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Taxation Dimensions and Economic Development in Nigeria: An Empirical

Study Between 2009 -2018

Article in IOSR Journal of Humanities and Social Science · November 2021

DOI: 10.9790/0837-2611053544

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IOSR Journal Of Humanities And Social Science (IOSR-JHSS)
Volume 26, Issue 11, Series 5 (November. 2021) 35-44
e-ISSN: 2279-0837, p-ISSN: 2279-0845.
www.iosrjournals.org

Taxation Dimensions and Economic Development in

Nigeria: An Empirical Study Between 2009 – 2018
Odumusor, Charles Joseph1, Idor, Roy Michael2, Edogi John3
1
Department of Accountancy, Faculty of Management Sciences, Cross River University of Technology, Calabar
2
Department of Accountancy, Faculty of Management Sciences, Cross River University of Technology, Calabar
3
Department of Accountancy, Faculty of Management Sciences, Cross River University of Technology, Calabar

ABSTRACT
The study, taxation dimensions and economic development in Nigeria: an empirical study between 2009 – 2018
was carried out to examine the impact of taxation on the economic development of Nigeria (2009 – 2018). In
addition, the work also investigates the impact of International Financial Reporting Standards (IFRS) on
taxation and economic development of Nigeria, judging its impact on the magnitude of revenue generated in the
post- IFRS adoption in Nigeria. Extant literatures and theories were reviewed. The study adopted the expost-
facto research design to examine the relationship between taxation and economic development of Nigeria. In
this study, secondary data are used and were collected from Central Bank of Nigeria Statistical Bulletin, Federal
Inland Revenue Service (FIRS) and other relevant website were visited. Data are time series and covered the
period of the study and a statistical tool SPSS 25 was you to analyze the data using ordinary least square
regression technique. The results of the analysis revealed that tax revenue has a positive statistically significant
relationship with the gross domestic product and that the relation between company income tax and gross
domestic product has declined in the post-IFRS period.
Based on the findings, the study recommends that Nigerian government should free the system from corruption
by utilizing revenues generated in providing social amenities such as good roads, power, etc and investing our
fund on projects that generate jobs to our youths. This will help curtail insurgency, tax evasion and encourage
tax compliance. Again, the Nigerian economy should be urgently diversified to expand the revenue base of the
nation. Equally, it was recommended that tax laws and administration should be harmonized to reduce the cost
of paying tax and finally, federal, state and local tax authorities have to study the impact of IFRS on taxation in
Nigeria. This will help to check mate tax sheltering by corporate bodies as some accounting standards provide
an avenue for this.
KEYWORDS: Tax, Taxation Dimension and Economic Development
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Date of Submission: 08-11-2021 Date of Acceptance: 24-11-2021
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I. INTRODUCTION
Despite her strong fundamentals, oil rich Nigeria has been hobbled by inadequate power supply, poor
education, lack of infrastructure delay in the passage of legislative reforms, an inefficient property regulation
system, poor electoral processes, restrictive trade policies, militancy, insecurity, an inconsistent regulatory
environment, a slow and ineffective judicial system, pervasive corruption, the poor becoming poorer as the
economic diversification and strong growth have not translated into a significant decline in poverty levels of the
country. (CBN Statistical Bulletin, 2014). The constant reliance on the oil revenue for political, economic, and
social development for the provision of infrastructure in the country has become worrisome as the price of crude
oil continues to decline below the budget benchmark. This concern prompted/necessitated this study to
investigate the impact of taxation another source of revenue for the economic development of Nigeria.
Ogbonna and Ebimobowei (2012). Asserted that, the political, economic and social development of any
country depends on the amount of revenue generated for the provision of infrastructure in the country. They
debated that a well-structured tax system would boost the generation of the income for a meaningful
development of such country. This Ogbonna and Ebimobowei view are the same as the Biblical account, where
Jesus paid tax to the government of Caesar the Roman Emperor. There were many taxes needed from the
provinces to administrate the Roman Empire these taxes paid for a good system of good roads, law and order,
security, religious freedom, a certain amount of self-government and other benefits. The provisions of these
basic amenities depend on the amount of revenue being generated.

