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Prior to the emergence of the colonial masters, taxation had existed in Nigeria. According to Samuel, Simon (2011), taxation can be seen as a system of imposing an obligatory levy on all incomes, goods, services and properties of individuals, partnership, trustees, executorships and companies by the government. Yunusa (2013) asserts that income taxes (e.g. personal and company income taxes) are the most fundamental sources of revenues to all government. In the Nigerian context, personal income tax (PIT) is a factor to be reckoned with in the Federal Government budget, which they give back to citizens by rendering services or providing basic amenities needed by them. However, this depends on whether the policy or tax administrative framework in the country is towards discouraging or encouraging such individuals in paying their tax (Ola, 2001). In Nigeria, PIT is established by the Personal Income Tax Act of 2011 and provides that personal income taxes are charged at source. PIT is recognized as a very fundamental tool for national development and growth in most economies of the world and as such, most government do not toil with it, given the decline in oil price in the country which has led to the decrease in availability of funds for distribution to all levels of government (Aimurie, 2012). Aguolu (2004) argued that though PIT may not be the most fundamental source of government revenue in terms of magnitude of revenue derivable from taxation, however, PIT is one of the most fundamental sources of government revenue, from the viewpoint of certainty and consistency of taxpayers. The taxation of a trade or profession in Nigeria is established and covered by Personal Income Tax Act (PITA). Before 2011, the Personal Income Tax Act Cap .P8 Laws of The Federation of Nigeria (LFN) 2004 governed the administration of PIT in Nigeria. The PIT (amendment) Act 2011 was enacted to amend the Personal Income Tax Act Cap. (LFN) 2004 and related matters. Though dated 24 June, 2011, it was on Tuesday, 13 December 2011 that the then President of the Federal Republic of Nigeria (Dr. Goodluck Ebele Jonathan), while presenting 2012 federal budget proposal to the joint session of the National Assembly confirmed the signing into law, the Bill enacting the Personal Income Tax (Amendment) Act 2011 (Federal Republic of Nigeria, 2013). According to the provisions of PIT (amendment) Act 2011, taxpayers are required to file returns for the preceding year within 30 days of the end of the year (31 January – previously 90 days, i.e. 31 March). Specifically, personal income tax is payable on incomes from sources within and outside Nigeria, but not limited to gains and profit arising from trade, business, profession or vocation, remuneration (e.g. salaries, wages, fees, allowances, commissions, bonuses, or benefits premiums), or other perquisites allowed, given or granted by any person to an employee, from an employment from both public and private sectors, dividend, interest or rent, any charge or annuity, gains or profits including any premiums arising from a right granted to any person for the use or occupation of any property and so on (David, 2012). Taxation had been practiced in Nigeria on a limited basis prior to the entrance of the colonial powers. As defined by Samuel and Simon (2011), taxation is a system in which the government imposes an obligatory charge on all earnings, products and services provided by individuals, partnerships, trusts, executorships, corporations, and other types of entities, including foreign governments, as well as on the assets of these entities. The income taxes levied by governments (including personal and corporate income taxes) are the most important sources of revenue for all governments, according to Yunusa (2013). Nigerians, in particular, pay personal income tax (PIT), which is included into the federal government's budget and subsequently returned to them in the form of services or basic amenities that they demand. Whether or not such individuals pay their taxes is determined by whether or not the country's tax policy or tax administrative architecture is tailored toward discouraging or encouraging them to do so (Ola, 2001). Nigerians are subject to Personal Income Tax (PIT), which was established by the Personal Income Tax Act of 2011. The Act specifies that personal income taxes are collected at the point of production, which is the point of sale. For national development and prosperity, public-private partnerships (PITs) are crucial instruments in most countries throughout the world, according to the World Bank. As a result, most governments across the globe are unwilling to collaborate with them, particularly in light of the recent downturn in oil prices in Nigeria, which has resulted in a reduction in the availability of cash for distribution to all levels of government (Aimurie, 2012). Taxation as a source of government revenue is not the most fundamental source of government revenue, according to Aguolu (2004), when measured by the total amount of revenue that can be derived from taxation; however, PIT is one of the most fundamental sources of government revenue when measured by taxpayers' confidence in the system and their consistency in making their tax payments. Nigeria's Personal Income Tax Act, which was implemented in 1992, governs the taxation of those who carry on a business or practice there. (PITA). Prior to 2011, the administration of personal income tax (PIT) in Nigeria was governed by the Personal Income Tax Act, Cap.P8 of the Laws of the Federation of Nigeria (LFN). Specifically, the Personal Income Tax Act (Cap. (LFN) 2004 and its connected issues were amended with the passage of the Personal Income Tax (Amendment Act) 2011. However, despite the fact that the Bill enacting the Personal Income Tax (Amendment) Act 2011 had been passed on June 24, 2011, the then President of the Federal Republic of Nigeria (Dr. Goodluck Ebele Jonathan) confirmed that the Act had been signed into law on Tuesday, December 13, 2011, during his presentation of the 2012 federal budget proposal to a joint session of the National Assembly on Tuesday, December 13, 2011. Nigeria's Federal Republic of Nigeria published a report in 2013 titled


Taxation is an important source of revenue in running the affairs of a state. Expectedly, personal income tax should be a major source of income to the government  where there are banks, sole proprietorship, schools and colleges, hospitals and hotels, modern farms, real estate and other revenue generation entities. These businesses and government establishments are run by men who are expected to be paying personal income tax regularly to boost the revenue generation of the state. However, many state governments in Nigeria has not been able to execute many projects due to diminishing revenue allocation from federation account which serves as the main source of financing to the state government. State Government makes direct deduction of PAYE from salaries while artisans, traders, okada riders and the others are mandated by government to pay tax on direct assessment basis. With a population of over 250million (Census 2006), one would have thought that personal income tax would be a rentable and significant contributor to the total revenue of the government such that there would be infrastructural development and workers’ salaries are paid as at when due. However, the reverse seems to be the case as State Government finds it difficult to execute new projects and owe salaries in arrears. One begins to wonder whether there is tax evasion or tax avoidance on account of some of the inhabitants of the state. Perhaps the personal income tax administration has not been effective which could affect the amount collected. According to Olotu (2012), taxation is already sowing seed of transformation in many states of the federation of Nigeria in that more states across the country are now turning to taxation to shore up their revenue to finance infrastructural projects.

More so, In spite of the fundamental role of PIT as a major source of government revenue, studies are not forthcoming especially in the area of distinct effects of PIT on the level of economic growth in Nigeria. Prior studies have shown that there is a link between tax revenues and economic growth in both developed and developing countries of the world; however, there is scanty empirical evidence as regards how personal income tax (a major component of tax revenue) affects the livelihood of citizens of Nigeria. In light of the above, this paper seeks to investigate The Impact of personal income tax on standard of living in Nigeria


Below are research questions to which the study would be based.

  • What is the contribution of personal income tax to revenue generation and standard of living in Nigeria?
  • What is the relationship between Personal Income Tax and Revenue Generation in Nigeria?