EFFECT OF MINNING TAX ON THE ECONOMIC GROWTH OF NIGERIA

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EFFECT OF MINNING TAX ON THE ECONOMIC GROWTH OF NIGERIA

ABSTRACT

The mining sector plays a pivotal role in the economic landscape of Nigeria, contributing significantly to government revenue and foreign exchange earnings. As mining activities expand, the imposition of taxes on the sector becomes a critical policy consideration. This study aims to investigate the effect of mining tax on the economic growth of Nigeria, assessing the implications of taxation policies on the mining industry’s contribution to the overall economy.

Utilizing a mixed-methods approach, this research combines quantitative analysis of economic indicators and qualitative examination of tax policies. Data on mining tax rates, government revenue from the mining sector, and economic growth indicators will be collected and analyzed. Additionally, interviews with key stakeholders, including government officials, mining companies, and economic experts, will provide insights into the practical implications of mining taxation.

The study will explore the correlation between mining tax rates and key economic indicators, such as Gross Domestic Product (GDP), employment rates, and government revenue. Special attention will be given to the potential effects of taxation on mining investment, exploration, and production. The research also aims to identify potential challenges and opportunities for optimizing the impact of mining taxes on economic growth.

The findings from this study are expected to provide valuable insights for policymakers, industry stakeholders, and researchers interested in the intersection of mining taxation and economic development. Understanding the dynamics of mining tax policies and their repercussions on economic growth is essential for formulating effective strategies that balance revenue generation with sustainable industry expansion in Nigeria.

CHAPTER ONE:

INTRODUCTION

1.1 Background of the Study

Nigeria, endowed with rich mineral resources, has witnessed substantial growth in its mining sector over the years. The mining industry has become a key contributor to government revenue and a significant source of foreign exchange earnings. In light of the sector’s expanding role in the national economy, the imposition of taxes on mining activities has become a crucial policy area requiring careful consideration. The effect of mining tax on the economic growth of Nigeria is a complex and multifaceted issue that necessitates thorough exploration.

The mining sector has emerged as a cornerstone of Nigeria’s economic development, wielding significant potential for revenue generation, job creation, and foreign exchange earnings. Rich in diverse mineral resources ranging from oil and gas to solid minerals, the nation has increasingly turned its attention to the mining industry as a means to diversify its economy. However, the sustained growth and prosperity of this sector are intricately tied to the formulation and execution of effective policies, particularly in the realm of taxation.

The imposition of taxes on mining activities stands at the crossroads of economic policy, where the need for fiscal revenue collides with the imperative of fostering a conducive environment for sustainable industry growth. Nigeria, like many resource-rich nations, grapples with the challenge of striking an optimal balance between extracting fiscal benefits from mining operations and ensuring an attractive climate for mining investments. As the government seeks to harness the economic potential of the mining sector, the effect of mining tax on the economic growth of Nigeria becomes a focal point of inquiry.

Historically, Nigeria has relied heavily on its oil and gas sector for revenue, exposing the economy to the volatility of global oil prices. In response, there has been a concerted effort to diversify revenue sources, with the mining sector emerging as a key contender. The enactment of various mining laws and policies underscores the government’s commitment to unlocking the vast potential of its mineral wealth. However, the fiscal policies governing the sector, particularly taxation, play a pivotal role in shaping the industry’s trajectory.

Mining taxation in Nigeria encompasses a complex interplay of royalties, corporate income taxes, and other levies, all designed to contribute to government revenue. While the intention is to secure a fair share of profits from resource extraction, the implications of these tax policies on the economic growth of the nation are multifaceted. The mining industry’s contribution to employment, technology transfer, and community development hinges on the sustainability and attractiveness of the fiscal regime governing its operations.

Thoughtful, issues-driven, socio-political and economic concerns continue to emerge the world over. They are apparently diversified and not only impact but impair on businesses and their environment, especially in developing nations like Nigeria. This informed central reason for government in any human society, to solve problems and challenges confronting the governed. Eneh (2011) asserted the collective consent of the governed to yield power for development (through policies, programmes and legal frameworks) to improve transport, education, health, infrastructure etc thereby underpins significantly the social contract principle of governance. In Nigeria, responsibility for development remains part of fundamental objectives and directive principles of state policies and constitutional responsibilities for the various levels of government –federal, state government and local (The Nigeria Constitution, 1999).