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 Taxation Dimensions And Economic Development In Nigeria: An Empirical Study ..

Kiabel and Nwokah (2009) stated that rise in the cost of running government coupled with the
incessant dwindling revenue had left all tiers of government in Nigeria with formulating strategies to improve
the base of income. One of such strategies is taxation. According to PricewaterhouseCoopers, Nigeria has made
some improvement to the tax system. What then is taxation? Oxford Dictionary of Accounting (1995) defined
taxation as a levy on an individual or corporate body by the central or local government to finance the
expenditure of that government and also as a means of implementing its fiscal policy. Thus, the government can
transfer resources through taxation from private consumption to public investment.
In Nigeria, this important role of taxation lacks in our system. Odusila (2006) noted that the system is
lopsided and dominated by oil revenue, that over the past few decades, oil revenue has accounted for at least
70% of the revenue, by implication traditional tax revenue has never assume a strong role in the country’s
management of fiscal policy. The view of Jhingan (2002) that taxation effectively curtails harmful consumption
and other wasteful expenditure of the richer classes has no bearing in Nigeria. The richer are acquiring and
accumulating properties and paying less or no tax while the poor are getting poorer and paying tax. The
redistribution of income through taxation in Nigeria has not been achieved. On the other hand, there is no
tangible improvement in our infrastructural facilities. Nigerian roads are bad and have become a death trap to
the citizens.
Okonjo-Iweala, the former Minister of Finance and Coordinator of Nigerian Economy, said that
Nigeria faces a massive infrastructural deficit, citing infrastructure deficit as a hindrance that is holding back
economic development by at least 2 percent per annum according to a recent world bank study. The minister
further stated “that about US$14.2 billion per year is required to bridge the infrastructural gap, with about $10.5
billion needed for national infrastructure alone, adding that amount spending is only $5.9 Billion (The Financial
Times: 2014). Indeed, some countries have influenced their economic development through taxation income.
For example, Canada, United States, Netherland, United Kingdom. They desire substantial income from
Company Income Tax, Value Added Tax, Import Duties and had used same to create prosperity (Oluba: 2008)
cited (Worlu and Nkoro, 2012).
However, the Nigerian economy has many problems militating tax revenue mobilization as a source of
financing developmental activities. Federal Inland Revenue Services (FIRS) faces the challenges of widespread
tax evasion, which is motivated by a complaint about corruption and poor quality of services. Omoigin (2011)
stated, in Nigeria and other African countries, the level of tax evasion are quite high. No wonder, Okonjo-Iweala
(2014) noted that a study conducted by the government revealed that about 75 percent of registered companies
in the country are not registered with the stepping up its efforts to encourage voluntary compliance with a tax
obligation. PricewaterhouseCoopers (www.rcn.com) in their publication titled Nigeria @ 50 Top 50 Tax Issues
ranging from tax legislation to administration and tax policy matters. According to the World Bank doing
business 2011 report, Nigeria ranked137 out of 183 countries surveyed on the ease of doing business and 134 on
the ease of paying taxes. The report, further noted that in the 2010 report, Nigerian ranked 134 and 131 on the
ease of doing business and paying taxes respectively. The report documented that Nigeria has been sloping back
consistently on the ease of paying taxes index is a function of three broad indicators – some tax payments, time
require complying with tax obligations and total tax rate. Confirming World Bank Report, Okonjo-Iweala said
for every N100 that business has to pay in taxes they pay about N30 in compliance costs. She further said that
this is a waste of capital that could be invested in this business to grow them and create more jobs for our
economy.
Another challenge identified according to Oyedele (2011) that the market-to-market (MTM) or Fair
Value Accounting (FVA) of the financial instrument upon adoption of International Financial Reporting
Standards (IFRS) would create significant swings in earnings and capital. By extension, it will affect taxable
profit been reported by some management of organizations that use discretion in managing profit and tax,
companies shelter their taxes at the detriment of tax authority duty of collecting taxes, due to the government. In
the United States, it is reported that a “two-book” method of presentation of financial report exist, one for
taxable income that companies report to government and the other to investors. This buttress the point that there
exist “book tax gap and evident of earnings manipulation and tax sheltering” (Daniel, 2009). As noted in a
circular published in March 2013 by Federal Inland Revenue Services (FIRS).“Section 55(1) of the Companies
Income Tax Act, CAPC 21, LFN 2004 requires a company filing a return to submit its audited account to the
FIRS while sections 8, 52 and 53 of the Financial Reporting Council (FRC) of Nigeria Act, 2011 gave effect to
the adoption of International Financial Reporting Standards” The implication is that companies will be taxed
based on audited accounts prepared in line with IFRS recommendations.Therefore, based on this background,
the objective of this study is to examine the impact of taxation on the economic development of Nigeria (2009 –
2018). In addition, the work also investigates the impact of International Financial Reporting Standards (IFRS)
on taxation and economic development of Nigeria, judging its impact on the magnitude of revenue generated in
the post- IFRS adoption in Nigeria.

