ABSTRACT
The effective functioning of government is imperative to the growth of the economy and the maintenance of proper external relations with other countries. To function effectively, there is need for government to generate enough revenue. It is in view of this that this study investigates the factors that influence the tax-to-GDP ratio in Nigeria. Specifically, the study examines the effect of economic factors such as natural resource revenue, agriculture, per capita GDP and trade openness on tax-to-GDP ratio. The justification for the study was borne from the recent advocacy for increased tax revenue, dwindling oil revenue, the dearth of research on the tax-to-GDP ratio in Nigeria as well as the need to empirically examine factors that affect tax-to-GDP ratio in Nigeria.
The study adopts the ex-post factor research design. It covers a period of thirty-nine years from 1980-2018. Secondary data on Nigeria’s natural resource revenue, agriculture, per capita GDP and trade openness were sourced from world development indicator of the World Bank, and the Federal Inland Revenue Service of Nigeria. Data collected were analysed and the ordinary least squares estimation technique was used for testing the hypothesis formulated for the study.
It was revealed that natural resource revenue, agriculture and per capita GDP have negative influence on the tax-to-GDP ratio in Nigeria, while trade openness was found to relate positively to tax-to-GDP ratio. However, natural resource revenue and trade openness were statistically insignificant. Based on the study, it was recommended that the present policy on diversification from oil revenue should be meaningfully pursued, the focus should be on increased monetisation and formalisation of the agricultural sector, the high level of informal economic activities should be reduced and the country’s international trade should be strengthened with adequate policy.
