Page 1 of 15
Journal for Studies in Management and Planning
Available at https://pen2print.org/index.php/jsmap/
ISSN: 2395-0463
Volume 04 Issue 09
September 2018
Available online: https://pen2print.org/index.php/jsmap/ P a g e | 23
Tax Revenue and the Economy of Nigeria
OSUJI, Casmir Chinemerem (Ph.D)
Department of Accounting, Banking and Finance
Faculty of Management Sciences
Delta State University, Asaba Campus
Correspondent email: anastasiaonuorah@yahoo.com
ABSTRACT
This study explored the relationship between tax revenue in Nigeria and her economic
growth. Some components of tax revenue examined are Petroleum Profit Tax (PPT),
Company Income Tax (CIT), Value Added Tax (VAT) and Custom Duty (CD) while Gross
Domestic Product (GDP) was used to measure the economic growth and these indices were
studied for the period of 30yrs (1987-2016). Time series data were obtained from secondary
sources and applied in carrying out this research work and multiple regression analysis was
adopted based on the OLS technique using SPSS 22.0 software. The dependent variable is
GDP while the explanatory variables are petroleum profit tax, company income tax, custom
and excise duties and Value Added Tax, the contribution of each of these taxes was related
to the Growth Domestic Product (GDP). The findings revealed that petroleum profit tax,
company income tax, value added tax and custom duties have a positive impact on GDP and
overall, a significant relationship between tax revenue and the Nigerian economic growth
exists. The utilization of the generated revenue from taxes calls for serious concern, and
requires a special attention of policy makers, Non-compliance with tax laws on the part of
the tax payers is a hindrance and ineffective administration of tax has given enough loop
holes for tax evasion, the consequence of which is poor revenue. Since VAT has highest
adjusted R-Square among all independent variables tested, we recommend among others
that VAT rate should be reviewed upward and efficient tax should be implemented to
increase government revenue from taxes and thereby boost the economic growth of the
entire nation.
1.0 Introduction
Tax is a compulsory donation enforced by the government upon individuals and corporate
bodies within its jurisdiction for the purpose of meeting its expenditure.
Such levies vary from one government to another. According to Odusola (2016) in Nigeria,
there are many laws enacted for the purpose of generating tax revenue in Nigeria and they
include:
Page 2 of 15
Journal for Studies in Management and Planning
Available at https://pen2print.org/index.php/jsmap/
ISSN: 2395-0463
Volume 04 Issue 09
September 2018
Available online: https://pen2print.org/index.php/jsmap/ P a g e | 24
Personal Income Tax, Companies Income Tax Act, capital Gains Tax Act, Petroleum Profit
Tax Act, etc.
The intention of taxation is to generate income for the government to provide social
amenities for the people of a nation with focus on improving economic growth and
development of a country via proper administrative system and structures. According to
Ogbonna and Ebimbowei(2011) tax revenue is very essential in promoting economic growth
and development. Through taxation, government ensures that funds are used for essential
projects in the society.
1.2 Statement of the Problem
There is a general lack of consensus among scholars on the role that tax revenue play
towards economic growth of nations which show an existence of research gap and this study
is to examine the relationship between tax revenue and the economic growth and this is an
attempt to fill the research gap. Previous studies reflected that the oil boom has not
improved the economic state of the country since before the boom, there was a satisfactory
level of growth and after the boom, the growth of economic activities deteriorated.
Globally, there is a paradigm shift to tax revenue as an alternative source of revenue. The
mechanisms for implementing a good tax system in Nigeria are insufficient, and this has
resulted in prevalent tax evasion and avoidance of the self-employed individuals and
organizations who were not captured as tax payers in the data base of the relevant tax
authority’s database system. Additionally, Nigeria has the lowest tax to gross Domestic
Product (GDP) ratios at about 6% in the world, this obviously showed that our tax system
has not been managed efficiently and we as a country have not been able to exploit our
capacity to generate tax revenue adequately for the economy. The intent of any government
to maximize tax revenue collected from tax payers is key. This is because, as it is well- known, the importance of tax lies in its ability to generate revenue for the government,
influence the consumption trends and growth and regulate the economy through its influence
on vital aggregate economic variables.
Page 3 of 15
Journal for Studies in Management and Planning
Available at https://pen2print.org/index.php/jsmap/
ISSN: 2395-0463
Volume 04 Issue 09
September 2018
Available online: https://pen2print.org/index.php/jsmap/ P a g e | 25
Nigeria has depended heavily on revenue from Oil as the foremost source of Government
revenue while proportion of tax revenue over total revenue has been very small.
2.1 Theoretical Review
2.1.1 Ability to Pay Theory of Taxation
The cannons of taxation give credence to this theory, and stress the capacity of the
contributors to the common pulse of the State to make such contribution at a time and in
manner that it is most convenient. Taxes to the state are made without quid pro quo benefits
(Chigbua,Adejumo, Obomuyi and Olurumfemi (2017). To this extent, the theory holds that
persons should pay taxes in proportion to their individual capacity. This means that people
with higher income should pay more than people with lower income. In the context of this
study one’s ability to pay may suggest that as more and more expenditures are incurred by a
person the same should pay more tax and vice versa. Given this regard, the PPT and CEP
can conveniently fit into this as the PPT has a tax rate of 85% on profit of companies in
petroleum operations while CED is basically charged on the value of the goods or some
other weight. This theory emphasized that one should be taxed according to the ability to
pay. It is simply an attempt to maximize an explicit value judgment about the distributive
effects of taxes.
2.1.2 Expediency Theory of Taxation
According to Ebiriga and Emeh (2012), Fasoronti (2013) the expediency theory is based on
a link between tax liability and state activities. It assumes that the state should charge the
members of the society for the services provided by it. This proposition has a truth in it,
since it is useless to have a tax which cannot be levied and collected efficiently. (Chigbu,
Eze and Ebimobowei, 2014).
This study therefore concentrates on the expediency theory which enables us to assess the
extent to which the Nigerian tax system conforms to this scenario where the link between