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 Taxation Dimensions And Economic Development In Nigeria: An Empirical Study ..

1.2 Research hypotheses

H1 There is no significant and positive relationship between gross domestic products (GDP) and tax revenue.
H2 the relation between company income tax (CIT) and gross domestic product (GDP) has declined in the post-
IFRS period.

II. LITERATURE REVIEW

2.1 Theoretical framework
Apart from the obvious purpose of providing revenue, taxation aims at achieving other objectives. These are
resources allocation, income redistribution, price stabilization, full employment and economic growth. Within
the scope of these social objectives, two principles have been put forward as a basis for modern taxation namely.
The benefit principle or benefit received theory. The ability-to-pay approach (Ogbonna and Ebimobowei, 2012).
Although neither of these two principles goes without fault still an understanding of them is useful in
formulating a workable tax system.
Benefit Principle or received theory: This benefit principle theory, also called vertical equity stipulates that an
individual ought to be taxed according to the benefits he receives from government provision of goods and
services. This in other words, is a benefit cost approach in which tax is a cost and government amenities are the
benefits (Bhartia, 2009). This theory assumes a state of equality between the marginal tax rate (MTR) and
marginal benefit received (MBR) to determine the amount of taxes to be paid.However, the benefit principle
does not work well for the efficient provision of public (near public) goods. For example, military defence.
Thus, the conditions of equality between taxes –paid and benefits-received which sound so egalitarian in
principle, do not hold in practice/real life.
The ability-to-pay approach: is concerned with the equitable distribution of taxes according to assumed
taxable capacity or ability to pay of an individual or group. This approach, sometimes called horizontal equity,
enables the distribution and stabilization of objectives of taxation to be achieved more equitably. We know that
taxes are a means of transferring the purchasing power of income to governments; the ability to pay is based on
income. It then means that those who have more income can afford to pay more taxes. Although this theory has
the above-stated advantages, it is not free from flaws. Its disadvantage is that the criterion on which “ability” is
judged is not clear. (Anyanfo, 1996; Bhartia, 2009; Ogbonna and Ebimobowei,2012; Chigbuet al., 2012).
Socio-political theory: This theory of taxation to an extent anchored on Thomas Hobbes social contract which
saw in the beginning that man lived in the state of nature. They had no government, and there was no law to
regulate them. There were hardship and oppression on the sections of the society. To overcome from this
hardship, they entered into two agreements which are (1) “Pectum Unions” (2) Pactum Subjections” therefore,
the socio-political theory states that social and political objectives should be major factors in selecting taxes. It
implies that government generating revenue through taxing the citizens should use it to cure the ills of society as
a whole (Chigbuet al., 2012); Ogbonna and Ebimobowei, 2012).

