Taxation and Manufacturing Sector Output in Nigeria

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

Taxation and Manufacturing Sector Output in Nigeria

Etim Osim Etim¹, Mbobo Erasmus Mbobo², Ihenyen Confidence Joel³, David Johnny Ekanem^4
1Department of Accounting, Faculty of Business Administration, University of Uyo, Nigeria
²Department of Accounting, Faculty of Business Administration, University of Uyo, Nigeria
³Department of Accounting and Finance, Faculty of Management and Social Sciences, Niger-Delta University, Bayalsa State, Nigeria
⁴Department of Accounting and Finance, Faculty of Social and Management Sciences, Ritman University, Ikot Ekpene, Nigeria
*Corresponding Author

Abstract: – The study investigated the relationship between taxation and manufacturing output in Nigeria from 1985 to 2018. This is premise on the argument taxation causes disincentive to investment and entrepreneurship. Data were gathered from the published reports of the Central Bank of Nigeria, Federal Inland Revenue Service and National Bureau of Statistics covering the period of the study; ex-post facto research design was adopted. Collected data on manufacturing output, companies’ income tax, personal income tax, value added tax and petroleum profit tax were analysed using ordinary least square technique. The results show the t-statistics (CIT = -0.9025, PIT = 3.4047; VAT = -0.2090; PPT = 1.9113) and p-values (CIT = 0.3775; PIT = 0.0028; VAT = 0.8366; PPT = 0.0701) implying CIT and VAT not statistically significant while PIT and PPT were statistically significant with positive relationship with manufacturing out affirming the theoretical conception that companies’ income tax discourage entrepreneurship. Taking the model as a whole, it was concluded that there is a significant relationship between the variables of study. It was recommended that government should grant more tax incentives to manufacturing sector operators and reform of the tax administrative system

Keywords: Taxation, manufacturing output, entrepreneurship, tax incentives.

I. INTRODUCTION

Theoretically, it is believed that tax have a negative correlation with investment and economic growth because taxes causes distortions in the economy. Thus, the believe tax policy discourage new investment and entrepreneurship; by discouraging work effort and acquisition of skills by individuals, cause misallocation or deform resource allocation through their impact on saving and corporate investment.

A critical review of the effects of taxation can be most usefully explained through an argument of the diverse channels through which tax policy can affect the economy. For instance, while company income tax is statutorily levied on an incorporated business, the incidence and burden of the tax is generally seen to be distributed in the entire economy among participants in the production value chain. At the one end, the key relationship is that the burden of company income tax is shared between the returns to capital in the form of investor profits and the return to labour in the form of wages paid to employees.

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