Central to meeting up these responsibilities by various levels of government is the concern for efficient fiscal policies towards sufficient public finance. While streams of revenue windows are being explored, (Oyedele, 2015) governments have identified taxation as immensely auspicious and key source of sustainable revenue compared to other sources of revenue. Sanusi, (2010) declining revenue from mono-commodity oil dominance economy resulted in growing and large fiscal deficits and need for domestic debt accumulation. Hence, tax revenues is relatively predictable alternative than the trepidation of the fluctuation in global oil market with promising scope considering present tax GDP ratio 7.8% (2013) compared to Tanzania 12%, Burkina Faso 11.5%; which reliefs over dependence on oil revenue Eneh, (2007).

Apart distinctively varied and promising as taxation is, underperformance of taxation (Abiola and Asiweh, 2012), deficiencies of tax administration system (Ayodele, 2006), complex legislations and formal and informal sectors of Nigerian economy apathy to tax payment (Akintola Williams Deloitte, 2015), excruciating impact of multiple taxation etc impair on the tax net. Particular impairment of taxes and taxation is as related to the construction industry sector of the economy. The constant challenge in this industry include project clients frequently deduct multiple taxes (Ahunwan, 2009), in which withholding tax at 5% deducted from the entire contract sum instead of only on the required percentage of the materials accruing to the contracting companies. Also, (Onyeukwu, 2010) is the dearth of payable tax knowledge and understanding amongst many contracting companies in the construction industry supply chain.

1.2 Statement of the Problem

As the Nigerian government seeks to harness the economic potential of its mineral wealth through the mining sector, questions arise regarding the impact of taxation on the industry’s growth trajectory and its broader contribution to national economic development. The imposition of mining taxes introduces a delicate balance between revenue generation and sustaining a conducive environment for mining investment and production. Therefore, understanding the dynamics of mining taxation and its effects on economic growth is essential for formulating informed policies.

1.3 Objectives of the Study

The primary objectives of this study include:

To assess the historical trends and patterns of mining tax imposition in Nigeria.
To examine the relationship between mining tax rates and the economic growth indicators of Nigeria.
To identify the challenges and opportunities associated with mining taxation in the context of economic development.
To evaluate the impact of mining taxes on key aspects of the mining industry, including investment, exploration, and production.
To provide recommendations for optimizing the synergy between mining taxation and sustainable economic growth in Nigeria.

1.4 Research Questions

The study will address the following research questions:

What are the historical trends and patterns of mining tax imposition in Nigeria?
Is there a significant relationship between mining tax rates and economic growth indicators in Nigeria?
What challenges and opportunities are associated with mining taxation in the context of economic development?
How do mining taxes impact investment, exploration, and production in the mining industry?
What recommendations can be made to enhance the positive impact of mining taxation on economic growth in Nigeria?

1.5 Significance of the Study

This study holds significance for various stakeholders, including policymakers, government agencies, mining companies, researchers, and the general public. Understanding the intricate relationship between mining taxation and economic growth will inform policymakers in crafting tax policies that foster sustainable development. Mining companies will benefit from insights into the impact of taxation on their operations, while researchers will gain a deeper understanding of the economic dynamics within the mining sector.

1.6 Scope of the Study

The study will focus on the Nigerian mining sector, considering historical and contemporary trends in mining taxation. Both quantitative and qualitative data will be collected to provide a comprehensive analysis of the subject. The geographical scope will cover key mining regions within Nigeria, and the temporal scope will encompass the past two decades to capture relevant trends and changes in mining tax policies.

1.7 Structure of the Thesis

The remainder of this thesis is organized as follows: Chapter Two provides a comprehensive review of the literature related to mining taxation, economic growth, and the Nigerian mining sector. Chapter Three outlines the research methodology, including data collection methods and analysis techniques. Chapter Four presents the data analysis and findings, while Chapter Five offers a discussion of the results, implications, and recommendations for policymakers and stakeholders. The conclusion in Chapter Six summarizes the key findings and suggests avenues for future research in the field of mining taxation and economic growth in Nigeria.

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