Oluwatosin Olushola

By Ojijo Odhiambo and Oluwatosin Olushola

In this chapter, we examine the relationship between taxation and economic growth in a resource rich country, using Nigeria as a case study. We explore the linkages between availability of higher resource revenue and lower taxation effort of other revenue categories and the effects of these on growth. Ordinary least square (OLS) estimation technique is employed in estimating the specified model. Also, descriptive analysis is carried out regarding tax trends and tax efforts in Nigeria to determine the effectiveness of existing tax structures, as well to as examine relevant national and cross-country data. Empirical results reveal that taxation has a significant impact on Real GDP growth rates. However, the proportion of tax contribution to the growth rate falls short of the optimal level in terms of the volume of economic activities and value of total output. Nigeria also lags other African countries with respect to tax effort and as such has a huge untapped potential for enhanced revenue mobilisation. We recommend therefore, that the Government should institute an appropriate tax system with an emphasis on broadening the tax base and in some cases, reviewing upwards the tax rates in order to increase the tax effort as well as ensure optimal contribution of taxation towards economic growth and development.

Part of the book: Taxes and Taxation Trends

By Oluwatosin Olushola, Pa Lamin Beyai and Alexander Anagbado

Taxation plays a pivotal role in the fiscal management and financing of the public sector by the government. This study is dedicated to a comprehensive exploration of taxation and its implications for fiscal sustainability, particularly in the context of a resource-rich developing nation, with a specific focus on Nigeria. In our investigation, we harnessed the power of the Autoregressive Distributed Lag (ARDL) model alongside other robust econometric tools such as the Augmented Dickey-Fuller unit root test and the ARDL bounds test of cointegration. The empirical findings of this study underscore the substantial influence of taxation on Nigeria’s economic growth over the entire period under consideration. While petroleum profit tax exhibited a dampening effect on economic growth, companies’ income tax and value-added tax contributed positively. Significantly, the impact of value-added tax on overall productivity eclipsed that of companies’ income tax. The recommendations emphasize strengthening tax collection institutions for better compliance. The government should also focus on establishing an efficient tax system that widens the tax base, which can be achieved by formalizing informal businesses. This approach is crucial for increasing tax revenues, enhancing fiscal sustainability, and restructuring Nigeria’s economy.

Part of the book: Business and Management Annual Volume 2023