Pattern of Spending and the Level of Tax Revenue in Nigeria

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

Pattern of Spending and the Level of Tax Revenue in Nigeria

Audu, Solomon Ibrahim
Dept. of Accounting and Finance, Caleb University, Lagos, Nigeria

Abstract: This study examines the effect of spending pattern of the private and public sector on the level of tax revenue in Nigeria. Over a period of ten years (2009 to 2018), secondary data were obtained from the Central Bank of Nigeria statistical bulletin 2018 to extract data for the period covered by this study. The data were analyzed using a simple regression model. The result shows that public recurrent expenditure has a moderate relationship with the level of tax revenue in Nigeria and has more impact when compared with other independent variables (public capital expenditure or private household expenditure level). In conclusion, both government spending and household spending does not have a significant effect on the level of tax revenue in Nigeria. It is recommended that in order to boost the level of tax revenue in Nigeria, rather than the government increasing the consumption tax rate which will increase cost of living in Nigeria, the government should focus on promoting the manufacturing of goods locally to boost economic activities within the country from where taxes can be raised.

Keywords: Capital expenditure, Recurrent expenditure, Tax revenue, Consumer expenditure

JEL Classification: E62

I. INTRODUCTION

Nigeria’s tax to gross domestic product (GDP) in 2012 was reported to be 1.6% as against the average of other high income earning countries in Africa which averaged 12% (Lethbridge, 2016). This calls for a critical evaluation of Nigerian tax system. As one of the countries in the region with the largest GDP, the country has the potential to improve its tax revenue. An observation of the trend in the tax revenue of the country between 2009 and 2018 shows an average increase of 19% between 2008 and 2014 but between 2015 and 2018, this dropped drastically to 5%. This calls for concern and a review of policies and strategies to maximally optimize the tax framework in the country. Tax revenue can be classified as being generated from direct taxes and indirect taxes (IMF, 2018). While direct taxes can be evaded, it is difficult to evade indirect taxes as these category of taxes are embedded in consumption of day to day products by individuals, households and firms. One major form of indirect tax in Nigeria is the Value Added Tax (VAT) (Somorin, 2019). This form of tax generates tax revenue for the Nigerian federation and it is not shared along with other taxes raised from the federation account. Rather, it is accrued to the VAT pool account from where allocations are made to the three tiers of government. From inception in 1993 till 2019, the VAT rate has been at five percent though there have been attempts to alter this rate as it is one of the lowest sales tax

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