Does Taxation Propel Economic Growth In Nigeria?

International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue VII, July 2020 | ISSN 2454–6186

Does Taxation Propel Economic Growth In Nigeria?

Etim Osim Etim^1*, Nsima Johnson Umoffong², Ihenyen Joel Confidence^3
1Department of Accounting, Faculty of Business Administration, University of Uyo, Uyo-Nigeria
²Department of Accounting, Faculty of Business Administration, University of Uyo, Uyo-Nigeria
³Department of Accounting, Faculty of Management Science, Niger Delta University, Yenegoa, Bayelsa State, Nigeria
*Corresponding Author

Abstract:- The study examined the relationship between taxation and economic growth proxy by Per Capita Income (PCI) in Nigeria from 1985 to 2018 data were collected from Central Bank of Nigeria (CBN) and Federal Inland Revenue Service (FIRS) for various years on Companies Income Tax (CIT), Personal Income Tax (PIT), Value Added Tax (VAT), Petroleum Profit Tax (PPT) and Per Capita Income (PCI) from Socio-Economic Statistics Report by National Bureau of Statistics (NBS). The data were analysed using multiple regression technique. Findings reveal inverse and significant relationship between company income tax and per capita income, while, Personal Income Tax, Value Added Tax Petroleum profit tax shows positive relationship. Thus, the contention as to whether taxation propel economic growth in Nigeria cannot be rightly answered with a ‘Yes’ or ‘No’ response since the results from our study were mix. It was recommended that policy makers should focus on tax incentives that would boost investment in the manufacturing sector.

Keywords: Per Capita Income, Economic growth, Taxation.

I. INTRODUCTION

Taxation as a medium of economic growth is as old as ancient empires where taxes are collected from subjects as a means of funding government activities. Collected taxes are used to finance defence, social infrastructure, social welfare and some instances financing of economic projects deem to enhance the future well-being of the citizens. According to International Monetary Fund (IMF) (2017), “the primary contribution of taxation is the pursuit of equity goals which is through financing spending measures, efficiently contribute to achieving redistributive goals”. Thus, through taxes on wages, capital income, wealth, business income and consumption, the government attempts to enhance economic growth.

In Nigeria as elsewhere, taxation is a principal component of fiscal policy measures. It is designed to stabilize the economy, create employment, stabilize price levels and balance of trade and payment, grant incentives to the industrial and manufacturing sectors with a view to boosting productive capacity while encouraging investments in different and most preferred sectors of the economy.

Taxation is variously defined by different authorities, but commonly it is agreed that is a compulsory payment imposed on citizens’ wealth and business income by a statutory enactment to generate revenues to the imposing authority or government to defray its financial obligations.

Read More