IMPACT OF TAX REFORMS ON REVENUE GENERATION AND ECONOMIC GROWTH IN NIGERIA

Tax reforms in developing countries is a fiscal instrument to diminish reliance on foreign sources by raising satisfactory tax revenues to finance government expenditures with a view to achieving sustainable economic growth over the long run. Despite the major tax reforms embarked upon in Nigeria, there have been criticisms over their inability to attain the objective of revenue mobilization. This study examines the effects of 2004 tax reform on revenue generation and in turn leads to economic growth in Nigeria. This study adopts time series design by obtained data from the Central Bank of Nigeria statistical bulletin, Federal Inland Revenue Service statistics and national bureau of statistics (NBS). Data on various tax revenues and non-tax revenue, economic growth and investment level spanning 1981- 2015 was used in this study. Preliminary analysis was conducted using the Augmented Dickey Fuller (ADF) and Philip-Perron unit root tests, Philips-Ouliaris and Engle-Granger co-integration tests. The study adopted the Fully Modified Least Squares Regression Technique to investigate the effect of the 2004 tax reform on revenue generation in Nigeria and the effect of revenue generation on Nigeria’s economy growth. Findings revealed that tax revenue and non-tax revenue generated after the 2004 tax reform has statistical significant impact on total revenue generation in Nigeria. The results further showed that Customs and excise duties, company income tax, education tax, petroleum profit tax, value added tax and non-tax revenue clearly have significant impact on Nigeria economy growth, while investment does not have significant impact on Nigeria economy growth at 5% significant level. It can be concluded that the 2004 tax reform have had significant long run effect on revenue generation in Nigeria and also non-tax revenue and the set of tax revenues have had reasonably significant effects on economic growth in Nigeria. The study recommends that the future tax reforms to be embarked upon should be tailored towards broadening the tax base, specifically by capturing and bringing the informal sector into the tax net, and the proceeds from these varying taxes should be judiciously used with serious government commitment to enhance public expenditure and to achieve macro-economic stability in Nigeria