An Assessment of the Impact of Taxation on National Economic Growth in Nigeria
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Background of the Study
Taxation remains one of the primary instruments of fiscal policy and a major source of government revenue in Nigeria. Over the recent period from 2023 to 2025, the government has implemented various reforms aimed at broadening the tax base, enhancing compliance, and optimizing tax rates to stimulate economic growth. These measures include adjustments in corporate and personal income taxes, value-added tax modifications, and the adoption of digital tax administration systems. The rationale behind these reforms is to increase government revenue, reduce fiscal deficits, and create an enabling environment for sustainable economic growth. Recent studies suggest that when taxation is structured efficiently, it can contribute to improved national income, spur private sector investment, and enhance overall economic productivity (Olu, 2023; Ibrahim, 2024).
However, the relationship between taxation and economic growth is complex. While higher revenue can finance public investment in infrastructure, education, and healthcare, excessive taxation may also burden businesses and reduce incentives for innovation and expansion. Moreover, the impact of tax reforms on growth depends significantly on implementation efficiency, taxpayer compliance, and the broader macroeconomic environment. Some sectors have experienced positive spillover effects due to increased public spending financed by tax revenue, whereas others have struggled with increased operational costs and reduced competitiveness. This study seeks to systematically assess how changes in taxation affect national economic growth, focusing on key economic indicators such as GDP growth rate, investment inflows, and job creation. It will also explore how tax policies can be fine-tuned to balance revenue generation with growth stimulation. By analyzing both quantitative data and qualitative policy reviews, this research aims to provide actionable insights for policymakers to optimize the tax regime for enhanced national economic performance.
Statement of the Problem
Despite ongoing tax reforms designed to boost national revenue and stimulate growth, Nigeria continues to face challenges in translating increased tax collection into robust economic expansion. While improved tax administration and a broadened tax base have led to higher revenue figures, the expected acceleration in GDP growth has not been consistently observed (Olu, 2023). Critics argue that inefficient tax collection systems, high compliance costs, and the uneven burden on different sectors may negate the potential growth benefits. In some cases, increased taxation has led to reduced investment levels as businesses face higher operating costs, resulting in a dampening effect on job creation and productivity (Ibrahim, 2024). Furthermore, the lack of transparency and effective feedback mechanisms in tax administration complicates efforts to assess the true impact of these reforms. As a result, policymakers are confronted with the dual challenge of maintaining adequate revenue levels while ensuring that taxation does not stifle economic dynamism. This study aims to disentangle these effects by evaluating the direct and indirect channels through which taxation influences economic growth, thereby identifying policy gaps and recommending measures to achieve a more balanced fiscal approach.
Objectives of the Study
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To assess the direct impact of recent tax reforms on Nigeria’s GDP growth.
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To identify the channels through which taxation affects private sector investment and productivity.
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To recommend policy adjustments for optimizing tax collection while stimulating economic growth.
Research Questions
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How have recent tax reforms impacted national economic growth in Nigeria?
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What are the primary channels through which taxation influences investment and productivity?
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What policy adjustments can balance revenue generation with growth stimulation?
Research Hypotheses
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H1: Efficient tax reforms have a significant positive impact on national economic growth.
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H2: Excessive tax burdens negatively affect private sector investment.
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H3: Enhanced digital tax administration correlates with improved economic performance.
Scope and Limitations of the Study
This study examines tax reforms and their economic impact in Nigeria between 2023 and 2025 using government data, economic surveys, and academic literature. Limitations include potential data inconsistencies, external economic shocks, and challenges in isolating the impact of taxation from other fiscal policies.
Definitions of Terms
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Taxation: The system by which the government collects revenue from individuals and businesses.
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Economic Growth: An increase in the production of goods and services, typically measured by GDP.
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Tax Base: The aggregate of individuals or entities subject to taxation.
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Digital Tax Administration: The use of digital systems to enhance tax collection efficiency.
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