The research study examines the effect of Direct and Indirect Taxes on Economy Development. (A Case study of Lagos State. In carrying out the research, ninety workers were selected from 6 local Government Area in Lagos State. Data collected using 4-likert question was statistically analyzed using simple frequency count and percentage. Based on the study carried, findings were arrived at. Which are;

  • That the problem of income tax is a significant factor towards developing economy like Nigeria.
  • It was observed that majority of the respondents believed that taxes collected is not commensurate to the infrastructural provision and development.
  • Majority of the respondence did not see any impact of job creation with tax reduction while other, they believed that inflation is reduced and investment is encouraged by tax reduction.
  • That overall percentage of the respondents that agreed with this fact that increament in the percentage of tax and generation of revenue is corresponding to national development is in the minority.

Conclusively, as regards the findings in the research work, it can be concluded that income tax assessment have positive effect or significance on the economic development of Nigeria.  It was found out that tax play a significant factor towards economic development in Nigeria. The establishment of a strong and fair tax administration will help the government in carrying out her civil duties to the citizenry. Also, the socio-political and economic organization of a country and its way of life affects the development of the tax structure and its administration.  It was also found out that the level of tax rate has helped the government to reduce or regulate the percentage of degree of money in circulation. Recommendations were also suggested. Which includes:

  • The individual rights and entitlement tax assessment should be made known by the government.
  • The relevant tax authority should have a fixed assessment for workers whose salaries may not attract PAYE system of assessment which would be spread over a period of one year to allow easy movement of payment without undue pressure on their earning capacity.
  • Where over payment of tax arises, government should refund in the subsequent year to encourage tax payers to pay and have confidence that if they over pay, there will be a refund.
  • There should be open assessment computation by the tax official so as to convince citizens on the assessment given to them.
  • Government should make effort to provide incentive to tax officials to encourage them to perform their duties better.
  • The Inland Revenue should also endeavour to employ qualified personnel to assist in tax matters, regular in-service training should be extended to tax officials on the standard expected of them and how to maintain these standards by relying on their integrity.



Title Page                                                                  i

Certification                                                              ii

Dedication                                                                 iii

Acknowledgement                                                      iv

Abstract                                                                    v

Table of Content                                                        vi



1.1   Background of the Study                                   1

1.2   Statement of the Study                                      4

1.3   Purpose of the Study                                         5

1.4   Research Questions                                           5

1.5   Research Hypotheses                                         6

1.6   Significance of the Study                                    6

1.7   Scope and Delimitation                                      7

1.8   Definition of Terms                                            7




2.0   Introduction                                                      9

2.1   History of Taxation                                            13

2.2   Classification of Taxes                                        14

2.3   Tax Policy                                                          20

2.4   Aims of the Taxation                                          21

2.5   Uses of Taxation                                                23

2.6   Tax Administration and Authority                       24

2.7   The Power of Relevant Tax Authorities                 25

2.8   Problems Encountered by the Relevant Tax

Authorities in Tax Assessment                            28



3.0   Introduction                                                      30

3.1   Research Design                                                30

3.2   Population of Study                                           30

3.3   Sample and Sampling Technique                        30

3.4   Research Instrument                                         31

3.5   Validity of the Instrument                                  31

3.6   Reliability of the Instrument                               31

3.7   Administration of Instrument                             32

3.8   Data Collection                                                  32

3.9   Data Analysis                                                    32



4.0   Introduction                                                      33

4.1   Data Analysis and Findings                                34




5.1   Summary                                                          45

5.2   Conclusion                                                        47

5.3   Recommendations                                             49    References                                                         52

Questionnaire                                                    54





The citizens expect much from the government; it is expected of any government to provide adequate infrastructural facilities for its citizens. The need for tax now emerged as a source of revenue and to check inflation in the economy.

The primary aim of taxation is to raise revenue for the government. In most West African states both direct and indirect taxes has contributed over 80 percent of the government revenue. Those collected tax enable the government to meet the cost of general administration, defense and provision of social services which is good for the citizens.

According to Paul K.T. (2003), taxation is the sum of money levied by the government or its agent on individual, firms as well as goods and services. Also, it is a compulsory levy on the individual income. It is non-penal but compulsory contribution of the wealth of a person or body of person for the use of the government. Taxes also serves as a source of income used to finance other social responsibilities. This is made up of direct tax and indirect tax.

