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Sustainability of economic growth and development which remains the true essence of governance is threatened in Nigeria due to insufficient fund caused by declining petroleum revenue upon which the country relies for development. This over reliance had placed the country in a position as at now in which the entire petroleum revenue is used for recurrent items by the government. It is against these setbacks that this study is design to evaluate the effect of petroleum profit tax and company income tax on Nigerian economy growth. Fully Modified Least Square (FMOLS) Regression Technique was used to estimate the model over a 50 years period (1970-2020) while Augmented Dickey Fuller Unit Root Test and Single Equation Co-integration Test were carried out. It was found that petroleum profit tax (PPT) and company income tax (CIT) have positive significant impact on gross domestic product (GDP) in Nigeria with the Adjusted R² of 87.6% which directly enhanced growth in Nigeria. The study then concluded that PPT and CIT serves as the major source of revenue to the Nigeria economy, and contribute to the growth of Nigeria economy. Based on these findings, the Study recommends that government should transparently and judiciously account for the revenue it generates through petroleum profit tax by investing in the provision of infrastructural facilities, FIRS should properly monitor the activities of companies to achieve optimum collection of taxes payable to the government as CIT. Revenue accrue to government through PPT and CIT should be judiciously used to develop the economy.




1.1 Background to the study

The provision of basic infrastructure is critical for every economy’s growth and development. This may explain why the government is so concerned with finding sources of funding to help them reach its societal goals (Fagbemi & Noah, 2010). Government need funds to carry out its social commitments to the people, which include, but are not limited to, the provision of infrastructure and social services. Meeting the requirements of society necessitates large sums of money, which a person or society cannot provide alone, and one method of obtaining finances is through taxes (Murkur 2001).

As a result, taxation is a key source of government revenue all throughout the world. It is a chance for the government to collect income needed to meet its pressing obligations.

It has a bearing on the Gross Domestic Product (GDP) which is the standard indicator for measuring the economic wellbeing of a nation(Okafor, 2012). Sanni (2007), advocate the use of tax as an instrument of social engineering, to stimulate general and/or sectoral economic growth. A tax system offers itself as one of the most effective means of mobilizing a nation‟s internal resources and tends itself toward creating an environment conducive to the promotion of economic growth (Azubike, 2009).

According to Emmanuel (2010), many developed and developing economies around the world had experimented and proven that no nation can truly develop without developing its tax system. Consequently, many countries have embarked on tax reforms and restructuring with a view to developing a tax system that maximizes government revenue without creating disincentiveness for investment. Basically, there are two ways of financing government expenditure in Nigeria; which are oil revenue and non-oil revenue sources, the Nigerian government derives a large proportion of its total revenue from oil (Bawa & Mohammed, 2007). According to Ogbonna and Ebimobowei (2012), from 1970 – 2009, the petroleum industry generated 82 per cent income for Federal Government of Nigeria, while only 18% came from non-oil revenue.

Basically, there are two ways of financing government expenditure in Nigeria; these are, through oil revenue and through non-oil revenue. The Nigerian government sources a large proportion of its total revenue from oil since Nigeria has been seen as a country rich with this natural resource. According to Ogbonna & Ebimobowei (2012), from 1970 to 2009 the petroleum industry generated 82 per cent income for Federal Government while 18 per cent came from non-oil revenue. The Petroleum Industry constitutes a major source of income and occupies a strategic position in the economic development of Nigeria. For the past decades, the industry has been playing vital and dominant role to the economic growth of Nigeria, both in foreign exchange earnings and domestic income generation (Azaiki and Shagari, 2007). One of the sources of petroleum income is the Petroleum Profit Tax (Ogbonna & Ebimobowei, 2012), this is just among others, as royalties, rents, oil pipeline and license fees, signature bonuses penalty from gas flared, NNPC earnings from direct sales, proceeds from local sales of crude oil to NNPC, proceeds from export sales of crude oil and gas etc. are sources of petroleum income. But for the purpose of this research, the researcher will be focusing on an aspect of the sources of petroleum income, which is, petroleum profit tax (PPT).

Petroleum refers to crude oil and natural gas or simply put, oil and gas. Petroleum, or oil and gas, production and export play a dominant role in the economy of Nigeria and account for about 70 per cent of the nation’s GDP and over 90 per cent of her foreign earnings. Nigeria has been seen to be the largest oil producing country in Africa and the eleventh in the world. Petroleum industry is the leading sector in the Nigerian economy. Oil being the mainstay of Nigerian economy plays a vital role in shaping the economic and political destiny of the country (Odularu, 2007). The contributions of the petroleum industry to public expenditure and growth of GDP have been phenomenal.

