An Extensive Examination of Taxation as an Accelerator for Economic Growth in Nigeria

Abstract

This study looks at how taxes affect Nigeria's economic development. A time series dataset from 1996 to 2021 was estimated using a short run Autoregressive Distributed Lag [ARDL(2,1,0,0,0)]. The dataset was collected from FIRS. The impacts of Value Added Tax (VAT), Company Income Tax (CIT), Personal Income Tax (PIT), and Petroleum Profit Tax (PPT) on Nigeria's Gross Domestic Product were particularly examined in this study. The findings showed that while personal income tax and value added tax have a short-term negative impact on economic growth, corporation income had a considerable beneficial impact on Nigeria's economic expansion. In addition, petroleum profit tax has positive but insignificant effect on economic growth in the long run. Therefore, striking the right balance between tax rates, economic incentives and compliance is crucial. The Laffer curve theory provides valuable insights into finding the optimal tax rate that maximizes revenue. This can be done balancing the incentives for economic activity against the burden of taxation, finding the optimal rate varies depending on various economic factors and the taxpayer behaviour. The study suggests that offering targeted tax incentive for investments, innovation, and entrepreneurship. These incentives can include tax breaks for specific sectors, research and development activities, and job creation initiatives.