The Impact of Taxation Revenue on Economic Growth in Nigeria 1986-2018

This study analyzed the impact of taxation revenue on economic growth in Nigeria, the specific objectives include: Analyse the trend of taxation revenue and economic growth in Nigeria; examine the relationship between taxation revenue to economic growth in Nigeria; and determine the direction of causality between tax revenue and economic growth in Nigeria.

The research made use of Real Gross Domestic Product (RGDP) as the dependent variable and Petroleum Profit Tax (PPT), Company Income Tax (CIT), Custom and Excise Duty (CED), and Value Added Tax (VAT) as the independent variables.

The study adopted both descriptive statistics and econometric techniques (Autoregressive distributed lag (ARDL) model and Granger causality test) as analytical techniques. The data were sourced from the Central Bank of Nigeria (CBN) statistical bulletin (2018) and the World
Development Indicator (2018).

The findings of the study reveal that the trend of economic growth in Nigeria has experienced three (3) different periods; the growth period (1986 – 2007), the decline period (2007 – 2009), and the stabilization period (2009 – 2018).

The growth period of 1986 – 2007 is characterized and influenced by the implementation of the Structural Adjustment Programme (SAP) in 1986 which led to the increase in Gross Domestic Product (GDP) and favorable macroeconomic index, this increase proportionally led to increasing and stabilization in taxation revenue during the period.

The decline period in the contribution of taxation to economic growth in Nigeria was during 2007 – 2008 which was a result of the global financial crisis – a severe worldwide financial crisis that affected the circulation of money in the country and the banking, industrial, and oil
sector, thereby, affected the amount of tax generated by the government negatively, resulting in to decline in the amount of tax revenue.

The stabilization period of 2009 – 2018 was experienced after the great decline caused by the global financial crisis, the government introduced vision 2020 which is a combination of different policies to be implemented to return to the growing economy it used to be, the insignificant increase in the taxation revenue currently experienced in the economy is as a result of the poor implementation of the policies contained in the vision 2020.

To achieve the second objective, the ADF unit root test was carried out and it showed that all the variables were stationary at first difference. The Autoregressive Distributed Lag (ARDL) Bound Test carried out shows that the variables are co-integrated and imply that there is a long-run relationship between taxation and economic growth in Nigeria.

The result of the ARDL technique adopted to examine the short and long-run coefficient of taxation indicates that the variables considered explaining 97% of the variation in Economic Growth of Nigeria through the Adjusted R-squared. The F-stat (prob.) showed that the overall
variables were significant to the model. The Durbin-Watson stat also indicated that there’s no serial correlation in the model.

The result of the short-run analyzed model showed that Value Added Tax (VAT), Petroleum Profit Tax (PPT), and Custom and Excise Duties (CED) all had a positive and significant impact on economic growth while Company Income Tax (CIT) had a negative and significant impact on economic growth. The impact of the variables was expected and explicitly explained in the result discussion. The ECM also signified that 79% disequilibrium in the dependent variable is corrected in a year.
In the long run, all the variables used for the analysis had a positive and significant relationship with economic growth, and also changes in the coefficient of these variables were noticed due to the long-run impact.

The result of the diagnostic test carried out on the model specified in this study revealed that: there’s no evidence of serial correlation in the model; there is no presence of heteroscedasticity;
the data used is normally distributed; and, the model is stable and correctly specified.

To achieve the last objective, the Granger Causality Test was adopted and it can be inferred from the result is that there exists causal relation between taxation and economic growth of Nigeria.

The study concluded that taxation revenue has been effective in growing the economy up to an acceptable standard and it also revealed that the taxes have been playing their expected role in terms of relationship and impact on the growth of Nigeria.