2.2 Conceptual review

2.2.1 Concept, nature and characteristics of taxation and taxes
Taxation is the act of levying a tax, i.e., the process by which a local, state and central government,
through its law-making body, raise revenue to defray the necessary expenses of the government. According to
Anyanwu (1997), taxation can be defined as the compulsory transfer or payment (or occasionally of goods and
services) from private individuals or groups to the government. The purpose and importance of taxation is to
raise funds with which to promote the general welfare and protection of its citizens, and to enable it to finance
its multifarious activities and to redistribute wealth and management of the economy (Jhingan 2004, Bhartia,
2009; Ola (2001) cited in Ogbonna and Ebimobowei,2012). Tax is that enforced proportional contributions
from persons and property levied by the law-making body of the state for the support of the government and all
private needs.Roja (2011) in his article titled The True Nature of Taxation narrated that nobody likes paying
their taxes. However, as the adage about “death and taxes” conveys, there is a sense that taxes are as legitimate
and as inevitable as death itself. Tax is a lawful and inevitablelevy imposed on a subject or upon his property by
the government to provide security, social amenities and create conditions for the economicwell-being of the
society (Appah and Oyandonghan, 2011, Appah, 2004).
As the Economic Bulletin for Asia and the Far East cited in Jhingan (2002) stated that “Taxation,
therefore remains as the only effective instrument for reducing private consumption and investment, and
transferring resources to the government for economic development: Jhingan (2002); Anyanwu (1993) pointed
out several objectives of taxation. These are 1. to put a curb on consumption and thus transfer resources from
consumption to investment 2. To raise revenue for government 3.To reduces economic inequalities 4.To control
income and employment. Nzoha (2002) cited in Ogbonna and Ebimobowei (2012) and Patonov and Stuiolova
(2012) noted that taxes have allocational, distributional and stabilization functions. In Nigeria taxes are not
necessarily earmarked to those expenditures most conducive to economic growth, either because of political

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 Taxation Dimensions And Economic Development In Nigeria: An Empirical Study ..

“inefficiencies” or because of redistribution policies that may yield benefit for society but will not be reflected
in robust GDP growth rates (Atkinson, 1985) The truth is that in Nigeria taxes are not earmarked to boost
economic development because of corruption and other factors that affect the role of taxation as argued by
Nwezeaku (2005). He stated that the scope of these functions depends, among other things, to the political will
and economic orientation of the people, their needs and aspirations as well as their willingness to pay tax.
Ogbonna and Ebimobowei (2012) added that the extent to which a government can perform its
functions depend largely on the ability to design tax plans and administration as well as willingness and
patriotism of the governed. The level of willingness and patriotism of the governed anchored on the political
will power of the government to fight corruption and embark on expenditures that will boost the economy.

2.2.2 Taxation principles

Business Dictionary.com defined as basic concepts by which a government is meant to be guided to designing
and implementing an equitable taxation regime. These include:
Board Basing: Taxes should be spread over as wide as a possible section of the population, or sectors of the
economy, to minimize the individual tax burden.
Compatibility: Taxes should be coordinated to ensure tax neutrality and overall good governance.
Convenience: Taxes should be enforced in a manner that facilitates voluntary compliance to the maximum
extent possible. Bhartia (2009) noted that the time of payment, the manner of payment, the quality to be paid
ought to all be clear and plain to the tax payer and every other person.
Earmarking: Tax revenue from a specific source should be dedicated to a specific purpose only when there is a
direct cost – and- benefit link between the tax source and the expenditure, such as the use of motor fuel tax for
road maintenance and also education tax for buying educational materials. However, what we are experiencing
today in Nigeria is fiscal indiscipline, corruption and misappropriation of funds.
Efficiency: Tax collection efforts should not cost an inordinately high percentage of tax revenue. This principle
seems to be lacking in Nigerian tax system. World Bank Report says that for every N100 that business has to
pay in taxes, they pay about N30 in compliance costs. According to the minister of finance Okonjo-Iweala, this
is a waste of capital.
Equity: Taxes should equally burden all individuals or entities in similar economic circumstance. Equity
Principle states that tax payer should pay the tax in proportion to his income (Anyanfo (1996) cited in Ogbonna
and Ebimobowei, 2012)
Neutrality: Taxes should not favour any one group or sector over another, and should not be designed to
interfere with or influence individual decisions making.
Predictability: Collection of taxes should reinforce their inevitability and regularity.
Restricted Exemptions: Tax exemptions must only be for purposes (such as to encourage investment) and for a
limited period.
Simplicity: Tax assessment and determination should be easy to understand by an average tax payer.
On both equity and simplicity principles, Anyanfo (1996) “states that it is only when a tax is based on the tax
payer’s ability to pay can it be considered equitable or just”. He argued that tax law should be transparent.
Appah, (2004); Jhingan (2004) and Bhartia (2009) pointed out that every tax should be economical for the state
to collect and the taxpayer to pay. In Nigeria, paying tax and doing business is not cost-effective.

