Submit your papersSubmit Now
For Enquiries: [email protected]
IIARD LogoIIARD

Impact of Tax Components on Economic Growth in Nigeria: An Empirical Analysis

Paul Gabriel Aika , Abu Maji, s

Abstract

The study examines the impact of major tax components such as the Value Added Tax , the Personal Income Tax and the Company Income Tax on economic development on Nigeria. The study is driven by the need to address fiscal problems, low tax-GDP ratio and strong reliance on oil revenues, and therefore utilises disaggregated analysis to reflect the specific impacts of individual taxes. The study employs annual time-series data for the period 1993-2025 and the Autoregressive Distributed Lag bounds testing approach, which supports the result that VAT and PIT have positive and significant long-run impact on economic growth, whereas CIT has positive but insignificant relationship. The error correction model shows a fairly quick speed of adaptation of 42.34% per year. The results show that, apart from the amount of tax revenues, the structure of tax and administration efficiency matter more for sustainable growth. The study recommends for strengthening tax administration, increasing tax base, increasing compliance, effective tax revenue allocation to the productive sectors etc.

Keywords

Tax ComponentsEconomic GrowthValue Added TaxPersonal Income TaxCompany Income TaxARDL

References

Adegbite, T. A., & Fasina, F. F. (2022). Tax revenue and economic growth in Nigeria: Evidence from disaggregated tax components. Journal of Economics and Sustainable Development, 13(6), 45–57. Agénor, P. R., & Neanidis, K. C. (2015). The allocation of public expenditure and economic growth. The Manchester School, 83(4), 443-477. Ajakaiye, O., & Fakiyesi, T. (2019). Fiscal policy and economic development in Nigeria. Nigerian Journal of Economic and Social Studies, 61(2), 201–223. Alesanmi, O. O., Agunbiade, O. A., & Adesina-Uthman, T. A. (2024). Disaggregated tax revenues and economic growth in Nigeria: An ARDL approach. Journal of Accounting and Financial Management, 10(3), 45–62. Anyanwu, J. C. (2019). Public finance in a developing economy: The Nigerian case. Onitsha: Joanee Educational Publishers. Arnold, J. M., Brys, B., Heady, C., Johansson, Å., Schwellnus, C., & Vartia, L. (2019). Tax policy for economic recovery and growth. The Economic Journal, 121(550), F59–F80. Barro, R. J., & Sala-i-Martin, X. (2004). Economic growth (2nd ed.). MIT Press. Besley, T., & Persson, T. (2013). Taxation and development. In A. Auerbach, R. Chetty, M. Feldstein, & E. Saez (Eds.), Handbook of Public Economics (Vol. 5, pp. 51–110). Amsterdam: Elsevier. Central Bank of Nigeria . (2023). Statistical bulletin: Volume 34. Abuja: Central Bank of Nigeria Publications. Ebi, B. O., & Ayodele, O. S. (2017). Taxation and economic growth in Nigeria: A disaggregated analysis. International Journal of Business and Social Science, 8(4), 159-168. Federal Inland Revenue Service . (2023). Annual report 2022. Abuja: Federal Inland Revenue Service. Fjeldstad, O. H., & Heggstad, K. K. (2021). Building tax systems in fragile states. Bergen: Chr. Michelsen Institute. Henry, O. O., & Ekwunife, M. C. (2024). VAT revenue and economic growth in Nigeria. International Journal of Taxation and Public Finance, 7(2), 112–128. Idebi, A. O., Agunbiade, O. A., & Adesina-Uthman, T. A. (2024). Disaggregated tax revenues and economic growth in Nigeria: An ARDL approach. Journal of Accounting and Financial Management, 10(3), 45–62. Ify, U. N., & Andrew, O. C. (2025). Tax revenue and economic growth in Nigeria: A sectoral analysis. African Journal of Economic Development, 12(1), 78–95. International Monetary Fund . (2021). Fiscal policies for inclusive recovery and growth in sub-Saharan Africa. Washington, D.C.: International Monetary Fund. International Monetary Fund . (2023). Nigeria: 2023 Article IV consultation (Country Report No. 23/105). Washington, D.C.: International Monetary Fund. Lucas, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3-42. Musgrave, R. A., & Musgrave, P. B. (1989). Public finance in theory and practice (5th ed.). New York: McGraw-Hill. National Bureau of Statistics . (2023). Nigeria's informal sector report 2022. Abuja: National Bureau of Statistics. Obi, C. C., & Ebele, C. O. (2024). VAT revenue and economic growth in Nigeria. International Journal of Taxation and Public Finance, 7(2), 112–128. Odusola, A. (2021). Nigeria's tax transition: Reflections on recent reforms and the road ahead. UNDP Nigeria Policy Brief. Okoli, M. N., & Afolayan, A. (2021). Personal income tax compliance in Nigeria: Challenges and strategies for the informal sector. International Journal of Public Administration, 44(9), 753-765. Olaoye, C. O., Ayeni, O. O., & Alaran-Ajewole, S. A. (2017). The impact of personal income tax on economic growth in Nigeria. Journal of Economics and Finance, 8(3), 45–54. Omodero, C. C. (2019). Effect of company income tax on the economic development of Nigeria. Journal of Accounting and Taxation, 11(7), 127-134. Organisation for Economic Co-operation and Development . (2021). Tax policy reforms 2021: OECD and selected partner economies. Paris: OECD Publishing. Oto, T. P., & Wayas, S. G. (2024). VAT and economic growth in Nigeria: A time-series analysis. Journal of African Business, 25(1), 88–105. Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326. Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5), 1002-1037. Romer, P. M. (1990). Endogenous technological change. Journal of Political Economy, 98(5), S71–S102. Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the public sector (4th ed.). New York: W.W. Norton & Company. Todaro, M. P., & Smith, S. C. (2020). Economic development (13th ed.). Harlow: Pearson Education. World Bank. (2023). Mobilizing tax revenue in Nigeria: Options for a post-pandemic world. Washington, D.C.: World Bank Group.

More Articles from INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT

Bridging Legal, Financial, and Data Governance in Enterprise AI: Emerging Trends

Author: Funmilayo Ashore-Onisemo, Ebehiremen Faith Iziduh, Uchechi Mary-Linda Unamma, Ifeanyichukwu Jeffrey Okwesa

Macroeconomic Policies and Economic Stability in Nigeria

Author: Abel-Tariah Emmanuel Onate, Okon, Ekanem Nsikhe, Nwenyi Francis Onwe

Determinants of Bank Liquidity in Nigeria

Author: Nelson Johnny Ebifemo-ere Stephen