Effect of Tax Reforms on Revenue Generation in Nigeria

Abstract

Nigeria has implemented several tax reforms to increase revenue and reduce its reliance on oil. These reforms seek to broaden the tax base by including more individuals and businesses. The main objective is to examine the effects of tax reforms on revenue generation in Nigeria.  This study employs an ex-post facto research design to analyze the factors influencing specific outcomes by examining past events and existing conditions, with no manipulation of the data. Focusing on the Nigerian economy, it uses time series data spanning 43 years (1980-2023) to assess the effects of tax reforms. Data was sourced from the Central Bank of Nigeria Statistical Bulletin and National Bureau of Statistics. The findings reveal the study highlights the significant impact of tax reforms on revenue generation in Nigeria, noting that higher tax rates initially increase revenue but may lead to long-term declines due to complex underlying factors. This inverse relationship reveals that the connection between tax reforms and revenue generation is not a straightforward one. The study recommends tax reforms such as reducing the Companies Income Tax (CIT) rate from 30% to 20% to boost revenue and reduce Nigeria’s dependence on oil price volatility. Full autonomy for the Federal Inland Revenue Service (FIRS), tackling multiple taxation, and promoting transparency are key to restoring taxpayer confidence. For Petroleum Profits Tax (PPT), addressing corruption and inefficiencies will enhance its contribution to national revenue. Increasing the VAT rate on luxury goods to 10% and improving VAT administration through better billing practices, record-keeping, and training are also suggested to improve tax efficiency and revenue collection.