The contribution of taxation to any economy globally cannot be overemphasized. Apart from the revenue function it performs for the government, it is also used to assist the national government to achieve the country’s macro-economic objectives in the areas of fiscal and monetary policies. Over the years, It has been observed that a substantial part of revenue generated in Nigeria is from taxes, yet the role of taxation in promoting economic activities and growth is not felt, mainly because of feasible evidences which cannot be seen nor perceived by the citizens in terms of infrastructure and basic amenities. Past documentations have revealed that revenue from taxes in developed nation’s have high impact on its economic growth which clearly seen by the amenities provided by such nations. Thus the main objective of this study is to explore the relationship between taxation in Nigeria and her economic growth. Time series data were applied in carrying out this research work. Multiple Linear Regression analysis was used to analyze the data by employing d use of Vector Error Correction Model. The findings reveal that petroleum profit tax, company income tax and value added tax have a positive impact on Nigeria’s economic growth while custom excise and duties impacted negatively but overall, a significant relationship between tax revenue and the Nigerian economic growth exists. The utilization of the generated revenue from taxes calls for serious concern, and requires a special attention of policy makers, non-compliance with tax laws on the part of the tax payers is a hindrance and ineffective administration of tax has given enough loop holes for tax evasion, the consequence of which is poor revenue. We recommend among others that only skilled and professionals and trustworthy hands be responsible for tax administration and the general public should be educated right from the grass root on the importance of taxes to the entire nation.
1.1 Background to the Study
The Nigerian Tax System has undergone significant changes in recent times. The Tax Laws are being reviewed with the aim of repelling obsolete provisions and simplifying the main ones. Under current Nigerian law, tax revenue is enforced by the 3 tiers of Government, which are Federal, State, and Local Government with each having its sphere clearly spelt out in the Taxes and Levies Act, 1998.
The whole essence of tax revenue is to generate revenue to advance the welfare of the people of a nation with focus on promoting economic growth and development of a country through the provision of basic amenities for improved public services via proper administrative system, and structures. Tax revenue plays a crucial role in promoting economic activity growth and development. Through tax revenue, government ensures that resources are channeled towards important projects in the society, while giving succor to the weak. The role of tax revenue in promoting economic activity and growth may not be felt if poorly administered. This calls for a need for proper examination of the relationship between revenue generated from taxes and the economy, to enable proper policy formulation and strategy towards its efficiency. According to Olashore (1999), the Nigerian economy has remained in a deep slumber with macroeconomic indicators reflecting an economy in dire need of rejuvenation, revival and indeed radical reform. Also in the view of Oni (1998), tax administration needs to be revamped and refunds of taxes as well as duty drawbacks administration are inefficient.
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