Unlocking Economic Growth Through Taxation in the case Nigeria

Abstract

This paper undertakes an examination of the Nigerian tax system and its relationship with economic growth, utilizing time series data sourced from the Central Bank of Nigeria's statistical bulletin and the Federal Inland Revenue Service. The collected data underwent decomposition, and regression analysis was employed to explore the interplay between various variables. The study discerns a linear relationship between economic growth and tax revenue, indicating a significant correlation between these two factors. Moreover, the analysis reveals that indirect taxes make a more substantial contribution to total tax revenue and exhibit a stronger association with economic growth compared to direct taxes throughout the observation period. Based on these findings, the study puts forth several recommendations. Notably, it suggests a greater emphasis on the introduction and reliance on indirect taxes over direct taxes. This recommendation stems from the growth potential observed in indirect taxes, coupled with their ease of administration and lower distortionary effects. By prioritizing indirect taxes, policymakers can capitalize on their positive impact on economic growth while streamlining tax administration processes and minimizing market distortions. The study underscores the importance of tax policy decisions in fostering economic growth and stability. By aligning taxation strategies with growth objectives and leveraging the strengths of indirect taxes, Nigeria can potentially unlock new avenues for sustainable development and prosperity.