Analysis of Tax Formation and Impact on Economic Growth in Nigeria

Abstract

As a fiscal instrument, direct taxes are used to adjust people’s disposable income and to reduce the parameter of unearned incomes.  At the macroeconomic level, taxes are used to redistribute income and therefore contribute to the economic growth of the country. This paper examines the empirical forms of tax on the economic growth in Nigeria. Secondary data were sourced within the periods of 1985-2011 and Model was specified and estimated using some econometric. The result showed that the determinant factor of economic growth in the country through tax, only custom and exercise duties is capable of influencing but has an inverse relationship and significant to the GDP. It is observed that economic instability were experienced between 1986-1987 and 1993 to 1995 but evident in the stability in the economic growth from the graph in the rest of the years of the study around bench mark value of zero line of the GDP predicted graph based on tax generations in Nigeria. The study therefore recommended that the company income tax system should be generally restructured to bring about more yielded revenue results capable of contributing more significantly to the Nigerian economic as it is done in the advanced countries of the world. Custom service operations and revenue generations in the border is not practically reflected in the economy due to no accountability, transparency and leakages in the system.