According to Adegbie (n.d.), taxation is the system of collecting money by taxes i.e. the system by which taxes are imposed or the process or system of raising income through the levying of various types of taxes. He further defined taxes to be levies imposed by government against the income, profit or wealth of an individual, partnership and corporate organization. New Webster Dictionary defines tax to be a charge imposed by government authority upon property, individuals or transactions to raise money for public purposes. Also, according to Ogundele (1999), taxation is the process or machinery by which communities or groups of persons are made to contribute in some agreed quantum and method for the purpose of the administration and development of the society. From the definitions given it can be said that the main purpose of tax is to provide government with money to provide public services to citizens and it is expedient that all citizens, whether individuals or artificial bodies, pay taxes.

The defense for this high rate is the need to capture the resource rent tax from the operations of the oil companies. Some other countries charge resource rent tax separately thereby reducing the Petroleum Profits tax rate. For example, South Africa charge 30% Petroleum Profits tax and 40% resource rent tax. Uganda has Petroleum Profits tax rate of 30% and resource rent tax of 0-80%; Malaysia has Petroleum Profits tax rate of 38% and resource rent tax rate of 70%. South Africa, Ghana, Uganda, Tanzania and Zambia appears to be the only African oil producing nations with resource rent rate (Sunley, Baunsgaard & Simard, 2002).



It is necessary to develop ways to harness and distribute resources, especially with Nigeria present financial problems resulting from volatility of oil prices because government responsibilities are on the increase. Hence, government evolves different mechanisms for generating additional revenue to meet these needs. This search for diversification will impact on development planning and poverty reduction in the long run. This study gives Company Income Tax (CIT) a place among alternatives from non- oil income. Taxation of companies was retained as a federal matter (1954 ordinance), direct taxation, a regional matter (1943 ordinance). Companies are taxed under the Companies Income Tax Act introduced in 1961 with modification in 2007. The administration of the companies‟ income tax in Nigeria is vested on the Federal Inland Revenue Services. The tax is payable by all companies at the rate defined by the Companies Income Tax Act (CITA).

The Company Income Tax (CIT) has become a major source of revenue in many developed countries (Ajakaiye, 2000). Companies Income Tax (CIT) is charged on the profit or gain of any company accruing in, derived from, brought into, earned in or received in Nigeria. The company income tax rate has been 30% and it is applied on the total profit or chargeable profit of the company (Adegbie & Fakile, 2011). According to Gwangdi and Abubakar (2015), recognizing the need for improved and sustained efforts by government to raise revenue in Nigeria as a matter of urgency; certain offences have been created by the CITA the breach of which makes a company liable to stated penalties. This is as a result of the large number of companies not capture in the tax net and even those captured there are incidence of tax evasion and avoidance hence having adverse consequence on revenue.

1.2 Statement Of The Problem

Nigeria is Africa‟s most populous nation and the largest economy in the continent, with the highest growing GDP rate in Africa and world‟s eighth-largest oil exporter. Yet, more than sixty percent of the population lives in extreme poverty, youth unemployment is close to eighty percent, coupled with the daily violence in the north, where the rebel group Boko Haram is fighting for a state governed by Sharia (Margaret, Charles & Gift 2014). There is chronic power shortage, which reduce the cost of doing business in Nigeria. According to EIA (2015) the electrification rate in Nigeria is estimated at 41% leaving approximately 100 million people in Nigeria without access to electricity. Despite the fact that Petroleum Profit Tax has been the main source of income to the Nigerian economy and Company Income Tax being the major source of income from non-oil revenue for example in 2014, Petroleum Profit Tax generated ₦2,453,947 trillion and Company Income Tax generated ₦1,173,491 trillion (CBN Statistical Bulletin, 2014). The economy is still faced with poor performance of national institutions such as road, transportation, politics, and financial systems (Afuberoh & Okoye 2014).

The Niger Delta area where oil and natural gas industry is primarily located has been a source of conflict. Local groups seeking a share of the wealth often attack the oil infrastructure, forcing companies to declare force majeure on oil shipments (a legal clause that allows a party to not satisfy contractual agreements because of circumstances that are beyond their control). At the same time, oil theft leads to pipeline damage that is often severe, causing loss of production, pollution, and forcing companies to shut in production (EIA 2015). Petroleum profit tax which is supposed to be a source of finance for economic development has turned out to be a bone of contention between many interests groups precisely the government, the oil and gas companies and various researchers (Attamah, 2004).

