Tax Revenue and Macroeconomic Growth in Nigeria: A Contextual Analysis

Abstract

This paper aims at evaluating the influence of tax revenue on the macroeconomic management of the Nigerian economy using a conceptual approach. By so doing, a comprehensive review of the literature as well as in-depth analysis of tax structure are critically conducted. Undeniably, an insight that shows a precise influence or relationship between tax revenue and the nation’s growth can be regarded as a working tool for policymakers particularly in developing countries. In view of that, this paper explores the revenue trend in Nigeria for over three decades in relation to its effects on GDP growth. As shown by the literature, the existence of causal relationship between tax revenue and economic growth suggests the positive influence of taxation as a fiscal policy tool in enhancing macroeconomic growth. This is certainly the policy implication of Keynesian propositions. On the other hand, non-existence of causal relationship between tax revenue and economic growth implies that taxation as a fiscal variable shall be insignificant especially in the long run, as propounded by the Classical doctrine. In spite of the aforementioned policy importance, the percentage of tax revenue as a share of GDP in Nigeria remains positive but relatively low. This is attributed to the increased dependency of the economy on oil revenue while neglecting other potential sources especially in the areas of non-oil growth such as agriculture, solid minerals, and small-and-medium enterprises. However, this paper has established that tax revenue is an essential instrument for resource mobilisation and plays a positive and significant role towards sustainable growth and development of the Nigerian economy. Further evidence shows that tax revenue increases the size of public sector savings and produces higher returns which can be used to encourage the provision of infrastructural facilities that stimulates output growth in the economy. In view of that, there is a growing need for proactive measures within the Nigerian tax system to ensure full enforcement and compliance of tax regulations, proper monitoring and evaluation of tax procedures in order to fight corruption and strengthen accountability in the public sector management. There is also need to examine the link between the burden of these sources of revenue on taxpayers and the productivity of revenue to the government. The regulatory institutions responsible for handling tax related matters should be steered towards the need to re-design efficient and equitable tax policies capable of complementing public sector expenditure and hence, correct for the problems of ever-increasing deficit and debt which engendered enormous macroeconomic disequilibrium in the country.