Determinants of Tax Revenue: A Case of Nigeria

Abstract

Taxation is enforced payment from individuals, groups, and institutions to the government. Tax is one of the sources of revenue generation of any government to enable it to meet the need of the citizens. Several studies were carried out on the determinants of tax revenue in developing nations using panel data analysis without specific effect, but it seems not many were conducted in isolation in Nigeria. The study evaluated the influence of political stability and absence of violence as institutional factor jointly with economic factors which are industry share in GDP, the share of Agriculture in GDP, trade openness and inflation held as control variables on tax revenue in Nigeria.

The ex-postfacto research design was used for this study. The geographical coverage of the study is Nigeria. Using purposive sampling technique, secondary data were extracted from the reports of Central Bank of Nigeria statistical bulletin, 2018, and Political Risk Services International Country Risk Guide and the World Bank Development Index for a period covering 1984-2017. The study adopted descriptive and inferential (regression) statistics for data analysis. We checked for stationarity of all variables by Augmented Dickey-Fuller (ADF) and applied Autoregressive Distributed Lagged (ARDL) to estimate the short run and long run dynamics of the models.

The study revealed a significant relationship between Political Stability and absence of Violence/terrorism and tax revenue (β = 0.0457; p< 0.05; t(34) = 2.92; R²= 0.99) which align with a priori expectation. There were insignificant positive relationships with control variables which may be due to subsistence farming, a large number of small-scale enterprises that evades tax, trade restriction and nonpayment of personal income tax by a larger informal sector. The researcher recommended that government should improve on political stability and absence of violence/terrorism to improve tax revenue through voluntary compliance to tax laws