Tax Reforms and Revenue Trend in Nigeria: The Dyadic Interact

Abstract

The study examines tax reforms and revenue trend in Nigeria from 1981 to 2014. Specifically, an attempt was made to verify the dyadic interaction between total federally collected revenue and tax reforms process. To achieve the objective of the study, relevant secondary data were sourced from the Central Bank of Nigeria (CBN) statistical bulletin and Federal Inland Revenue Service (FIRS) gauge. The data collected were analyzed using relevant descriptive statistics and econometric models such as the Augmented Dickey Fuller and Philip-Peron unit root tests, Johansen co-integration test and Engle Granger Causality test. By way of preliminary test, the Augmented Dickey Fuller and Philip-Peron tests were employed to test for unit root. Most of the time series variables were non-stationary at levels but became stationary after first differencing. The Johansen rank test indicates that long-run dynamic trend exists between tax reforms and total federally collected revenue in Nigeria. The pair wise Granger Causality shows that tax reforms granger-caused total federally collected revenue. The model equally shows that the various income taxes were statistically significant and have positive relationship with total federally collected revenue. The coefficient of the Error Correction Model (ECM) is negative and statistically significant; showing that an established long-run dynamic relationship can be attained giving that 76.6114 percent of the deviation in total federally collected revenue is reconciled annually. The Durbin-Watson (DW) statistic value of (1.677412) falls in the no autocorrelation region and hence autocorrelation do not exist. Nevertheless, promotion of tax reform by improving on the structural dimension of the tax system; minimizing the level of tax evasion and avoidance; reducing tax burden; granting of full autonomy for the Federal Inland Revenue Service (FIRS); eliminating multiple taxation; reviewing obsolete laws and rates to align with current changes in macroeconomic fundamentals for the promotion of fiscal responsibility and sustainability; a corruption-free and efficient tax administrative machinery with staff who are well trained, equipped and motivated to ensure accountability and transparency in tax administration, will help the public sector to generate more revenue through taxation.

Keywords: Tax reform, total federally collected revenue, trend, dyadic interact, granger causality, unit root, co-integration, Nigeria and Error Correction Model (ECM).