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Impact of Non-Oil Tax Revenue on Economic Growth of Nigeria


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Presentation by Daniya Abdulazeez at the second annual Nigerian Tax Research Network meeting which took place in Abuja on 24th and 25th November 2018.

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Impact of Non-Oil Tax Revenue on Economic Growth of Nigeria

  1. 1. IMPACT OF NON OIL TAX REVENUE ON ECONOMIC GROWTH OF NIGERIA BY: Daniya Adeiza Abdulazeez BSc, MSc, MBA and Ph.D (in view) Department of Entrepreneurship and Business Studies, Federal University of Technology, Minna, Niger State-Nigeria GSM: +2348039733123 Email: and Prof Kabiru Isa Dandago Department of Accounting, Bayero University, Kano-Nigeria GSM: +2348023360386 Email:
  2. 2. 2 Outline of the Paper Section one: Introduction Section two: Literature Review Section three: Methodology Section Four: Results and Discussion Section five: Conclusions and Recommendations
  3. 3. Introduction • All over the world, government strive to provide enabling environment (security, electricity, water, education, health and other infrastructures) for businesses to thrive and ensure total happiness of its citizens. Achieving this civic responsibilities requires: Stable revenue flow through tax Well organized tax system (a case of developed countries) 3
  4. 4. Introduction… Cont’d • However, African countries particularly Nigeria blessed with abundant natural resources is still far behind among committee of nations owing to: Overdependence on oil (mono product economy) Inability to diversify (Dutch disease)  poor tax drive 4
  5. 5. 5 Introduction… Cont’d • The adverse effects of running a mono product (oil) economy (The case of Nigeria)  hydro carbon is a non renewable resource  Price dictated at world level  Crash in the world oil price (A big blow to the economy of Nigeria)  Economic recession in Nigeria (2016) • Nigeria now thinking outside the box (Diversification-intensified efforts, national discuss and 2017 National Tax Policy) Tax revenue such as: VAT, CIT, C&ED. A well organized tax system from assessment, collection, remittances to utilization is said to have remarkable effect on the health of nation’s economy (David
  6. 6. 6 Introduction… Cont’d • The focus of Previous studies has been on individual non oil tax revenue particularly VAT • There are limited number of studies to the best our knowledge that examined the combined effect of non oil tax revenue on economic growth of Nigeria. For instance,  Inyiama and Ubesie (2016) and Akhor, Atu and Ekundayo (2016) VAT, C&ED and GDP  Focus of this study (Main objective): Non-oil tax (VAT, CIT, C&ED) on GDP (1994-2017)  Specific Objectives- VAT & GDP, CIT & GDP and C&ED & GDP  Hypotheses are also formulated in the above order, all in null forms
  7. 7. Literature Review • This section is in three segments: Conceptual, theoretical and empirical reviews respectively. • Concepts:  Taxation: Fiscal measure and a compulsory non penal levy imposed by government  Purpose: Revenue generation, Income redistribution and Price/Economic stability (Fiscal Policy). • Principles: Certainty, Equity, Economy and not counter-productive • Administration: Federal 8, State 11 and 20 Local government (Decree 21 of 1998 tax law of the federation) 7
  8. 8. Non-Oil Tax Revenue • Value Added Tax (VAT). An indirect consumption tax introduced by decree 102 of 1993 effective from January 1994 to replace sales tax. A major source of revenue to the government. Easy to collect, unselective, difficult to evade and almost next to no cost of collection . • Company Income Tax (CIT). This charged at the rate of 30% on the profit earned by companies registered in Nigeria. Rationale for CIT – Company’s Goal(s) Vs. Government civic responsibilities. Creating and strengthening a symbiotic relationship. • Customs and Excise Duties (C&ED). Indirect tax levied on goods and services crossing a nation’s border as well as those produced locally. Revenue generation Vs International Business Policy aimed at growing the economy 8