2.2.3 Tax reform in Nigeria

The role of taxation in every economy cannot be over emphasized, that is why every nation is working
tirelessly to have a good tax law: Ogbonna and Ebimobowei (2012) highlighted numerous tax laws being
enacted in Nigeria. Here, we enumerate only nine (9) bills on tax reforms recommended by study group on the
Nigerian Tax System as follows: Federal Inland Revenue Services Act 2004, Companies Income Tax Act 2004,
Petroleum Profit Tax Act 2004; Education Tax Act 2004, Customs, Excise Tariffs etc. (Consolidation) Act
2004; National Surgeon Development Act 2004; and National Automobile Council Act 2004.

2.2.4 Economic development

Economic development is the sustained, concerted actions of policy makers and communities that
promote the standard of living and economic health of a given area. Economic development can also be referred
to the quantitative and qualitative changes in the economy. The Malthusian theory did not regard the process of
economic development as automatic. Rather, it required consistent efforts on the part of people. Dafionone
(2013), noted, “that for the country to lay claim on growth and development through taxation, there must be an
improvement of the quality of life of the citizens, as measured by the appropriate indices in economic social,
political and environmental terms”. In Nigeria, dependency theorists’ argument explains the precarious situation
we are into.Dependency theorists argue that poor countries have sometimes experienced economic growth with
little or no economic development initiatives. Today, Nigeria cannot boast of a good education system like our

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 Taxation Dimensions And Economic Development In Nigeria: An Empirical Study ..

sister country Ghana. Nigeria only functions as resource-providers to wealthy industrialized countries. Although
opposing argument has it that growth causes development because some of the increase in income gets spent on
human development such as education and health. Other theories of economic development are Adam Smith’s
theory, the Ricardian theory, the Schumpeterian theory, the Keynesian theory e.t.c (Jhingan, 2002).

2.2.5 Taxation and International Reporting Standard (IFRS)

The infrastructure need of every country is mainly financed through tax from corporate organizations.
Commenting on the tax implication of adoption of IFRS, Oseni (2013) noted that the conversion to IFRS would
bring a significant change to tax accounting methods, taxable profits and tax liabilities due to the differences
between Nigerian Generally Accepted Accounting Standards (NGAAP) and International Financial Reporting
Standards (IFRS). He added that if current tax rules are not amended, many companies financial position will be
eroded due to tax liabilities, while the government may suffer a significant reduction in tax revenue.
Government is concerned about making policies that will help her generate an adequate fund that will be used in
providing social amenities (Infrastructure) for the governed. The communication of this vital information that
will aid end users is the language of business which accounting speaks.
In the United States, it is reported that a “two-book” method of presentation of financial report exists,
one for taxable income that companies report to government and the other to investors. Daniel (2009) noted that
there exist “book tax gap and evidence of earnings manipulation and tax sheltering” The question is, has IFRS
come to solve this problem? Haller and Eiewle, 2004 cited in Daniel (2009) stated that “the countries that
decoupled financial reporting from legislatively determined taxable income do so by adopting International
Financial Reporting Standards (IFRS). KPMG (2012) focusing on the impact of IFRS and Statement of
Accounting Standard 31 on intangible assets (SAS 31) on companies ability to access fiscal incentives on fixed
assets, noted that the combined effect of the adoption of IFRS and SAS 31 may reduce the ability of companies
to take maximum advantage of some of the fiscal incentives introduced into Nigerian tax laws. The incentives
were meant to support economic growth and development
As many countries of the world have joined in adopting the standard as against the local GAAP,
Nigerian Federal Executive Council (FEC) approved the IFRS implementation road map as it was unveiled by
the Minister of Commerce and Industry in September 2010.

