Effect of Tax Revenue on Unemployment Rate in Nigeria

Abstract

Revenue generated from taxes is usually controversial, while some school of thought informed that taxes are revenue government spends on its citizens and should have a positive effect, others scholars believe that tax revenues withdraws income from the economy and thus the effect is negative. Some have concluded that the effect of tax revenue is insignificant. Therefore this study examined the effect of tax revenue on unemployment in Nigeria from the period between 1994 to 2020. Tax revenue was proxied by Corporate Taxes and Value Added Tax (VAT) and Customs and Excise Duties as independent variables and unemployment was proxied as the dependent variables. The study used Co-integration and Error Correction Model (ECM) to analysed the data. The finding show corporate taxes and Value Added Tax has a positive and significant effect on unemployment in Nigeria, while Customs and Excise Duties have a negative effect and significantly affect unemployment in Nigeria. The study recommends that government should reduce the rate of Corporate Tax on company from its current rate to 25 percent, as well as reduce VAT to 5 percent and CED payable on export duties on finished goods and import duties on raw materials. This would encourage investment, boast the profitability of manufacturing companies, minimize the tax burden on producer of finished goods, boost market competitiveness, increase tax compliance and create greater employment opportunities.

Keywords: Tax Revenue, Unemployment, Corporate Tax, Value Added Tax, Customs and Excise Duties, Nigeria

DOI: 10.7176/EJBM/13-12-04

Publication date:June 30^th 2021