Tax Structure and Economic Growth in Nigeria: A Disaggregated Empirical Evidence (1986–2012)

Adaramola, Anthony Olugbenga, Ayeni-Agbaje, Abiodun Rafiat


This study examines the Tax Structure and Economic Growth in Nigeria: A Disaggregated Empirical Evidence using a time series data spanning from 1986 through 2012. The data for the analysis were collected from CBN statistical bulletin and federal Inland Revenue services. The Engel–Granger cointegration technique was used to ascertain the relationships between the variables in the model employed in this study. The study finds a linear relationship between economic growth and tax revenue. It suggests a “tax and growth” ranking of taxes, confirming results from earlier literature but providing a more detailed disaggregation of taxes. Petroleum Income Tax, Corporate Income Tax are found to be most beneficial to growth in Nigeria. On the contrary, Personal Income Tax as well as the custom and excise duties do not promote growth as empirically examined in this study. Revenue neutral growth-oriented tax reform therefore, is to shift part of the revenue base from Personal Income Tax as well as the Custom and Excise Duties to less distortive taxes aimed at inducing local consumption. A major contribution of the study to knowledge is that it has been able justify empirically that taxation-economic growth nexus is both per capital income and consumption induced in Nigeria. This therefore closes the knowledge gap induced by inconclusive evidence on the growth effects of taxation composition which most often has resulted in situations where empirical findings of researches done in developed economies are generalized to developing countries. It is therefore recommended that Nigeria should restructure the Personal Income Tax and the Custom and Excise Duties to induce consumption to achieve growth. Furthermore, the level of tax evasion in Petroleum Profit Tax, Corporate Income Tax and Value Added Tax which proved to be very beneficial to growth in Nigeria should be reduced through an efficient and effective tax administration.

Keywords: Tax Burden, Tax Rate,  Value Added Tax, Tax Evasion, Petroleum Income Tax, National Tax Policy

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