  9. 9. Improving Non-Oil Tax Revenue in Nigeria  Tax Identification Number (TIN). e-registration of taxpayers. Knowing the taxpayers  Tax Amnesty Programme  VAIDs (2017) Declaration of assets and income for the purpose of paying outstanding tax liabilities.  Improving revenue base via e-auctioning and immediate remittance to federation account  Faithfulness on the part of government 9
  10. 10. Economic Growth • Economic Growth. An increase in the total value of goods and services measured by GDP. • Since taxation is a proportion of profit/income earned from productive activities paid to the government, a relationship is said to exist between Taxation and GDP 10
  11. 11. Theoretical & Empirical Review • Theoretical Review  Ability to pay (Fair Tax)  Benefit theory (Benefits derived as basis for tax payment)  Cost of Service Theory (Semi-commercial relationship) • Empirical Review  VAT (No consensus)  CIT (Consensus)  C&ED (No consensus) 11
  12. 12. Methodology • Research Design- Ex-post facto • Data Sources – FIRS and NCS report and CBN statistical bulletin • Variables: DV – Economic growth proxy by GDP, IV – Non-oil tax revenue with VAT,CIT and C&ED as proxies Method of data analysis – Descriptive statistics, correlation, several robustness tests and ARCH model regression for data analysis Model - GDPt =β0+ β1VATt + β2CITt β3CEXDt + μ 12
  13. 13. Results and Discussion Descriptive Statistics Variables Mean Std. Dev. Minimum Maximum GDP 54.58274 9.061985 39.29 73.25098 CIT 25.96162 1.528353 23.23081 28.19377 VAT 16.72063 2.434733 12.76 23.29159 C&ED 21.11696 2,008883 17.92201 24.52419
  14. 14. Results and Discussion Cont’d Correlation Matrix GDP CIT VAT C&ED GDP 1.0000 CIT 0.9698 1.0000 VAT 0.8487 0.7733 1.0000 C&ED 0.4498 0.3403 0.4868 1.0000 Each explanatory variable (CIT, VAT, and C&ED) are positively correlated with the explained variable (GDP). The explanatory variables are not themselves highly correlated. Robustness Tests- no multicollinearity, data set are normally distributed, stationary, independent but hetroskedastic.
  15. 15. ARCH Model Var. GDP GDP GDP GDP CIT 5.789914 (0.000)*** 4.669338 (0.000)*** VAT 3.141135 (0.000)*** 0.7377415 (0.002)*** C & ED 2.543012 (0.008)*** 0.3845294 (0.147) R2 0.9405 0.7263 0.2874 0.9701 P. Value 0.0084 0.0000 0.0000 0.000 CIT on GDP - Margaret et al. (2014), Adegbite (2015) and Lyndon and Paymaster (2016)- Null hypothesis rejected VAT on GDP –Omeora (2013), Apera and Durojaiye (2016) and Patrick et al. (2017) but not in agreement with Lawrence (2015) a study carried out in kenya- Null hypothesis rejected - C&ED on GDP – Cornelius et al (2016) but not in agreement with Inyiama and Ubesie (2016) - Null hypothesis accepted
  16. 16. Conclusions & Recommendations Conclusions • The study examined the impact of non-oil tax revenue on the economic growth of Nigeria for a period of twenty four (24) years (1994-2017) and has carefully reviewed relevant literature and deployed appropriate methodology to achieve the objective of the study • Lesson from sequential regression. • Major findings on the variables CIT, VAT, C&ED and GDP
  17. 17. Recommendations • Government should continuously mount pressure on FIRS for more robust CIT and VAT revenue through: the extension of VAIDs for five (5) years with a commensurate penalty for non compliance, routine tax audit particularly on companies and sustain the e-platform for taxpayers registration and remittances to capture more persons and organizations into the tax net. • With respect to Customs and Excise Duties, government should strengthened patrol and surveillance system around Nigeria borders by officers of proven records of integrity, maintain fair tariff to dissuade smuggling activities, fish out the ‘bad eggs’ who use their positions for personal benefit. 17