2.3 Empirical review

Several empirical studies have been conducted on the impact of taxation on economic development.
The empirical studies of Gwatney (2006) Engen and Skinner (1996), Ogbonna and Ebimobowei, (2012) Adereti
et al (2011), Worlu and Nkoro (2012), Adegbie and Falile (2011), Wambai and Hanga (2013) and Otu and
Adejumo (2013) provided different evidences of impact of economic development.
Major tax legislation passed in 1981 and 1986 reduced the top U.S federal income tax rate from 70
percent to approximately 33 percent. The performance of the U.S economy during the eighties was impressive
(Gwatney, 2006 cited in (Islahi, 2006). This evidence is supported by IbuKhaldun’s theory of taxation.
Engen and Skinner (1996) in their study of taxation and economic growth of U.S economy, considered
a large sample of countries and documented that 0.2 to 0.3 percentage point differences in growth rate in
response to a major tax reform. He stated that small effects could have a large cumulative impact on living
standards.
Ogbonna and Ebimobowei (2012) in their study, on the impact of Tax Reform and Economic Growth
of Nigeria: A time server analysis, found that tax reforms are positively and significantly related to economic
growth and that tax reforms Granger cause economic growth. Also, that tax reforms improve the revenue
generating machinery of government.
Adenetiet al. 2011 using simple regression analysis and descriptive statistical method, find that the
ratio of VAT to GDP averaged 1.3% compared to 4.5% in Indonesia, though VAT revenue accounts for as much
as 95% significant variations in GDP in Nigeria. The data covered a period of 1994 to 2008. Worlu and Nkoro
(2012) in the study tax revenue and economic development in Nigeria: A macro econometric approach. From
1980 to 2007, they found that tax revenue stimulates economic growth through infrastructural development.
Also, revealed that tax revenue has no independent effect on growth through infrastructural development and
forcing direct investment, but just allowing the infrastructural development and foreign investment to positively
respond to increase in output.
Wambia and Hanga (2013) in their study based on survey method, used questionnaire on 40
respondents to generate data which was measuredby a simple majority or percentage of opinions. The study
found that more tax compliance is significantly associated with the adequate campaign and judicious utilization
of tax funds. Otu and Adejumo (2013) studying the effects of tax revenue on economic growth in Nigeria 1970
to 2011, adopted the ordinary least square OLS regression technique and established that tax revenue has a
positive effect on economic growth in Nigeria.

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 Taxation Dimensions And Economic Development In Nigeria: An Empirical Study ..

III. RESEARCH METHODOLOGY

3.1 Design and data
The study adopted the expost-facto research design to examine the relationship between taxation and
economic development of Nigeria. In this study, secondary data are used and were collected from Central Bank
of Nigeria Statistical Bulletin, Federal Inland Revenue Service (FIRS) and other relevant website were visited.
Data are time series and covered the period of 2009 to 2018.

