Purpose of Taxation In Nigeria

Every country aspires to evolve into a civilized and economically sound nation, and one of the most common ways developed countries have accomplished so is by embracing the concept of taxation. Although the term “tax” does not currently have a statutory definition, literal and judicial definitions have been able to give enough insight into the topic.

According to the National Tax Policy for Nigeria, “tax is a monetary charge on a person’s entity or income, property, or transaction, and is usually collected by a defined authority at the federal and state level”. Similarly, the court in United States v. Butler,[1] explained the term tax as “an exaction for the support of the government”.

The definitions given above can be summarized by saying that a valid tax is one that is mandated by law must be a deduction from income and must go to the government agencies in charge of collecting taxes.


In practically every nation on the planet, governments impose taxes as mandatory levies on people or corporate organizations. Taxes are primarily used to generate money for government expenditures, though it can also be used for other purposes.


Economic Development.

Full Employment.

Price Stability.

Control of Cyclical Fluctuations.

Reduction of BOP Difficulties

Non-Revenue Objective

Provide revenues for the government

To redistribute wealth from the rich to the poor.

To avoid negative externalities.

1. Economic Development:

Economic growth is one of the main goals of taxation. Any nation’s economic progress is heavily influenced by the expansion of capital formation. According to some, capital production is the driving force behind economic growth. But capital is typically a problem for the least developed countries.

Governments mobilize resources to promote quick capital accumulation in order to address the capital shortage. The government utilizes tax money to increase both public and private investment. The ratio of savings to national income can be increased by effective tax planning.

The process of capital production can be sped up by increasing current tax rates or enacting additional taxes. The improvement of the savings-income ratio, which can be achieved by taxation policy, is one of the key components of economic growth.

However, adequate caution must be exercised when making investments. Even if savings and investment rates rise, economic progress may be threatened if financial resources or investments are directed toward the unproductive areas of the economy. In order to encourage investment in the productive sectors of the economy, particularly the infrastructure sectors, the tax system must be used effectively.

2. Full Employment:

A nation seeking to reach full employment must lower its tax rates since the level of employment is dependent on effective demand. As a result, disposable income will increase, which will increase demand for products and services. Through the multiplier effect, increased demand will encourage investment, increasing income and jobs.

3. Price Stability:

Thirdly price stability can be achieved through taxing, which is a short-term goal of taxation. Taxes are thought to be a successful tool for reducing inflation. Private spending can be regulated by increasing direct tax rates. Naturally, there is less pressure on the commodity market. However, the indirect taxes levied on goods encourage inflationary tendencies. High commodity prices both stimulate saving and discourage consumption on the one hand. When taxes are decreased during a deflation, the opposite impact will happen.

4. Control of Cyclical Fluctuations:

Another goal of taxation is thought to be the regulation of cyclical variations, or boom and bust times. Taxes are decreased during times of depression and raised during periods of economic growth in order to stabilize cyclical oscillations.

5. Reduction of Balance Of Payments Difficulties:

In order to lessen the severity of balance of payments issues and promote domestic manufacturing of import replacements, taxes like custom tariffs are also employed to regulate imports of specific commodities.

6. Non-Revenue Objective:

Another extra-revenue or non-revenue goal of taxation is to lessen income and wealth disparities. This can be accomplished by either implementing a system of progressive taxation or taxing the wealthy at a greater rate than the poor.

[1] 297 U.S. 1 (1936)

[2] Sanket Suman, ‘Merit and Demerit of Direct Taxes’. https://www.economicsdiscussion.net/taxes/direct taxes/merits-and-demerits-of-direct-taxes/12798  Accessed 19th August, 2022.


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