An analysis of the impact of direct taxes on the economic growth of Nigeria (1970-2020)

Abstract

This study examined the impact of direct tax on the economic growth of Nigeria for the period of 1970-2020. The objectives that guided this study include: to establish the impact of companies’ income tax (CIT) on economic growth of Nigeria from 1970-2020; and to investigate the impact of petroleum profit tax (PPT) revenue on economic growth of Nigeria from 1970-2020. The study used data from Federal Inland Revenue Services, Central Bank of Nigeria (CBN), and the National Bureau of Statistics (NBS). The used Ordinary Least Square (OLS) Model, Augmented Dickey-Fuller (ADF), linear and multiple regression as data analysis tools. The finding of the study indicated a positive impact of companies’ income tax on the economic growth of Nigeria (R-Square = 0.0562, Prob > F = 0.0940). Furthermore, there was a positive impact of petroleum profit tax on the economic growth of Nigeria (R-squared = 0.1013, Prob > F = 0.0229). The study concluded that both CIT and PPT have a positive impact on the economic growth of Nigeria. The study recommended that the federal government of Nigeria should come up with diversification mechanisms that will avert over-dependence on oil revenue (petroleum profit tax) since when oil prices fluctuate, it can have detrimental effects on the economic growth of the country. The study further recommended that government should begin to emphasize tourism, agriculture, and telecommunications to expand its tax base.