The Moderating Role of Inflation on the Relationship Between Direct Taxes and Economic Development in Nigeria

Abstract

This study investigated the moderating role of inflation on relationship between direct taxes and economic development in Nigeria. The specific objectives were to investigate the relationship between personal income tax and real gross domestic product, ascertain the relationship between company income tax and real gross domestic product, determine the relationship between petroleum profit tax and real gross domestic product, investigate the relationship between personal income tax and infrastructural development, ascertain the relationship between company income tax and infrastructural development, determine the relationship between petroleum profit tax and infrastructural development, ascertain the moderating effect of inflation rate on direct taxes and economic development of Nigeria. The study anchored on expediency theory while correlational and ex-post facto research designs were adopted for the study. The population of the study was direct taxes revenue data and economic development in Nigeria from 1991 to 2020 and secondary data were sourced from Annual statistical bulletin of CBN, Federal Inland Revenue service (FIRS) and National Bureau of Statistics. Descriptive statistics and correlation matrix were used to analyze the research questions while multiple regression was used to test the hypotheses. The result of the study shows that PIT has a positive and significant relationship with infrastructural development in Nigeria while an insignificant relationship with RGDP; CIT has a strong positive and significant relationship with RGDP and infrastructural development in Nigeria; petroleum profit tax positively and insignificantly affects RGDP and infrastructural development. The study recommends among others that government parastatals, multinationals, conglomerates and companies in the country should not engage any vendor who does not have a TIN number. This will go a long way in reducing tax evasion; taxes should be remitted via an e-payment system or via direct payment to the various tax authorities’ accounts.