Tax Reforms and the Nigerian Economy

Abstract

This study investigates the effect of tax reforms on economic growth in Nigeria over the period 1986–2024. Specifically, it examines the impact of Value Added Tax (VAT), Petroleum Profit Tax (PPT), and Corporate Income Tax (CIT) on real gross domestic product (RGDP). An ex post facto research design was adopted, utilizing annual secondary data sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin and the Federal Inland Revenue Service (FIRS) annual reports. Descriptive statistics were employed to summarize the data, while the Augmented Dickey-Fuller (ADF) test was used to examine the stationarity properties of the variables. The Autoregressive Distributed Lag (ARDL) model was applied to estimate both short-run and long-run relationships among the variables. The empirical findings reveal that Value Added Tax exerts a positive and statistically significant effect on economic growth in Nigeria. Petroleum Profit Tax shows a positive but statistically insignificant relationship with RGDP, while Corporate Income Tax has no significant impact on economic growth. Additionally, interest rate and the tax reform dummy variable exhibit positive but insignificant effects on RGDP. Overall, the results indicate that tax reforms have contributed positively to Nigeria’s economic growth, although their effects remain statistically weak. The study concludes that the growth-enhancing potential of tax reforms in Nigeria is constrained by inefficiencies in tax administration, revenue leakages, and suboptimal allocation of tax revenues. It recommends improved utilization of VAT revenues for infrastructure development, strengthened governance and transparency in the petroleum sector, enhanced efficiency in corporate income tax collection, policies aimed at reducing lending interest rates, and sustained economic diversification to broaden the revenue base and support inclusive economic growth.