Taxation Effects on Government Revenue in Nigeria 2007-2023: Econometric Analysis

Abstract

This study examined the effect of taxation on federally collected revenue in Nigeria.  Empirical results regarding the nexus between taxation and revenue generation in both developed and developing countries are conflicting. Specifically, this study determined the effect of petroleum profit tax, companies’ income tax, and value added tax on total federally collected revenue in Nigeria from 2007 to 2023. The study applied an ex post facto research design. Data were sourced from Federal Inland Revenue Service (FIRS) and was analysed using the Ordinary Least Square (OLS) regression and Granger Causality techniques. The result of the analysis revealed that value added tax, and companies’ income tax have no significant effect on total federally collected revenue, while petroleum profit tax has significant effect on total federally collected revenue. Finding also showed that total federally collected revenue is positively related with petroleum profit tax and companies’ income tax but negatively related to value added tax. This study proposes that petroleum profit tax rates in Nigeria be increased as it will lead to additional revenue to the government when applied to tax object. The value added tax bases should be widened to bring the informal sector into the value added tax net so as to stem possible evasion even by the so faithfully complying under the old rate. Federal Government may consider a moderate increase in tax incentives granted to corporations in Nigeria. While tax incentives initially reduce the tax burden, they can generate more revenue indirectly by fostering business growth, investment, and job creation.