Tax Revenue and Economic Growth in Nigeria

Abstract

This study examines tax revenue and economic growth in Nigeria. To achieve this objective, time series data of 15 years were collected from secondary source between 2000 and 2014. The secondary data were sourced from CBN statistical bulletin, 2007; Federal Inland Revenue Service Statistics, 2013, and Nigeria Bureau of Statistics. The data collected were analyzed using relevant statistical techniques. The results reveal that firstly, there is a significant relationship between petroleum profit tax and per capita income; secondly, no significant relationship exists between custom and excise duties tax and gross domestic product (GDP) in Nigeria. Also, the results reveal that a significant relationship exists between value added tax and per capita income on one hand; there is a significant relationship between company income tax and GDP within the periods 2000 to 2014 on the other. The study concludes that company income taxes are very crucial to economic growth in Nigeria, because a small percentage increase in company income tax will result in a greater percentage increase in government revenue which can be used to provide enabling environment for businesses and industries for a better economic growth, in form of gross domestic product. Conversely, value added tax is significant to economic growth, because a small change in VAT rate will lead to a more than average increase in government revenue, thereby enhance government spending and more fund will be available to cater for economic growth, though may have a decline effect on individual disposable income over time relative to per capital income. Based on this outcome, tax revenues have significantly positive implications on the economic growth in Nigeria.  The study therefore recommends that existing tax policies should be improved, particularly the customs and excise duties, in order to help boost the size of revenue generation from this levy, since its revenue base is critically low compared to others. Finally, government is encourage to be more focus on petroleum profit tax, value added tax and company income tax because these taxes generate bulk of government revenue, especially the company income tax. Therefore, government should train all personnel and administrators involved in the collection and remittance of these taxes, possibly with modern mechanism and sophisticated information technology which could help guarantee more tax revenue and the need for prompt payment by the operators of companies in Nigeria.