An appraisal of the impact of Tax Revenue on Economic Growth and Development in Nigeria

    Abstract

There has been conflicting preposition as to the extent of tax contribution to the development of Nigerian economy. This study is to determine the impact of taxation proceeds on the development of Nigerian economy. The study explored the impact of three tax income streams – Income tax from companies’ profits, income tax from petroleum companies profits and Value Added Tax on economic development represented by Gross Domestic Product (at current basic prices) growth for the period 1994 to 2018. The study applied Ordinary Least Square statistical tool with the help of SPSS 20.0. The study revealed a positive relationship with a coefficient of determination of 99.2% of the variation in economic development attributable to the tax income streams studied. Also although the study revealed the existence of significant effect of taxes from companies’ profits and Value Added Tax on Gross Domestic Product Growth, there is little or no significant impact of taxes on profits of Petroleum companies on Gross Domestic Product growth in Nigeria due to restriction by Organization of Petroleum Exporting Countries production ceiling on Nigeria’s production/sales and the global price shocks of crude oil over the decade. Also the study revealed tax payers apathy to tax payment and presence of tax leakages due to corruption and administrative inefficiencies by the tax authorities.

  CHAPTER 1 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The world over, economic development  is an  important construct for discourse as its  relevance can  never be over-emphasized. Development in  a country spans across array of visible  outputs as indicators. These include critical infrastructures, human capital improvement, advancement in technology, expansion in commerce and so on.  Most  often development  and  growth  are  used  inter-changeably;  however,  the difference  between  these constructs  is  that  while  growth  is  concerned  about  the  total  output  of  a  nation  within  a  defined  period, development is concerned about visible output in an economy. Economic development in Nigeria started before colonial era although many economic activities that took place during that time were  not documented. Since  then Nigeria  has undergone numerous economic developmental plans all geared toward visible outputs. Notable amongst them are the Structural Adjustment Programme (SAP) of the then military administration of Ibrahim Badamosi Babangida  in  the  80’s, the Sure-P programme of the Goodluck  Ebele  Jonathan’s administration,  and  the  current  N-Power  programme  of  the  Mohamadu  Buhari’s administration. Notwithstanding, developmental programmes in  Nigeria or  anywhere in  the world  may not  be fully  achieved without the  contribution of  revenue generated  from taxes to  finance such  programmes. Although  Nigeria in particular  may  be  adjudged  as  a mono-economic  nation,  the  tax  revenue  would  play  a critical  role  to  her development. The  drop in the prices  of crude oil  in the global  market, inefficient agricultural sector  making Nigeria  a  mono-product country  and  the  various  tax  reforms  introduced  to shore  up  tax  proceeds  and the anticipated input to economic growth calls for critical assessment taxation has on economic growth in Nigeria.  

1.2 Statement of Problem

Economic  development has  remained  a serial  problem  bedeviling the  Nigerian  state since  independence  as several efforts geared  toward  economic  recovery have failed to yield  significant results. There still persist  in Nigeria the problems of unemployment, high mortality rate occasioned by poor health care system, brain drain as a result of poor educational funding, lack of critical infrastructures, high inflation rate, insecurity etc. The existence of  all these notable problems and  recent drop in the  prices  of crude oil in the  global    market necessitate an assessment of the  effect that  tax revenue has  on economic  development. Also  the drive by  the management  of  the  Federal  Inland  Revenue  Service  (FIRS)  and  the  different  tax  reforms  introduced  by government  to shore  up  revenue  from  taxation  and the  projected  impact on  economic  growth  demands    a critical examination of the influence of taxation on Nigeria’s economic growth. The study is therefore to appraise the correlation between proceeds from taxation and economic development and growth.

 1.3 Objective of the Study

The  main  reason for  this  study  is  to  examine the  effect  proceeds  from  taxation has  on  Nigeria  economic development measured by Gross Domestic Product (GDP) growth. The specific objectives are:

i. To examine the effect of Company Income Tax (CIT) on economic development,

ii. To examine the effect of Petroleum Profit Tax (PPT) on economic development and

iii. To examine the effect of Value Added Tax (VAT) on economic development.

1.4 Research Questions:

In Other to Address the Above Objectives, We Considered the Below Research Questions: i. How does Company Income Tax revenue impact on GDP growth in Nigeria? ii. What impact does Petroleum Profit Tax revenue have on Nigeria GDP growth? iii. What effect does Value Added Tax revenue have on Nigeria GDP growth? iv. What  combined  effect  does of tax  revenues measured by  tax  on companies’ profits, tax  on profits of petroleum companies and Value Added Taxes on Nigeria GDP growth?

1.5 Hypothesis:

 The  following  hypothesis  were  tested  to  establish  the  relationship  of  taxation  and  economic development: i. Company Income Tax revenue has no significant effect on Nigeria GDP growth ii. Petroleum Profit Tax revenue has no significant effect on Nigeria GDP growth. iii. Value Added Tax revenue has no significant effect on Nigeria GDP growth. iv. The  combined tax  revenue streams  from  CIT,  PPT  and VAT has  no significant  effect on Nigeria GDP growth