Taxation and the growth of Nigerian economy (1981-2014)

Abstract

Taxation is a powerful tool for achieving economic growth and social policy objectives and undoubtedly a veritable instrument for national development. The study therefore, examined the effect of Taxation on the growth of Nigeria’s economy. The specific objectives however was to determine the effect of five different taxes on the gross domestic product of the Nigerian economy which include: petroleum profit tax, company income tax, value added tax, excise duties and total tax revenue. Furthermore, the study employed secondary data sourced from the Central Bank of Nigeria (CBN) and Nigerian Bureau of Statistics (NBS) covering the period between (1981-2014). Unit root test, Johansens’s Multivariate Cointegration test and Error Correction Model (ECM) were used to assess the short run dynamics between economic growth, the dependent variable and the explanatory variables. The result revealed that petroleum profit tax has positive and significant impact with (β

=0.062, t-value= 1.872 and p-value =0.043) on the growth of Nigeria economy. Also, company income tax has a positive and significant effect with (β= 0.012, t-value = 1.566 and P-value = 0.011). Likewise, Value Added Tax has a positive significant effect with (β = 0.027, t = 1.068 and P-value = 0.010) on Nigeria growth. Excise duties also has a positive significant effect with (β = 0.045, t = 1.419 and P- value = 0.009) on Nigeria economic growth. Similarly, oil revenue and total tax revenue has positive significant effect with (β = 0.514, t = 3.551 and P -value = 0.006) and (β = 0.093, t = 1.742 and P- value of 0.050) respectively on Nigeria economic growth. However, foreign direct investment has a positive but not significant effect with (β = 0.155, t = 0.699 and P- value of 0.502) on Nigeria economic growth.

The study concluded that Value added tax, Petroleum profit tax, Excise duties, Company income tax and Total tax revenue jointly and independently have significant impact on growth of the Nigerian economy.