Effect of Taxation on Manufacturing Sector Output in Nigeria, 1980-2017

Abstract

The study examined the effect of taxation on manufacturing sector output in Nigeria for the period between 1980-2017. The objectives of the study were to; evaluate the effect of corporate tax, Petroleum profit tax, value added tax and excise duty on the manufacturing sector in Nigeria. Secondary data collected from Central Bank of Nigeria statistical bulletins and National Bureau of Statistics. The variables were subjected to unit root test, Johansen co-integration test and the parsimonious error correction model. The unit root test result showed that all the time series were stationary at order one. Also, the co-integration result showed that there is a long run equilibrium relationship among the variables. Meanwhile, the parsimonious error correction result showed that the R2 is 74%. The coefficient of corporate income tax showed that a percentage increase in corporate income tax will increase the manufacturing sector output by 0.028585 %. Also, a percentage increase petroleum profit tax will increase the manufacturing sector output by 0.023040 %. But the coefficient of value added tax showed that a percentage increase in value added tax will cause a corresponding decrease in the manufacturing sector output by 0.010024 %. The coefficient of excise duty tax showed that a percentage increase excise duty tax will increase the manufacturing sector output sector by 0.020096%. Conclusively, excise duty, corporate income tax and petroleum profit tax play a significant role in boosting the output of the manufacturing sector and hence economic growth in Nigeria. The study recommended administrative loopholes should be plugged on value added tax revenue to contribute positively and significantly to the output of the manufacturing sector in the short run as well as economic growth in the long run.

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