The Impact of Tax Collection and Incentives on Economic Growth: Evidence from Nigeria

Abstract

The debate on the effectiveness of taxation as an instrument for promoting economic growth remains inconclusive, as several studies have indicated mixed effect of taxation on economic growth. Against this background this study investigated the impact of tax collection and incentives on economic growth in Nigeria. Yearly data for the period 2010-2018 was collected from the Central Bank of Nigeria and Federal Inland Revenue Service. A multiple regression model was used, tax revenue was proxied by actual total tax collected, tax incentives was proxied by foreign direct investment equity and foreign direct investment other capital as independent variables. While economic growth was proxied by real gross domestic product (GDP) as the dependent variable. The data was tested for heteroscedasticity, multicollinearity and serial correlation to examine the robustness of the model. The findings revealed that there is a negative but insignificant relationship between tax revenue and economic growth. The findings also revealed that there is negative but insignificant relationship between and foreign direct investment equity and economic growth. While empirical results confirm that there is a negative and significant relationship between foreign direct investment other capital and economic growth. Given these findings, the study recommends the government to improve on the mechanisms for the collection of taxes to stimulate economic growth. Also, government should grant more incentives to sectors that drive growth, monitor such incentives gather relevant data of the actual amount of incentives relative to the economic growth in other evaluate the efficiency of tax incentives.