Tax Revenue Generation and Nigerian Economic Development

Abstract

The objective of this paper is to explore the impact of income tax revenue on the economic growth of Nigeria as proxied by the gross domestic product (GDP).  The ordinary least square (OLS) regression analysis was adopted to explore the relationship between the GDP (the dependent variable) and a set of federal government income tax revenue heads over the period 1981-2007.  A simple hypothesis was formulated in the null form which states that there is no significant relationship between federally collected tax revenue and the GDP in Nigeria.  The regression result indicated a very positive and significant relationship.  However actual tax revenue generated in most years fell below the level expected.  The anomaly was attributed to dysfunctionalities in the income tax system, loopholes in tax laws and inefficient tax administration.  Suggestions were made as to strategies to be adopted to improve the system of tax administration to increase tax revenue generation.

Key Words: Income Taxes, GDP, Tax evasion and avoidance, Loopholes in tax laws and administration, Revenue generation.