The Effect of Tax Revenue Components from SMEs on the Economic Growth of Nigeria from 1980-2015

Abstract

The main objective of this study was to examine the relationship between tax policies evidenced by tax revenue and SMEs contribution to economic development of Nigeria from 1980-2015. It was motivated by growing importance of SMEs following the importance they weird in the area of employment, utilization of resources, development of managerial and entrepreneurial skills, linkage effect between sectors, among others. Data for the study were extracted from CBN Annual reports and accounts for GDP which proxy Economic growth and Federal Inland Revenue Service (FIRS) on tax components. Data extracted were scaled down to 80% of the totals based on SMEs contributors in the past three decades. The analyses were carried out using correlation and regression analysis with results showing standard coefficient of 0.076(PPT), 0.477(CIT), 1.179(VAT), -0.497(ET), -0.316(PIT) and 0.109(CED) respectively. The overall correlation coefficients (r) shows 0.997, coefficient of determination (r²) 0.995, R² -adjusted 0.994 implying a strong positive relationship between the variables studied. The study recommended that government should create favourable incentives to encourage SMEs participation in tax payment.

Keywords: Tax Policies, SMEs, Tax Rates, Fiscal Policies