DIRECT TAXATION AND INCOME INEQUALITY IN NIGERIA

ABSTRACT

The study examined direct taxation and income inequality in Nigeria. However, four specific research Objectives was raised for the study, which were to; analyse the significant relationship between capital gains tax, personal income tax, company income tax, custom and excise duties and income inequality of GDP in Nigeria. The population for this research was based on a broad collection of secondary data sources for direct taxation and income inequality in Nigeria. These sources include information from government agencies, international organisations, and academic studies.  The study used secondary data obtained directly from the Federal Inland Revenue Service (FIRS), the Central Bank of Nigeria (CBN), and the National Bureau of Statistics (NBS), as well as World Bank Foreign Direct Investment (FDI) data and IMF reports. The data ranges from 2000 to 2023. The research used the Ordinary Least Squares (OLS) econometric approach to analyse the empirical model and look at the macroeconomic drivers of direct taxation and income inequality in Nigeria. A unit root test was used to identify the variables' integration ordering in order to examine their compliance with the selected econometric framework. An Error Correction Model (ECM) was designed to achieve co-integration by capturing short-run dynamics while retaining the long-run equilibrium connection. The research revealed that different kinds of taxes had a considerable impact on the degree of economic disparity in Nigeria. While there are positive relationships between these forms of taxation and income inequality, none of them are statistically significant. This implies that capital gains tax, personal income tax, company income tax, and customs and excise duties currently have a limited impact on reducing income inequality in Nigeria. Therefore, there is a need for the Nigerian government to reconsider and potentially restructure its tax policies to achieve a more equitable distribution of income and address the persistent issue of income inequality. Continuous evaluation and adjustment of tax policies are crucial for promoting economic equity and ensuring that the tax system effectively targets higher-income individuals and corporations while minimizing the burden on lower-income households.