Transformation in tax revenue and the economy: The Nigerian experience

Abstract

In order to prevent market failure in the economy, public policy must supplement, regulate, and, where possible, correct market forces. With regard to this we investigate the impact of tax reforms on Nigerian economic stability. Petroleum profit tax to GDP and non-oil tax to GDP ratios are proxies for tax reform, whereas real GDP symbolizes economic stability. Macrotrends and the Federal Inland Revenue Services provided data between 2011 and 2022, respectively. The data were appropriately processed, checked for stationarity and cointegration, and a Variance Auto Regression was developed for this research. The estimation shows that the petroleum profit to GDP ratio is statistically significant, at the same time having positive relationship with to economic stability. On the other hand, non-oil tax to GDP ratio is not statistically significant; it has a positive coefficient, indicating that it has been connected with economic stability during the study period. This analysis therefore shows that the reform has statistical significance in association with economic stability. Consequently, this study believes that in order to reap significant benefits, the reform must be implemented in an effective and workable manner in order to enhance a sustainable and stable economy. According to the guidelines, the tax authority should be focused and have a solid understanding of the best rate at which tax income can be maximized. Furthermore, efforts should be directed on broadening the tax revenue base while minimizing collection costs and maximizing penalties for evasion.