3.2 Model specifications

Consistent with Rapu (2006), Onah (2006) Masood, Sohaid and Syed (2010), Ogbonna and Ebimobowei (2012)
the model is specified with little modification as follows:
GDP = F (PPT, CIT, VAT, ET, CED, Post)..... (i)
GDP = a0 + a1 PPT +a2 CIT +a3 VAT + a4 ET +a5 CED +a6 Post
+ a7 CIT *IFRS + a8 PPT*IFRS +ᶓ
Where:
PPT = Petroleum Profit Tax
CIT = Companies Income Tax
V AT = Value Added Tax
ET = Education Tax
CED = Custom & Exercise Duty
POST = Dummy Variable Control pre-IFRS and post- IFRS
CIT.IFRS = Interactive Variable Indicating Companies Income Tax Management
PPT.IFRS = Interactive Variable Indicting Petroleum Profit Tax Management
GDP = Gross Domestic Product a proxy for Economic Development
Increase tax revenue is expected to increase economic development (gross domestic product)
The post indicates the change of IFRS. This dummy variable taxes the value of 1 for post –IFRS period,
Otherwise 0. I expected decline in tax revenues as companies adopted IFRS
To ensure the accurate result of the test, the statistical package for social science, SPSS version 25 was used.

IV. RESULTS AND DISCUSSION

This section of the study examines the results and discussions of relevant findings from the econometric and
statistical analysis.
Hypothesis 1
Table 1: Model Summaryb
Model R R Square Adjusted R Std. Error of the
Square Estimate
1 .998a .997 .995 949.52285
a. Predictors: (Constant), CED, ET, PPT, CIT, VAT
b. Dependent Variable: GDP

Table 2: ANOVAa
Model Sum of Squares Df Mean Square F Sig.
Regression 2132296509.973 5 426459301.995 473.006 .000b
1 Residual 7212749.130 8 901593.641
Total 2139509259.104 13
a. Dependent Variable: GDP
b. Predictors: (Constant), CED, ET, PPT, CIT, VAT

Table 3: Coefficientsa
Model Unstandardized Coefficients Standardized T Sig.
Coefficients
B Std. Error Beta
(Constant) 4208.769 1478.531 2.847 .022
PPT 1.028 .490 .106 2.100 .069
1 CIT 64.207 28.115 1.579 2.284 .052
VAT -13.298 35.384 -.260 -.376 .717
ET -65.924 18.276 -.443 -3.607 .007

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 Taxation Dimensions And Economic Development In Nigeria: An Empirical Study ..

CED -.973 15.701 -.008 -.062 .952

a. Dependent Variable: GDP
Source: SPSS Version 25

Table 1 shows model summary with a R² value of 0.997, which indicates that 99.7 percent of the
variation in the GDP can be explained by variability in tax revenue. This indicates that tax revenue has a very
strong relationship with the gross domestic product. In addition, the intercept of the regression is positive,
meaning that tax revenue has a positive relationship with the gross domestic product. This is consistent with
Okafor (2012) Ogbonna and Ebimobowei (2012) Otu and Adejumo (2013), and Ola (2001).
The ANOVA F-value is 473.006 which is statistically significant at a level of 0.05 this suggests that
there is a linear relationship between the variables. The analysis shows various p-values for the independent
variables which are more than the conventional level of 0.01 and 0.05 levels of significance except for education
tax which has a 0.007p-value. This means that education tax contributed more to the variation in the gross
domestic products than the other independent variables.
The study revealed the following:
1. PPT has a positive and significant effect on economic development. The coefficient of 1.028 indicates
that PPT has an effect of 1.028 units on GDP. The effect show that petroleum profit tax has signifiant effect on
gross domestic product, which is significant at the 0.10 level of significance, with p=0.069.
2. CIT has a positive and significant effect on economic development. The coefficient of 1.028 indicates
that CIT has an effect of 64.207 units on GDP. The effect show that company income tax has signifiant effect on
gross domestic product, which is significant at the 0.10 level of significance, with p=0.052.
3. VAT has a negative and insignificant effect on economic development. The coefficient of -13.298
indicates that VAT has a reducing effect of 13.298 units on GDP. The effect show that value added tax has
insignifiant effect on gross domestic product, which is significant at the 0.10 level of significance, with p=0.717
4. ET has a negative and significant effect on economic development. The coefficient of -65.924 indicates
that ET has a reducing effect of 65.924 units on GDP. The effect show that educational tax has signifiant effect
on gross domestic product, which is significant at the 0.10 level of significance, with p=0.007.
5. CED has a negative and insignificant effect on economic development. The coefficient of -.973
indicates that CED has a reducing effect of 0.973 units on GDP. The effect show that custom and exceise duties
has insignifiant effect on gross domestic product, which is significant at the 0.10 level of significance, with
p=0.952
Based on the F-statistics, we therefore reject the null hypothesis and conclude that tax revenue has a positive
statistically significant relationship with the gross domestic product.
Hypothesis 2: The relation between company income tax and gross domestic product has declined in the post-
IFRS period.

