out
  2. Lack of staff and inadequate training of the available tax


  1. No enlightenment on the part of tax payers as regards the importance of taxation is another problem of tax generation and administration .
  2. Tax collection and administration in Enugu state is not efficient and efficiently
  3. Also corrupt alliance of tax collectors with tax payers to avoid tax for them (tax collectors) to make fast

Thus lack of enforcement power on the board makes tax laws useless and not serious to tax offenders /defaulters.