Global Journal of Management and Business Research, B: Economics and Commerce, Volume 20 Issue 1

The Effect of Pay as you Earn on Social and Economic Development in Nigeria Osho, Augustine E. α , Ogunyankin Easther O. B σ & Fadakinte, Bukola ρ Abstract- This study x-rayed the impact of pay as you earn on social and economic development (proxy by gross domestic products) in Nigeria. Secondary time series panel data was collected for the period 2009 to 2018 from the Statistical Bulletin of the Central Bank of Nigeria (CBN). The study employed Ordinary Le ast Squares (OLS) techniqu e based on the computer software E-view 10 version for the analysis of data, where gross domestic products (GDP) is the independent variable, proxy for social and economic development, was regressed as a function of personal income tax (PIT) and value-added tax (VAT), the dependent variables. The results of the analysis showed that both personal income tax and value-added tax have significantly positive impact on social economic development. Based on the findings, the study recommended that government should strengthen the tax administration system to broaden the tax income, and embark on tax education to ensure voluntary tax compliance. The study also recommended that the tax authorities should employ qualified tax professionals who should be regularly trained and be retained in the tax administration system for effective and efficient tax administration and collection. Keywords: economic development, direct tax, personal income tax, social development, value added tax. I. I ntroduction ax is a compulsory levy imposed as an instrument for economic development. Governments use tax proceeds to render their social functions, such as: the provision of goods, maintenance of law and order, defence against external aggression, regulation of trade and business to ensure social and economic maintenance (Edame & Okoi, 2014). And also use to reduce or increase flow of cash in circulation during inflation or deflation, as industries can be more easily secured with the use of tax through the means of increasing tariff on imported goods and services. The consumption and production of particular goods and services can also be checked, monitored or reduced with the use of tax (Agbetunde, 2010). Overall, tax is seen as a compulsory levy imposed by the government through its various means on the income, capital, or consumption of its subject (Mustapha, 2010). From these few explanations, it could be seen that the payment of tax is a compulsory exercise on all taxable individuals and corporate bodies. Direct tax is a tax assessable directly on the tax payer who is required to pay tax on his income or profit while indirect tax is imposed on commodities before they reach the final consumer and is paid by them upon, not as taxes, but as part of selling price of the commodity (ICAN, 2006). Personal income tax (PIT) which forms part of direct tax refers to all taxes or levies imposed on the income, salaries and wages, profit, gratuities, etc., of individuals as well as interest and dividends from companies accruing to them. This tax is further divided into two categories: Pay As You Earn (PAYE) and direct assessment tax (Mohammed, 2017). The PAYE directly on the individual’s income as a result of employment and the employee’s income are taxed using a graduated scale. The tax calculated is usually deducted from the source and is done by the employer who will remit the amount to the tax authorities. The second category, direct assessment tax, is a tax levied on the individual income as a result of self-employment. This part of income tax covers income from trade, business, profession, or vacation. The payment of this tax, occurs after the individual has collected his/her gross income and filed in a return on the gross income. In a tax system, responsibility is delegated to three key entities: the tax payers whose obligation is payment of the assessed taxes promptly and accurately, tax authorities which ensure the collection of taxes for the government and the government whose duty is the imposition of taxes to finance the activities that ultimately benefit the citizens. Thus, the tripartite constituents of an effective tax system include tax administration, policy and law for effective service delivery (Olaofe, 2008). With the recent reduction in the collection of revenue from the oil; which is the main source of the consolidated federation revenue there is the need for all the three tiers of government to look inwards. This study therefore seeks to examine the Impact of pay as you earn and social, Economic development in Nigeria for the period 2009-2018 (10 years). T Author α : Ph. D Department of Accounting, Achievers University, P. M. B. 1030, Owo, Nigeria. e-mail: droshoaugustine@yahoo.com Author σ : Bursary Department, Rufus Giwa Polytechnic, P. M. B. 1019, Owo, Nigeria. e-mail: ogunyankinesther@gmail.com Author ρ : Department of Accounting, Rufus Giwa Polytechnic, P. M. B. 1019, Owo, Nigeria. e-mail: bukolafadakinte@gmail.com © 2020 Global Journals 13 Global Journal of Management and Business Research Volume XX Issue I Version I Year 2020 ( ) B