Table 4:Group Statistics

POST N Mean Std. Deviation Std. Error Mean
PRE 12 222.6946422 2226.58356626 642.75931068
Unstandardized Residual
POST 2 -1336.1678533 2566.52643418 1814.80824570
Source: spss version 25

Table 5: Levene’s test of Equality

Levene's
Test for
Equality t-test for Equality of Means
of
Variances

Sig.
Mean Std. Error 95% Confidence Interval of the
F Sig. T Df (2-
Difference Difference Difference
tailed)

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 Taxation Dimensions And Economic Development In Nigeria: An Empirical Study ..

Lower Upper

Equalvariances
.005 .943 .904 12 .384 1558.862495 1723.71194 -2196.78320250 5314.5081934
assumed

Unstandardized
Residual
Equal
-
variances not .810 1.265 .542 1558.862495 1925.27101 16697.194242
13579.46925103
assumed

p < 0.01, p < 0.05 and p < 0.10, respectively

Source: SPSS VERSION 25

Descriptive results for the model are reported in Table 4 above. The mean of the unstandardized
residual of the ordinary least square (OLS) regression of the relationship between company income tax and
gross domestic product is 222.6946422 for a pre-IFRS period while the mean for post-IFRS is -1336.1678533
apparently there is a huge difference between both periods. From the analysis results above; the relation of
company income tax to gross domestic product in pre and post-IFRS is implicated as having insignificant
equality at 1%, 5% and 10% level. Hence, we accept the null hypothesis and conclude that the relation between
company income tax and gross domestic product has declined in the post-IFRS period.

V. CONCLUSION AND RECOMMENDATIONS

The major objective of this study is to investigate the impact of taxation on the economic development
of Nigerian. This was done by examining the relationship between gross domestic and petroleum profit tax,
companies’ income tax, value added tax, education tax and customs and excise duties. It goes further to find the
relation between the dependent variable GDP and two independent variables PPT and CIT in the post-IFRS
period. To capture this, time series data were sourced from 2000-2013. The OLS multiple regression analysis
confirms that there exist positive and significant relationships between gross domestic products GDP and tax
variables. It also through Leven’s test documented that the relation between GDP and PPT, CIT declined in
post-IFRS. This study encourages further study on the empirical study on the impact of IFRS on taxation and
economic development of Nigeria.
However, based on the findings, the study recommends as follows: First, Nigerian government should
free the system from corruption by utilizing revenues generated in providing social amenities such as good
roads, power, etc and investing our fund on projects that generate jobs to our dear youths. This will help curtail
insurgency, tax evasion and encourage tax compliance. Second, the economy should be urgently diversifiedto
expand the revenue base of the nation. Gone are the days of oil and continue reliance on that sector for funding
government expenditures is no longer acceptable based on the current economic trend. Third, tax laws and
administration should be harmonized to reduce the cost of paying tax. Finally, federal, state and local tax
authorities have to study the impact of IFRS on taxation in Nigeria. This will help to check mate tax sheltering
by corporate bodies as some accounting standards provide an avenue for this.

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Odumusor, et. al. “Taxation Dimensions and Economic Development in Nigeria: An Empirical
Study Between 2009 – 2018.” IOSR Journal of Humanities and Social Science (IOSR-JHSS),
26(11), 2021, pp. 35-44.

DOI: 10.9790/0837-2611053544 www.iosrjournals.org 44 |Page

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