The administration of the companies‟ income tax in Nigeria is vested on the Federal Inland Revenue Services. The tax is payable by all companies at the rate defined by the Companies Income Tax Act (CITA). However despite there being regulation on Companies Income Tax in Nigeria, low tax compliance has become a matter of grave concern in Nigeria because it limits the capacity of the governments to raise revenues for development purposes. According to Naomi and Sule, (2015) Companies Income Tax has significant impact on the economy of any nation because it serves as a stimulus to economic growth in the areas of fiscal and monetary policies. But the Nigerian case is difference because the revenue derived from CIT has been grossly understated as a result of several challenges. The factors responsible for the poor performance of CIT revenue in Nigeria include: high rate of tax evasion and avoidance by companies, poor tax administration, poor taxpayers education, inconsistent government policies, and lack of adequate statistical data, inadequate manpower and corruption among tax officials.

According to Iweala, (2013), about 75% of registered firms were not in the tax system and 65% of them had not filed their tax returns in the last 3years. Over ₦80billion was lost monthly from these companies, estimating the total Company Income Tax leakages in that period to about $250million. Therefore, it is pertinent to evaluate the administration of petroleum profit tax (PPT) and company income tax (CIT) on the economic growth of Nigeria.

1.3 Objectives Of The Study

The main objective of this study is to assess the Administration of petroleum profits

tax in Nigeria 1970-2020; it will evaluate the effect of petroleum profit tax and company income tax on economic growth in Nigeria. Other specific objectives are to:

  1. examine the effect of petroleum profit tax on gross domestic product in Nigeria;
  2. assess the effect of company income tax on gross domestic product in Nigeria.

1.4 Research Questions

Based on the objective of this study, the following research questions were raised:

  1. To what extent does the petroleum profit tax affect the gross domestic product in Nigeria ?
  2. In what way does company income tax affect the gross domestic product in Nigeria ?

1.5 Research Hypotheses

H01:    Petroleum Profit Tax has no effect on gross domestic product in Nigeria.

H02:    Company Income Tax has no effect on gross domestic product in Nigeria.

1.6 Significance of Study

The outcome and results generated from this research work will be of great significance to key players engaged in the shaping of the economy. Some of these key players include;

  1. Government: This research will enable the government to cherish the importance of tax in the shaping of the economy. More attention will be given to the area of taxation as a result of this research work.
  2. Society: It helps the society know the role petroleum profit tax plays in shaping the economy. It also affects their thoughts towards government about the utilization of revenue gotten from petroleum profit tax.
  3. Researchers: The research work can serve as a foundation or basis for other researchers who are willing to research along the same line. Future researchers can continue from where this research work stops.
  4. Petroleum Companies: It helps petroleum companies know how they play a vital role in shaping the destiny of Nigeria’s economy and understand how remitting their taxes can be of great importance to the economy of the nation at large.
  5. Tax Authorities: This research will enable tax authorities give attention to contentious areas in the taxation of petroleum profit and will enable them understand how these areas affect the standing of the Nigerian economy.
  6. Students: It gives students a better understanding about petroleum profit tax and how it affects the economy.

1.7 Scope Of The Study

The time frame covered by this study is from 1970 to 2020 with a view to trace the administration and effect of petroleum profit tax and company income tax over the years when increases and reductions occurred. This enable the study get the effect of petroleum profit tax (PPT) and Company Income Tax (CIT) on the country‟s economic growth.

1.8 Limitation of Study

In carrying out this research, the researcher may encounter some challenges. Notwithstanding, the quality of the research work won’t be questioned. Here are some limitations that may arise in carrying out this research work;

Restriction to Exeat: In the course of this research work the researcher would have to leave school frequently when questionnaires are to be distributed. The restriction of exeat might cause a delay in the distribution and collection of questionnaires which in turn will cause a delay in the research work as a whole.

Time Constraint: The researcher will have to combine school work and activities with the research project. This poses as a challenge to the researcher because equal attention has to be given to both.

Cost: Extra funds had to be made available because of transportation cost and printing of paper work.

Companies’ policies: Due to some companies’ policies it might be difficult to get some data which will be of utmost importance to this research work.

1.9 Definition of Terms

Taxation: This is the process or system of raising revenue through the levying of various forms of tax.

Tax: This could be defined as a compulsory levy by the government of any country, through an appropriate agency, on incomes, goods, services and properties of an individual, partnership, executor, trustee and corporate body.

Petroleum: Any mineral oil relative hydrocarbon and natural gas existing in its natural condition, but does not include liquefied natural gas, coal, bituminous shale or other stratified deposits from which oil can be extracted by destructive distillation.

Tax Evasion: Illegal practice where a person, organization, or corporation intentionally avoids paying his/her/its true tax liability.

Tax Administration: This involves practical interpretation and application of tax laws. It seeks to ensure that each and every tax payer covered by the tax law pays the correct amount of tax as stipulated in the provisions of the law.

Tax Avoidance: This is the legal usage of the tax regime to one’s own advantage, to reduce the amount of tax that is payable by means that are within the law.

1.10 Organization Of The Study

This research work is organized in five chapters, for easy understanding, as follows. Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.


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