The Effect of Oil Revenue Taxation on Economic Diversification in Nigeria: A Case Study of NNPC
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Background of the Study
Nigeria's economy has long depended on oil revenue, accounting for over 70% of government income. This reliance has hindered economic diversification, leaving the nation vulnerable to global oil price fluctuations. Taxation of oil revenues, particularly through instruments like the Petroleum Profit Tax (PPT) and royalties, plays a dual role in funding development and incentivizing diversification (NNPC Annual Report, 2024).
Recent reforms, including the Petroleum Industry Act (PIA) of 2021, aim to optimize oil revenue taxation and encourage investment in non-oil sectors. However, the effectiveness of these reforms remains under scrutiny as economic diversification continues to face significant challenges (Adewuyi & Bello, 2023).
Statement of the Problem
Despite substantial oil revenue taxation, Nigeria struggles to achieve meaningful economic diversification. Overdependence on oil revenues has constrained investments in agriculture, manufacturing, and services, limiting the nation’s economic resilience. Structural bottlenecks, inadequate incentives for non-oil sectors, and corruption further exacerbate the problem (Obiora & Salisu, 2024).
This study examines the effect of oil revenue taxation on Nigeria’s economic diversification, focusing on the Nigerian National Petroleum Corporation (NNPC) as a case study.
Objectives of the Study
- To analyze the impact of oil revenue taxation on economic diversification in Nigeria.
- To identify challenges hindering effective utilization of oil revenues for diversification.
- To propose strategies for leveraging oil revenue taxation to promote economic diversification.
Research Questions
- How does oil revenue taxation impact economic diversification in Nigeria?
- What challenges hinder effective utilization of oil revenues for diversification?
- What strategies can optimize oil revenue taxation for economic diversification?
Research Hypotheses
- H₀: Oil revenue taxation does not significantly impact economic diversification in Nigeria.
- H₀: There are no significant challenges hindering effective utilization of oil revenues for diversification.
- H₀: Proposed strategies will not significantly enhance the role of oil revenue taxation in economic diversification.
Scope and Limitations of the Study
The study focuses on the Nigerian oil sector, particularly the NNPC, analyzing oil revenue taxation’s impact on diversification from 2010 to 2025. Limitations include restricted access to proprietary data and external economic variables.
Definitions of Terms
- Oil Revenue Taxation: Taxes levied on income generated from oil production and sales.
- Economic Diversification: The process of expanding an economy’s productive base beyond a single sector.
- NNPC: Nigerian National Petroleum Corporation, responsible for petroleum resources management.
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