TAX STRUCTURE AND ECONOMIC GROWTH IN NIGERIA: AN AUTO REGRESSIVE DISTRIBUTIVE LAG EVIDENCE FROM 1980 – 2018

1Omesi, Israel (PhD) and 2Appah, Ebimobowei (FCA)

1 & 2Department of Accounting, Faculty of Business Studies, Ignatius Ajuru University of Education, Port Harcourt, Rivers State, Nigeria

2Corresponding Author: Appah, Ebimobowei (FCA)

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ABSTRACT

This study empirically examined tax structure and economic growth in Nigeria for the period 1980 to 2018. The secondary data for the study was obtained from the Central Bank of Nigeria and Federal Inland Revenue Service and econometric model was used in data analysis. The Auto Regressive Distributive Lag (ARDL) test indicated a negative and insignificant relationship between personal income tax and gross domestic product while petroleum profit tax showed a positive and insignificant relationship with gross domestic product. The results further revealed that company income tax has a positive and significant relationship with gross domestic product while custom and excise duties showed a positive and insignificant relationship with gross domestic product. Also government expenditure and trade openness indicated a negative relationship with gross domestic product. The paper concluded that  tax structure dimensions of petroleum profit tax, company income tax and custom and excise duties has a positive effect on economic growth in Nigeria while personal income tax, government expenditure and trade openness showed a negative effect on economic growth.  Therefore, the study recommended amongst others that the Nigerian government should completely re-organize the tax administrative mechanisms in order reduce tolerable problems of tax evasion and avoidance and that of good tax culture by the populace to achieve sustainable economic growth in the country.

 

Keywords: Tax Structure, Economic Growth, Trade Openness, Government Expenditure, Auto-Regressive Distribution Lag Model, Nigeria

 

INTRODUCTION

The nexus between taxes and economic growth is a very important area of research for accountants, tax practitioners and economists. Romer and Romer (2010) state that tax revenue is an important element used by government to achieve expenditures and assists in acquiring sustained growth and predict growth patterns. Similarly, Umoru and Anyiwe (2013) maintain that taxes in Nigeria are directed to achieve some specific objectives of revenue generation and upholding economic growth. Furthermore, Otu and Adejumo (2013) are of the view that government use tax revenue to provide their traditional functions to ensure social and economic maintenance. Accordingly, Adudu and Ojonye (2015) reported that the economic and socio-political development of any country depends largely on the amount of revenues generated through taxes for the provision of social amenities for economic growth. It is on the basis of the relevance of taxes to economic growth, that Onwuchekwa and Aruwa (2014) defined tax as a compulsory payment made by all payers to the government of any given country from which social services are provided, without providing a statement of facts how the funds generated was spent or equating services with the funds collected. This is the reason Nasira, Haruna and Abdullahi, (2016) noted that an efficient and effective tax system is capable of ensuring the provision of social goods in the country and to achieve the growth of the economy, equity in income distribution and maintain an economy that is in equilibrium. In the similar vein, Ogbonna and Appah (2012) maintained that tax has to do with an imposition of compulsory levy on citizens and upon their properties by the government for the provision of infrastructure, security and to provide a favourable conditions for achieving the overall economic well-being of the society. Dladla and Khobai (2018) maintained that taxes are a proportion of income of any given country and this has led to several studies to ascertain the long run association between taxes and economic growth.

The empirical studies on tax structure and economic growth showed different and disaggregated results. Studies such as Manukeji (2018), Babatundel, Ibukun and Oveyemi (2017), Nasira, Haruna and Abdullahi (2016), Apere and Durojaiye (2016), Gopar, Dalyop and Bezum (2016), and Okoli, Njoku and Kaka (2014), Otu and Adejumo (2013), and Umeora (2013), revealed a positive relationship between tax components and economic growth. On the other hand, a negative relationship was reported in the studies of Zellner and Ngoie, 2015; Stoilova, 2017), Njogu (2015), Ojong, Ogar and Oka (2016), Chigbu and Njoku (2015), and Akhor and Ekundayo (2016). It remains uncertain the reasons empirical evidence often showing inconsistent results. These conflicting results reveal that tax structure and economic growth is still inconclusive. The inconclusive results have made the growth effect of taxes debate open to future research. The gap in terms of time (Salami, Apelogun, Omidiya & Ojoye, 2015; Oshiobugie & Akporere, 2019); location (Zellner & Ngoie, 2015; Atems, 2015; Zellner & Ngoie, 2015; Stoilova, 2017), literature and methodology (Abomaye-Nimenibo, Eyo, & Friday, 2018; Nwadialor & Ekezie (2016), is also a contributory factor to the differences in the various results of the effect of tax structure on economic growth. Following the above listed gap created by the prior studies in the light of mixed perspectives in research outcomes by different scholars, this study will fill the gap by introducing a clearer variables and analysis on tax structure and economic growth in Nigeria. Also, this study expands on prior research by updating the data to 2018 and by using a more robust statistical tool. Read more>>>

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