TAXATION

FORMS OF TAX
Taxes are divided into broad categories namely direct taxes and indirect taxes
(i) Direct tax: This is a tax collected from individuals and profits of companies. The burden of direct
tax is borne by the payer.
Examples of direct taxes are (a) income tax (b) Company tax (c) Capital gain tax (d) Poll tax etc.
ADVANTAGES OF DIRECT TAXES
1. They are progressive in nature
2. The incidence of direct tax is easy to ascertain
3. They are easy to calculate
4. Payers find them convenient to pay
5. Some specific group of people or business could be granted exemption from payment of direct
tax.
DISADVANTAGES OF DIRECT TAXES
1. They discourage savings
2. They discourage investments
3. They are difficult to assess (determined with accuracy) eg company tax.
4. Cases of tax evasion is high (frequent)
5. They discourage hard work
6. It may result to squabbles between taxpayers and tax officials
(ii) Indirect Tax: This is a tax levied on goods and services. They are initially paid by either the
manufacturer or importer of the goods who, as far as possible shifts the burden to the consumers in form
of high prices. Examples of indirect taxes are customs duties (import duty and export duty) excise duty,
purchase tax etc.
ADVANTAGES OF INDIRECT TAXES
a. Their collection is less difficult
b. They cause less squabbles
c. It yields more revenue to the government than direct taxes.
d. They are not easy to evade
e. The burden is shared among all sections of the society.
DISADVANTAGES OF INDIRECT TAXES
1. It causes inflation i.e. increases in the prices of goods.
2. It may cause scarcity of goods
3. They are unreliable sources of revenue
4. Indirect taxes are regressive in nature
5. They are non-discriminatory i.e. some group of people cannot be granted exemption from paying.
6. They restrict free trade between different countries.
DIFFERENCE BETWEEN SPECIFIC TAX AND AD VALOREM TAX.
This reflects the different methods of calculating custom duties.
In Specific Tax, the amount of tax to be paid depends on the quality of goods bought so that the greater
the quality of goods bought the greater the tax to be paid.
Ad Valorem Tax: The amount of tax to be paid depends on the value or quality of the commodity. This
value or quality is measured in terms of the price of the commodity. This means that goods which have
higher prices are supposed to have higher values and are therefore taxed more heavily than goods whose
values and thus prices are lower.
ECONOMIC EFFECTS OF DIRECT TAXES
1. Direct taxes lead to a reduction in disposable income and consequently a reduction in
consumption.
2. It discourages savings
3. It discourages hard work
4. It discourages investments and this would, in turn cause unemployment.
5. It leads to a redistribution of wealth
6. It reduces capital available for a company in form of retained profits.
ECONOMICS EFFECTS OF INDIRECT TAXES
1. It can lead to inflation
2. It encourages smuggling
3. It reduces production e.g. excise duties thereby causing scarcity of goods.
4. It discourages investment
5. It can lead to changes in the consumption pattern i.e. it alters the demand and supply of goods.
INCIDENCE OF A TAX
The incidence of a tax refers to the burden of tax with reference to where this burden rests. The incidence
or burden of taxation lies on the person who finally pays the tax. There are two types of tax incidence
a. Formal incidence: this refer to where the in initial burden of taxation lies. The payer of a direct
tax bears the initial burden of tax. For indirect taxes, the producers or the middlemen bears the
initial burden of taxation.
b. Effective incidence: This refers to who bears the ultimate or final burden of taxation. In the case
of direct taxes the payer bears the full burden of taxation. He bears both the formal and effective
incidence.
In the case of indirect taxes, the burden of taxation may be borne by the producer (seller) or the
consumer, or it may be shared between the producer (seller) and the consumer. The extent to
which the producer (or seller) or the consumer will bear the burden of indirect tax will depend on
the elasticity of demand for the commodity which is taxed.

1. Where the demand for the commodity is perfectly inelastic, the whole tax burden can easily be
shifted to the consumer by the seller.