Direct tax are those taxes imposed on individuals, firms in form of personal income tax and corporation taxes respectively. While indirectly tax are custom duties, excise duties, sale tax.

Tax avoidance is the legal utilization of the tax regime to one’s own advantage to reduce the amount of tax that is payable by means that are within the law. By contrast, tax evasion is the general term for effort not to pay taxes by illegal means.

The term mitigation is a synonym for tax avoidance. It’s original use was by tax advisors as an alternative to projective term tax avoidance. Latterly, the term has also been used in the tax regulation of some jurisdiction to distinguish tax avoidance foreseen by the legislators from tax avoidance which exploit loopholes in the law.

Some of those attempting not to pay tax believe that they have discovered interpretation of the law that shows that they are not subjected to being taxed. These individuals and groups are sometimes called tax protestor.

An unsuccessful tax protestor has been attempting openly to evade tax, while a successful one avoid tax. Income tax is imposed on financial charged or other levy upon a tax payer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law.

The most common tax is income tax, which is a contribution made from income earner. The amount is usually a percentage of income that is determined by the amount of income earned.

The present taxation system commenced in Nigeria in 2005 although this system was proceeded by a simplified type of tax dated back to 1998.

The direct personal taxation was first introduced in the Northern part of Nigeria under the auspices of Fulani Emirs before the advent of the colonial masters.

In the ancient time, citizens cheerfully pay their taxes in kind by rendering free services such as sinking well, clearing of the bushes and in the southern parts tribute are brought to the kings or area chief in form of farm products. In the southern Nigeria, whoever failed to respond to the call for this service, risk his properties being seized which might be reclaimed only on payment of money or face punishment as stipulated by native ordinance. The native ordinance of 1996, 1997, 1998 were later incorporated to indirect taxation number 4 of 2002 cap 54.

The effect of taxes on economy development has helped the government to control the economy in terms of reallocation of resources, distribution of wealth, discourage consumption of certain products and development of industries.

It also helps the government to meet their social, economic and political obligations to the citizens. Taxes now form part of the major source of income which the government uses to finance its budget.


Over the years, research has been executed into the importance of tax to the economic development. In the same view, research also has shown that for any economy to improve, the importance of income tax cannot be over emphasized. The essence of this research originated when researchers discovered that government need to carryout some responsibilities to individuals like adequate facilities. Tax becomes one important weapon to develop any economy. The inception of tax has now increase the source of revenue for the government.


The purpose of this study is summarized as follows;

Firstly, to determine the problem of income tax in the economy development.

Secondly, it will also consider the attitude of an individual to tax.

Nevertheless, the result of this research will be useful for government when formulating policy, and also useful for accounting and economic students respectively.

  • What are the problems of income tax in developing an economy?
  • The reduction of tax rate, will it increase the percentage of tax payer in developing economy?
  • Has income tax gotten any benefit to the economy?
  • Has government improve in its infrastructural amenities, since the inception of taxes.

H1: There is no significant relationship between the problem of income tax and development.

H2: There is no significant  relationship between the impact of taxes and factors towards infrastructural facilities provided by the government.

H3: There is no significant relationship between the reduction of tax rate and developing economy.

H4: There is significant relationship between the increment in percentage of tax and generating of revenue for developing economy.


The result of this study will be useful to the government in the assessment of income tax to researcher and students who may want to do research on the impact of income tax assessment in the economy development.


A careful assessment procedure and various techniques being applied by the federal board of Inland Revenue and the state internal revenue department to show a large extent the complexity of the tax collecting machineries.

To a large extent, financial and time factor have been obstacles which have impede this project work such that a small percentage of the whole country have been represented and therefore limited this scope of the population.



  • Taxation: Is a sum of money levied by the government or its agents on individuals, firm as well as on goods and services which are either imported or exported.
  • A.Y.E: Pay-as-you-earn.
  • Tax Payer: These are people who pay tax to the government or its agents especially on the money they earn.
  • Income Tax: This is a tax on all types of income e.g. rent, wages, interest, profit etc.
  • Tax Collector: This is the person whose job is to collect tax that people pay on the money they earn.
  • Tax Revenue: These are money government received on tax.
  • Tax Rate: This is the percentage (%) of tax levied or imposed on property, income or investment of an individual or company income.

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