In Nigeria, tax revenue has historically represented a minor part of overall revenue generation compared to the Federal Government's primary source of income. According to records, the current downturn in oil prices has reduced the amount of money that Nigeria's Federal, State, and Local Governments have available for distribution. In this complex situation, there is a paradigm shift toward tax income as a better alternative form of revenue creation in the country, and the Nigerian government now has a pressing need to produce sufficient tax revenue. This study examines the impact of tax on economic growth in Nigeria from 1986-2021, with a special focus on Companies' Income Tax (CIT), Value Added Tax (VAT) and Petroleum Profit Tax (PPT). Annual time series data were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin and the National Bureau of Statistics (NBS). The study uses a Vector Error Correction Model (VECM) to establish the nature and strength of the relationship between tax and economic growth in Nigeria. This study uses various techniques such as Unit Root Test, Co-integration Test, Causality Test, Stability Test, and Impulse Response Function. The Granger causality test found a causal relationship between GDP and the different tax components. The Johansen test of co- integration reveals that there is at least one co-integrating equation in the long run and there are stable and long-term equilibrium relationships among the variables. The impulse response functions and the variance decomposition analysis indicated that a one standard deviation shock applied to the Gross Domestic Product (GDP) produces a positive impact on GDP throughout the period. A shock to CIT initially has a positive perceptible impact on GDP in the short run, however, for a long period it has a negative perceptible impact on GDP and causes output to decrease. A shock to VAT has a huge and positive impact on GDP in the short run. The impact becomes noticeable in the long run. Lastly, a shock to PPT has a positive but low impact on GDP. Between periods 5 and 6.5, PPT has no impact on GDP. However, the impact becomes noticeable again as the subsequent period shows that PPT's shock responds positively to GDP. This study concluded that short-run CIT, VAT and PPT have significant and favourable impacts on GDP. It is therefore recommended that to increase the level of CIT and tax compliance in Nigeria, the government should make an effort to promote businesses by providing basic public services to every nook and cranny of the nation. The government should stop all leakages in the petroleum industry so that the PPT collected from Nigerian crude oil can support and advance Nigeria's economic growth. To increase the VAT base, Government should provide a favourable environment for businesses and innovations to thrive.
Author(s)
Details
Ibrahim
Musa
Department of Economics, University of Abuja, Nigeria.
Sule
Magaji
Department of Economics, University of Abuja, Nigeria.
Yahaya
Ismail
Department of Economics, University of Abuja, Nigeria.
El-Yaqub
Ahmad Baba
Department of Economics, University of Abuja, Nigeria.
Obida
Gobna Wafure
Department of Economics, University of Abuja, Nigeria.
Bappayo
Masu Gombe
Department of Economics, University of Abuja, Nigeria.
Sabiu
Bariki Sani
Department of Economics, University of Abuja, Nigeria
Please see the book here:- https://doi.org/10.9734/bpi/nabme/v8/5586
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