THE CONTRIBUTION OF PERSONAL INCOME TAX ON REVENUE GENERATION IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Sanni (2019) argues in favour of utilising taxation as a means of social engineering in order to foster economic development at the sectoral and microeconomic levels. Regarding this, one could contend that taxation influences the government and the individual either positively or negatively. An individual is less likely to work or save when the income tax rate is high, whereas a low income tax rate acts as an incentive for such behaviour. Preeminent, most reliable, and substantial source of government revenue for the advancement of national economic development are high tax rates. The tax rate often exerts a substantial influence on the organisational structure of a business (Okafor, 2022). In addition, varying levels of foreign direct investment might exhibit a correlation with the tax rate (Desai et al., 2020). 

Personal income tax has a rich historical lineage, having been implemented by ancient civilizations such as Ancient Egypt and Greece to fund public expenditures (Pech & Pech, 2018). The personal income tax has emerged as an essential element of modern tax systems, providing the majority of countries with their primary source of government revenue (Piketty & Saez, 2023). In an effort to reduce income inequality, the progressive structure of the personal income tax, which imposes higher tax rates on individuals with higher incomes, is consistent with redistribution and equity principles (Atkinson & Piketty, 2007). 

Governments across the globe heavily depend on personal income tax as a crucial source of revenue. This revenue is utilised to fund essential public services, infrastructure projects, and social welfare programmes (Bird & Zolt, 2018). According to Burgess and Nicholas (2021), the income tax functions as a mechanism by which a country can promote economic growth. Income tax is not only acknowledged as a means of generating essential public funds, but it is also considered a pivotal fiscal instrument for economic management. The subject of taxation has attracted considerable and expanding attention in contemporary times. Given the constrained accessibility of resources obtained from oil and domestic financing, the Nigerian government is currently obliged to increase tax revenues to achieve macroeconomic objectives. 

The provision of social security benefits—which include health care, security, and utility services—is financed in large part with funds that would have been designated for savings. In contrast to capital accumulation, this income is probably consumed in social security disbursements. The difficulties mentioned above have motivated the government to continue its efforts towards tax reform in light of the decrease in hydrocarbon revenues, which have become the principal source of funding for the government's budget. The inadequacies in tax administration, assessment, and collection contribute to the understatement of revenue derived from income taxes in Nigeria (Adegbie and Fakile, 2021). The effectiveness or ineffectiveness of a tax system is determined by its management, adherence to tax legislation, interpretation, and implementation, according to Naiyeju (2018).

1.2 Statement of the Problem

As a result of the oil and gas industry's waning fortunes contributing to the ongoing economic decline, governmental bodies at every level are commencing a process of reassessing their expenditure strategies and exploring alternative sources of revenue to sustain their activities. The reduction in the monthly disbursement of funds from the federation account to the state account is the cause of this (Odusola 2022). 

In light of the situation, several states have been conscientiously devising approaches to augment their internal generated revenue (IGR) for a considerable duration. While some individuals possess the motive of exploiting the mineral resources that are indigenous to their region, others are looking forward to the influx of foreign direct investment that will flow into the agriculture and tourism industries. Notwithstanding the persistent endeavours of state governments to augment revenue generated by the state, the undertaking is not devoid of obstacles. For example, chronically low tax revenue inflow may be ascribed to factors such as excessive inefficiency, record falsification, leakages, government negligence, tax evasion, or avoidance. Over the years, the generation of tax revenue has been hindered by these factors. A considerable percentage of taxpayers partake in activities that evade and evade taxes, leading to a reduction in government revenues (Samuel et al., 2019).

1.3 Objective of the study

The primary objective of the study is to examine the the contribution of personal income tax on revenue generation in Nigeria. The specific objectives is as follows:

Determine the extent personal income tax is administrated in Gombe State.

Determine whether personal income tax increases internally generated revenue in Gombe State.

What are the importance of personal income tax to Gombe State Government?

Identify the factors affective the effective administration of personal income tax in Gombe State.

1.4 Research Question

The study will be guided by the following questions;

What is the extent personal income tax is administrated in Gombe State?

Does personal income tax increase internally generated revenue in Gombe State?

What are the importance of personal income tax to Gombe State Government?

What are the factors affective the effective administration of personal income tax in Gombe State.

1.5 Research Hypothesis

Ho: Personal income tax does not increase internally generated revenue in Gombe State.

Ha: Personal income tax increases internally generated revenue in Gombe State.

1.6 Significance of the Study

The significance of this study lies in its critical role in shaping the country's fiscal landscape, economic development, and social welfare outcomes. Understanding the dynamics of taxation and its implications for government finances is essential for policymakers, economists, tax practitioners, and other stakeholders in Nigeria.

The study will facilitate the identification of opportunities and challenges in the Nigerian tax system. By examining these challenges in-depth, this research can provide valuable insights into potential reforms and interventions to strengthen tax administration, broaden the tax base, and improve revenue mobilization efforts.

1.7 Scope Of The Study  

This research investigates the contribution of personal income tax on revenue generation in Nigeria. Geographically the study will be conducted at Gombe State Internal Revenue Service

1.8  Limitation of the study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing to the nature of the discourse thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. Additionally, the researcher will simultaneously engage in this study with other academic work. More so, the choice of the sample size was limited  to extention teachers as few respondent were selected to answer the research instrument hence cannot be generalize to other aspect of agriculture. However, despite the constraint  encountered during the  research, all factors were downplayed in other to give the best and make the research successful.

1.9       Definition of terms

Taxation: This is an instrument employed by the government for generating public funds.

Source of Revenue: In this study denotes the origin or means through which the Federal Government of Nigeria obtains funds to finance its activities, programs, and expenditures. 

Personal Income Tax: This is a form of tax levied on individuals or family units and that, is computed on the basis of income received.

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