2. Where the demand for the commodity is perfectly elastic, the seller or producer will bear the
whole burden of taxation. This is because any attempt to increase prices will make the demand
for the commodity to fell to zero. The tax burden cannot, therefore be passed to the consumer.
3. Where the elasticity of demand for the commodity is unitary, tax burden is shared equally
between the producer / seller and the consumer.
4. Where the elasticity of demand for the commodity is moderately elastic or moderately inelastic,
the burden of taxation will be shared between the producer (seller) and the consumer depending
on the extent of the elasticity.
BUDGET / NATIONAL DEBT
A budget may be defined as a financial statement of the total estimated revenue and the proposed
expenditure of a government in a given period: usually a year.
FUNCTION / USES / IMPORTANCE OF BUDGETS
National budget is used to achieve the following objectives
1. It is used as a means of raising revenue
2. It is used to control inflation
3. It is used to as a remedy a depression (recession) or deflation.
4. It is used to correct a balance of payments deficit
5. It is used as a tool for economic planning
6. It is a means of enhancing public welfare and reducing income inequality in the country
7. Budgets are used to allocate resources between different sectors of the economy
8. It is used to control the economy with the arm of fostering economic growth and development.
TYPES OF BUDGET
1. Balance Budget: This is when the total estimated revenue is equal to the proposed expenditure of
the government. This means that nothing will be left as reserve from the money collected in form
of revenue
2. Surplus Budget: A budget is called surplus budget when the total estimated revenue is more than
the proposed expenditure. In this type of budget, not all the estimated revenue is proposed to be
spent in that year. That is, there will be reserve.
3. Deficit Budget: This is when the government total proposed expenditure for the period is more
than the total estimated revenue. The shortfall in revenue is sourced through borrowings, printing
of more currency, aids and grants etc.
Economic conditions warranting the adoption of the different types of budgets
1. A budget surplus is desirable in period of inflation because it reduces aggregate demand thereby
reducing inflationary pressure in the economy
2. A deficit budget is used in the following instances
(a) To reduce unemployment by increasing aggregate demand.
(b) To finance a national emergency such as war
 (c) To remedy a deflationary trend.
NATIONAL DEBT
National debt or Public Debt refers to the sum total of debts owed by the government of a country both
internally and externally.
The debts may or may not be with interest
Reasons why government borrow
1. To finance deficit budget
2. To finance a huge capital project
3. To prosecute a war i.e. for the procurement of ammunitions and other war materials
4. To service existing loans
5. To manage an emergency situation eg Flood, drought, epidemic, famine
6. To correct an unfavourable balance of payment
INSTRUMENTS OF GOVERNMENT BORROWING IN NIGERIA
1. Treasury Bills – used for short term borrowing i.e. 90 days
2. Treasury Certificates:- used for medium term borrowing i.e. 1 – 2 years
3. Development stocks – used for long above
4. Stabilization Securities
Effects of huge national debt on the economy of a country
1. It reduces the availability of foreign exchange
2. It makes a country to be susceptible to the dictates of external creditors
3. It makes it difficult for the country to source fresh loans – i.e. it lowers a country’s credit ratings
4. A large domestic debt will influence the distribution of income in the country
5. The servicing of an external debt will involve an outflow of resources which can otherwise be
used for economic development.
6. The servicing of a large national debt will limit the government’s ability to provide welfare /
social services to the people
REVENUE ALLOCATION
(I) MEANING OF REVENUE ALLOCATION
Revenue allocation refers to the sharing of the nation’s wealth among various tiers of government or
various units that make up the country. The various units include: Federal, State and local governments.n
PARTS OF REVENUE ALLOCATION
Revenue allocation is grouped to two major parts namely:
1. Vertical Revenue Allocation
2. Horizontal Revenue Allocation

1. Vertical Revenue Allocation – In vertical revenue allocation, revenue accruing to the Federal
Account is shared among the three tiers of government – Federal, State and Local government.
2. Horizontal Revenue Allocation – Under the Horizontal Revenue Allocation, revenue accruing to
federation account is shared among the units within a given level of government. It involves
certain principles based on some factors to be applied in revenue allocation. These principles
include:
1. Population size
2. Land mass
3. Derivation, Oil producing areas.
4. Ecological problems.
REVENUE ALLOCATION FORMULA
This involves the weight assigned to various principles e.g. Federal government – 40%, State – 20%,
Local government – 15%, mineral producing area – 10%, ecological problems – 5%, special fund – 5%
others – 7%. These are just for the short time. It should be noted that there is no fixed revenue allocation.
It changes from time to time. The Revenue mobilization Allocation and Fiscal Commission (RMFC) is
always at work trying to work out a proposal for a new revenue sharing formula.
 AGRICULTURE IN WEST AFRICA
Agricultural policies in Nigeria.
Government of various West Africa countries have taken various steps to boost agricultural
productivity… In Nigeria, the Federal Government had initiated many policies in order to improve the
level of agriculture in the country. These policies were initiated to meet specific objectives so as to boost
greater production of crops and livestock in the country. Some of these agricultural programmes and their
objectives are stated below.
1. Operation Feed the Nation (OFN) - 1976
2. Agricultural Development Project (ADP) – 1976
3. Directorate of Food, Roads and Rural Infrastructure (DFRRI) – 1986
4. Farm Settlement Scheme (FSS) – 1959
5. National Agricultural Insurance Scheme
6. Green Revolution – 1979
7. Land Use Decree – 1978
OBJECTIVES OF AGRICULTURAL POLICIES IN NIGERIA
1. To increase food production.
2. To construct rural infrastructures such as feeder roads and earth dam.
3. To provide security against risks, uncertainties and hazards in agriculture for farmers.
4. To streamline and simplify the management of land in the country.
5. To provide employment in agriculture.
MARKETING OF AGRICULTURAL COMMODITIES
The marketing Board was saddled with the responsibility of marketing agricultural produce. Marketing
Board may be defined as a public corporation charged with the responsibility of assisting farmers in
purchasing, grading and marketing of various agricultural commodities in the country. Marketing Board
System was set up several years ago and was known as the West African Produce Control Board.
FUNCTIONS OF MARKETING BOARDS
i. Purchase of produce.
ii. Sales of produce
iii. Revenue generation
iv. Price stabilization – They stabilized the prices of produce by fixing minimum prices for the crops
they wanted to buy.
v. Processing of produce: The marketing boards were also responsible for processing some of the
produce for final export to other countries.
vi. Development of agro-allied industries.
vii. Economic development
viii. Growth of co-operative societies.
ix. Manpower development
x. Improving the quality of produce.
PROBLEMS OF MARKETING BOARD
1. Inadequate finance
2. Problem associated with overproduction
3. Pricing problems.
4. Climatic problems
5. Illiteracy of the farmers
6. Political interference

PROSPECTS OF AGRICULTURE IN WEST AFRICA.

There is a lot of prospects for agriculture in the West African sub region as the climatic and soil
conditions required to produce abundant food and cash crops both for internal consumption and
for export are quite high.
In West Africa, agriculture could thrive if the following steps are taken by the various
governments.
1. Granting of subsidies on farm input e.g. fertilizers, seeds, chemicals etc.
2. Establishment of farm estates – This will encourage graduates of agriculture such as soil scientist,
crop scientists animal scientists, fish experts to be involved in agricultural.
3. Zoning of regions to produce certain commodities e.g. cocoa in the West, oil palm in the east and
groundnut in the Northern part of Nigeria.
4. Importation of farm machine.
5. Provision of finance.
6. Recruitment of agricultural graduates.