A Longitudinal Assessment of Tax Reforms and National Income in Nigeria: 1971-2014

Abstract

This study assesses the impact of tax reforms on Nigeria"s national income over the period, 1971 to 2014. Using a variety of growth indicators signifying tax reforms, our regression model specified growth rate of national income (proxied by GDP) as a function of growth rates in these indicators. Diagnostic tests (F-statistics, Adjusted R-Square and Durbin-Watson) were carried out to ascertain the robustness of the parameter estimates. We found that tax reforms significantly improved national income and economic growth during the period of study, especially growth rates of value added tax and personal income tax. Our results show that growth rate of personal income tax has a positive significant effect on the national income and economic growth, while that of value added tax has a negative significant effect on growth of national income. The growth components of company income tax and petroleum profit tax are positive but not statistically significant. On the other hand, reforms in custom and excise duties were found to yield negative and statistically non-significant effect. The leading conclusions from these findings are: (1) strategic tax reforms significantly influence the behaviour of national income and GDP; (2) tax policy significantly fosters the growth of national income; and (3) policy makers, especially Ministry of Finance and Federal Inland Revenue Service and their state counterparts, should give requisite attention to tax policy issues, in the light of their obvious implications on growth of the national income and economic development.

Tax Reforms and Nigeria’s Economic Stability

“…The outcome of poor tax policy and inefficient tax administration is low income generation and even the little that is generated is depleted by the mighty filthy hands of opportunism and corruption. In addition to using tax administration reforms to address the challenge of perennial lower tax revenue as canvassed by Taliercio (2004); Ogbonna and Ebimobowei (2012); Aminu and Eluwa (2014) and Nwaorgu et al (2016) we submit that an effective and efficient tax administration reform is a potential catalyst for immediate attenuation of opportunistic proclivity of a corrupt tax bureaucracy. Major tax administration reforms have occurred in a number of developed countries, such as Canada, France, Germany, Japan, Spain, United Kingdom and USA, and developing countries, such as the Eastern European countries, Russia, China, and other economies in transition.…”

“…The reform is thenceforth necessitated to remediate the defective, deficient and ineffective system. Tax reform is a conceptual fiscal policy strategy designed to enhance tax administration (Nwaorgu et al, 2016). It is a fiscal structural framework devised to strengthen responsive and accountable public governance.…”

“…Studies have shown that tax reforms have strong effects on macroeconomic growth (See, (Engen & Skinner, 1996;Nwaorgu et al, 2016)). It is hypothesized that the design and composition of the tax system has as much a determinative effect on economic growth as the absolute level of taxation (Engen & Skinner, 1996).…”

“…Taxation is therefore seen as an inherent power of the state to secure the funds needed to meet its social obligations. Apart from being an essential fiscal policy tool and one of the primary sources of public revenue across the world, research, such as Nwaorgu, Herbert, and Onyilo (2016) shows that the interaction effects of taxation play a pivotal role in the economy.…”

“…Of empirical interest are Company Income Tax (CIT), Petroleum Profit Tax (PPT), and Value Added Tax (VAT). These three tax levers have particularly been found to be significant in stimulating the growth of national income (Nwaorgu et al, 2016). However, the extent to which they have been able to sustain economic stability remains an empirical issue, given their contributions to macroeconomic development.…”