Taxation and Economic Growth in Nigeria

International Journal of Research and Innovation in Social Science (IJRISS) | Volume II, Issue IV, April 2018 | ISSN 2454-6186

Taxation and Economic Growth in Nigeria

INIMINO, Edet Etim¹, ABUO, Michael Abang², BOSCO, Itoro Ekpenyong³

^1&2Department of Economics, Faculty of Social Sciences, University of Uyo, Nigeria
³Department of Economics, Faculty of Social Sciences, University of Port Harcourt, Nigeria

Abstract: The paper examined the impact of tax revenue on economic growth in Nigeria from 1980 to 2015. The data used in the study were sourced from Central Bank of Nigeria (CBN) statistical bulletin. The study used data on real gross domestic product, petroleum profit tax, company income tax and customs and excise duties. The econometrics methods of Co-integration and ECM were employed as the major analytical techniques. The Co-integration result revealed the existence of a long-run relationship among the variables. The Parsimonious Error Correction result revealed that company income tax and customs and excise duties have positive and significant relationship with economic growth in Nigeria. However, petroleum profit tax impacted on economic growth in Nigeria but not significantly. Also, the coefficient of the parsimonious ECM has the appropriate sign (i.e., negative) and statistically significant. This implies that, the short run dynamics adjust to long run equilibrium relationship. The study therefore concluded that government should ensure that tax revenue together with revenue from other sources are efficiently used to make expenditures on education, housing, transportation, agriculture, health, power, road construction, national defense, among others that will help the various sectors of the economy to function very well thereby enhancing the growth and development of the country. To achieve this, government must avoid mismanagement, corruption and embezzlement. Government should also identify and eliminate all administrative loopholes for tax revenue to contribute significantly to economic growth of the country.

Key Words: Taxation, Revenue, RGDP, Co-integration and ECM.

I. INTRODUCTION

One of the objectives of government involvement in the economy is the attainment of sustainable economic growth. For any country to record sustainable or adequate economic growth, government must make expenditures on education, housing, transportation, agriculture, health, power, road construction, national defense, social security (retirement benefits), etc. This possibly gives details why the government looks for a medium through which money can be made available to achieve societal goals (Fagbemu and Noah, 2010). In order to meet the needs of the society, government needs huge funds and one medium through which government can get these funds is taxation (petroleum profit tax, company income tax, customs and excise duties).

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