Products Based Taxes and Economic Growth in Nigeria

Abstract

Abstract: Tax is a mandatory levy imposed by governments on individuals and businesses to support essential functions of the state. This study examined the relationship between products based taxes, Petroleum Profit Tax (PPT) and Value Added Tax (VAT) and economic growth in Nigeria for the period 2011 to 2024. Using data procured from the Central Bank of Nigeria and from the publications of Federal Inland Revenue Service. The study analyzed the procured data with ARDL approach. Findings showed that products based taxes have positive but no significant relationship with economic growth in Nigeria. However, one-year lag of GDP growth rate has a significant long-run relationship with economic growth. But progressively, as the lagged period lengthens, lagged GDP growth rate has worsening relationship with the current growth rate of the Nigerian economy, as a positive and insignificant relationship between two-year lag and GDP growth rate followed by a negative and significant long run relationship between three-year lag and GDP growth rate, was revealed by the analysis. The study therefore recommends that: A fixed proportion of revenue derivable from products based taxes (PPT and VAT) should be tied to infrastructural development and deliverables measured periodically; Developmental programmes of government should be based on progressive, positive societal impact and not on political party programmes and manifestos, thus successive administrations should avoid policy flips that usually jettison the development programmes of past administrations (good and bad).

Keywords: taxation,, value added tax, petroleum profit tax, products, economic growth