The optimal petroleum tax mix : a comparative analysis between Nigeria and Norway

Background One of the most critical economic decisions that a government must make is the choice of its tax system (Abbas, Ali & Klemm, 2013:597; Mulrow, 1994). It is critical because the main source of government revenue is taxation, which is the cornerstone of any society. The choice of a tax system in various African countries is intended to address the uneven distribution of income (Barghini, 2016:98). Therefore, the relationship between optimal taxation, economic growth and income inequality is of the utmost importance (Scully, 2003:229). Main purpose of study The main objective of this study is to provide a comparative analysis of the Nigerian and the Norwegian petroleum tax system, with the latter as a benchmark for the optimal petroleum tax system. Thereafter, the Nigerian petroleum tax system will be compared with the Norwegian petroleum tax system to evaluate the extent to which Nigeria adheres to the criteria of the optimal tax mix. Method Several databases were reviewed to collect secondary data on the optimal tax theory as well as the tax systems of Nigeria and Norway. The literature was critically reviewed and synthesised based on inclusion and exclusion criteria. Thereafter data was extracted from selected studies to identify the characteristics of an ideal tax system, with which Norway’s tax system (which was used as a benchmark) was compared. The ideal tax system was then applied to Nigeria to evaluate the extent to which Nigeria applies the optimal tax mix. Results The findings illustrated how Norway satisfies the characteristics of an optimal tax system. When applied to Nigeria, the study found Nigeria did not have an optimal tax mix. Conclusions: The Nigerian petroleum system would benefit from tax reform in order to better align the tax system with the characteristics of an optimal tax system. Furthermore, there are lessons to be learnt from Norway in terms of how oil revenue collected is efficiently and effectively managed through a dedicated fund.Mini Dissertation (MCom)--University of Pretoria, 2018.TaxationMComUnrestricte