Impact of Taxation on Economic Growth of Nigeria from (1994 - 2022)

Abstract

The study ascertained the impact of taxation on economic growth of Nigeria from (2001 - 2012) based on availability of data. To achieve the objective of the study, relevant secondary data were collected from the Central Bank of Nigeria (CBN) Statistical Bulletin, Federal Inland Revenue Service (FIRS). The data collected were analyzed using relevant econometric models such as Augmented Dickey Fuller Test, Johansen Co-integration test and error correction model.  The result indicates that value added tax (VAT) has a positive and significant effect on gross domestic product (GDP) [β₁ = 3.770208, S(b₁) = 0.33084, t₁ = 11.3960]. Company income tax (CIT) has a negative effect on gross domestic product (GDP) and the effect is statistically significant [β₂ = -0.849829, S(b₂) = 0.20206, t₂ = -4.20579]. petroleum profit tax (PPT) has a positive and significant effect on gross domestic product [β₃ = 0.516294, S(b₃) = 0.12858, t₃ = 4.01538] and is in line with our a priori expectation. education tax (EDT) indicate that education tax has a positive effect on gross domestic product [β₄ = 0.131208, S(b₄) = 0.27384, t₄ = 0.47914], and the effect is not statistically significant. The error-correction parameters E_t-1 has the expected negative sign. The negative sign (-0.771387) of the error term implies that the system corrected its previous disequilibrium period due to negative shocks in one period at an adjustment speed of 77.14 percent annually. It was concluded that the value-added tax, the petroleum profit tax, and the education tax all have a beneficial impact on economic growth over the long term. It was recommended among others that to experience a positive and significant effect of company income tax on economic growth, the tax regulations and processes should be simplified and streamlined to make compliance easier for companies. Complex tax laws and procedures often discourage businesses and hinder economic growth.