IMPACT OF CAPITAL GAIN TAX ON THE ECONOMIC GROWTH IN NIGERIA

IMPACT OF CAPITAL GAIN TAX ON THE ECONOMIC GROWTH IN NIGERIA

Background of the study

Nigeria is endowed with oil and gas in addition to other mineral resources, but Nigeria is dependent on the revenue from oil to achieve its microeconomic goals. These microeconomic goals include the provision of employment opportunities, economic growth, economic stability, price stability, the provision of infrastructural facilities, and the optimal allocation of resources as well as the fair distribution of wealth and income (Gatawa, Aliero, & Aishata, 2016). The current structure of the government is predicated on the collection of income from a variety of sources in order to meet its monetary obligations and realize its microeconomic goals. This is done in order to satisfy its legal responsibilities. This is due to the volatility in the price of oil on the market, which has posed a danger, disharmony, harshness, roughness, and austerity on the Nigerian economy (Pnar, 2012). Capital and recurrent expenditures are now unsustainable to both the state and federal governments. In addition to oil, it has been determined that one of the primary sources of revenue for the government is the collection of taxes. Taxes are obligatory payments that the government collects from people, businesses, partnerships, trustees, and organizations based on their incomes, the goods and services they provide, and the properties they own or control. Therefore, taxation is one method among many others that every government might use to generate income in order to fulfill the requirements of its population (Nneka, 2014).

Today, one of the most important tasks for governments all over the world is to find ways to increase their tax collections. Tax collection is, and will continue to be, an essential function and an absolutely essential obligation of government at all levels of governance in order to generate sufficient income and advance economic growth (Nneka, 2014). However, in order to prevent people from failing to comply with tax laws, the government must first identify the many kinds of taxes and the mechanisms underlying each tax. Personal income taxes, corporate income taxes, taxes on petroleum profits, taxes on value added, and, of course, taxes on capital gains are all types of taxes that are paid to the government (Pnar, 2012). One way or another, the government benefits financially from all of these different types of taxes. Distribution, economic expansion, and fairness in income and wealth creation are all goals that may be advanced by the application of taxation (Gatawa, Aliero and Aishatu, 2016). In addition to this, it contributes to the stabilization and maintenance of equilibrium in the economy, as well as the redistribution of income within the economy, to name just a few of its many other benefits. As a result of this, the topic of capital gains tax in Nigeria appears to be gaining more popularity, which may be due to the fact that the government is currently reviewing the tax position as a component of the existing fiscal policy with the intention of satisfying the requirements of the government. According to the opinions of Mondugu and Anyandubaa (2014), one of the key goals and purposes of levying more taxes is primarily to carry out lawful responsibilities that are assigned by the government. The use of public funds for economic growth, which is mandated by the constitution as one of the responsibilities of the state (Pnar, 2012), confers legitimacy on such funds. Therefore, the significance of increasing taxes lies in the ability to increase capital formation for the purpose of economic growth and development, in addition to contributing to the regulation of consumption patterns, which will, in the long run, lead to economic stability and the efficient redistribution of income (ICAN, 2009). A robust tax system, such as a tax on capital gains, is required of the government at all levels in order for it to be proactive in its pursuit of tax income in order to push these processes forward. Elleman and Obaro (2011) identified various types of tax enforcement strategies that are capable of inducing compliance. One of these strategies is an aggressive tax drive campaign in which relevant complying units meet with non-complying companies in order to convince their decisions to effect tax payments. Corporate organizations and corporations in Nigeria are responsible for paying capital gains tax through the country's efficient and effective capital gains tax administration (Gatawa, Aliero, & Aishata, 2016). An efficient administration of the capital gains tax is one that ensures the smooth operation of the tax operation and ensures that all taxes owed to the government are paid in a timely manner by all companies that operate within a particular locality or state through the various tax offices in those jurisdictions. Therefore, tax compliance is dependent on the sincerity and honesty of tax operators to send whatever money was paid by the firms through to their respective state offices, as well as the capacity to supply enough and correct information about their profits or revenue (FBIR, 2010). Therefore, the economy may be far driving and government goals such as economic growth may be realized in no distance time if the tax operators are honest and devoted to their tasks, obligations, or responsibilities. As soon as taxes are paid and business owners are true and devoted to the values of their job, economic growth and development will quickly recover and resume their previous levels. All of these benefits are attainable with administration of the capital tax that is both effective and efficient (Gatawa, Aliero, & Aishata, 2016). The Federal Inland Revenue Board is directly responsible for the supervision and management of the administration of tax laws. This board is tasked with providing certain provisions of the Income Tax Acts as well as a detailed schedule as to how the Capital Gains Tax Acts are to be chargeable under the Act. Gains accruing from rises in the market value of a person's capital assets is an additional component of capital gains that is very significant to the government. Taxes on capital gains bring in more money for the government, but they do so while taking into account the impact on the economy. On a realization basis, capital gains are subject to taxation. The conclusion is that the tax is only levied when investors make the decision to remove their investment from the market, resulting in the realization of a capital gain. One of the most essential characteristics of capital gains is the incentive that it provides to those who own capital to keep their present investments even when there are other alternatives that are both more profitable and more productive (Igweike, 2003).

