TAX REVENUE AND ECONOMIC GROWTH OF NIGERIA (1981-2015)

ABSTRACT

The aim of this study was to examine the impact of tax revenue collected by federal government on the economic growth of Nigeria, while looking at the specific objectives which include: assess the impact of companies’ income tax on economic growth of Nigeria; ascertain the influence of Petroleum Profit Tax on economic growth of Nigeria; examine the impact of custom and excise duties on economic growth of Nigeria and determine the impact of VAT on the economic growth of Nigeria.

Ex -post facto and survey research designs was adopted in the work to investigate reasons for consistent low tax contributions to GDP in Nigeria over a period of 35 years. Secondary data were obtained from FIRS and Bureau of Statistics for the purpose of this research. Method of analysis include ordinary Least square regression model was estimated to examine the individual effects of tax revenue proxies of Value Added Tax (VAT), Petroleum Profit Tax (PPT), Customs and Excise Duties (CED), and Companies of Income tax (CIT) on Gross Domestic Product (GDP), Auto-regressive distributed lag (ARDL) model was adopted to determine the combined effect of tax revenue proxies on GDP of Nigeria.

The study revealed that the GDP is strongly impacted upon by VAT, PPT, CED, and CIT. In summary, the simple regression analysis shows thatabout 75% variations in GDP can be attributed to changes in PPT; also, Value Added Tax (VAT) was discovered to be responsible for about 95% changes in GDP. The average contribution of tax revenue to GDP for the thirty five year period was computed at mere 7.8%, which is still far below the acceptable global average of 20%.  Although the simple regression showed that CIT and CED individually has positive effect on GDP, the multiple regression analysis through long run estimation indicated that in the long run, CIT and CED have negative effects on GDP and PPT and VAT have positive effects on GDP.

The study concluded that tax revenue combined have significant effect on the economic growth of Nigeria, although Companies Income Tax (CIT) and Custom Excise Duties (CED) have not contributed positively to economic growth of this nation over the period of study, hence government need to reposition the tax administrative system and sufficiently equip them to deal with complexities of technological advancement in global commerce, enforce compliance and track all taxable persons in order to generate sufficient revenue needed to foster economic growth in Nigeria.

Keywords: Tax Revenue, Value Added Tax, Custom and Excise Duties, Company Income Tax, Gross Domestic Product