According to Public Finance General Directorate's (2009) interpretation, the primary function of taxes is to fund the upkeep of the public force as well as administrative costs. Miller and Oats (2006) maintain that taxes is necessary to finance governmental expenditures in order to support their argument. Equitability, efficiency, neutrality, adaptability, and simplicity are the characteristics that should define an effective tax system. These ideas continue to be relevant in modern times and even serve as a roadmap for the development of public policy (James and Nobes, 2009). In addition, they pointed out that the inadequacy of tax policy to fulfill the standards of efficiency and equality against which it is being evaluated was mentioned. The primary goal of the tax system in Nigeria is to make a positive contribution to the well-being of all Nigerians. This can be accomplished directly through the formulation of more effective policies, and it can also be accomplished indirectly through the appropriate utilization of tax revenue generated for the benefit of the people. It is anticipated that the tax system, in the process of producing income to accomplish this objective, will cause the least amount of economic distortion possible (Presidential Committee on National tax policy 2008). The tax on capital gains is one of the aspects of the tax system that might result in money being collected. Gains on assets that are transmitted after death are never subject to taxation, while capital gains are subject to taxation only when they are realized via the sale or exchange of assets. Is it possible that this aspect of the tax has a positive major influence on the country of Nigeria's economic growth? This study investigated how the tax on capital gains affects the rate of economic growth in Nigeria.

1.2 Statement of the problem

The failure of businesses to pay the required amount of tax on capital gains poses a significant threat to the expansion of the economy. This, in turn, contributes to the maintenance of existing income and wealth disparities because capital gains only accrue to those corporations (Gatawa, Aliero, & Aishata, 2016). The failure to make required payments of capital gains tax, which mostly affects those who fall into higher income brackets, places a greater relative load or strain on those taxpayers who are not beneficiaries of such gains (Ayua, 1999). Because of the tendency of prices to inevitably rise, as well as increases in company profits and the value of shares, developing countries like Nigeria have a better chance of benefiting greatly from the capital gains tax for the purpose of developing their economies. This is because the capital gains tax increases the value of shares (Olong, 2006). Therefore, a lot has been disputed about the consequences of capital gains tax on the economy of any country in various accounting literatures; nevertheless, not a lot has been done to determine whether or not the notions are accurate representations of reality. The purpose of this research is to evaluate, using empirical methods, how the capital gains tax affects economic expansion in Nigeria. One of the primary functions of the government is to develop, to boost economic development, and to better the lives of its citizens. One of the primary functions of the government is to generate money through taxes, and more specifically through the capital gain tax (Nneka, 2014). Distribution, economic expansion, and fairness in income and wealth creation are all goals that may be advanced by the application of taxation (Gatawa, Aliero and Aishata, 2016). As a result, this proposal was shot down due to a lack of transparency and responsibility on the part of the administrators, as well as the problem of non-compliance with the payments and other tax-related problems, which sends the wrong and bad signals. According to Panar (2012), economic growth and development have both experienced significant setbacks and have stalled. At this stage, the average person is beginning to feel the effects of the economic slump. The government is no longer capable of implementing its plans and programs in an efficient manner. Because of the consistent declines or reductions in government revenue, economic expansion and development have been stalled.

1.3 Objective of the study

Specifically, this study aims to:

1. Examine the impact of capital gains tax on the economic growth in Nigeria.
2. Ascertain the extent to which capital gain tax improve the compliance to achieve economic growth in Nigeria.

1.4 Research Questions

In order to achieve the objectives of this study, the following research questions are coined:

1. To what extent does capital gains for affect the economic growth in Nigeria within the period under review?
2. To what extent does capital gains tax improve the compliance to achieve economic growth in Nigeria?

1.5 Research hypotheses

The following null hypotheses are tested in this study:

Ho1: There is no relationship between capital gains tax and the economic growth in Nigeria.

Ho2: Capital gains tax has no impact on the economic growth of Nigeria within the period under review.

1.6 Significance of the study

This study shall be of immense benefit to the government and policy makers because it will expose to them that generating revenue through taxes, more-especially through capital gain tax is one key function of the government to developed, enhance economic growth and development and to better the life of its citizenry. This study will also add to existing literature on this study area and shall serve as a bench mark to students, scholars and researchers who may wish to carry out further research on this topic or similar area in the future.

1.7 Scope of the study

This study focuses on examining the impact of capital gains tax on the economic growth in Nigeria, and ascertain the extent to which capital gain tax improve the compliance to achieve economic growth in Nigeria. This study shall be delimited to a period of 5years (2011-2016). Data for the study will be obtained mainly from secondary sources, the statistical data based and Bulletin of the Central Bank of Nigeria (CBN) and the website of the Federal Inland Revenue Services (FIRS).

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