Towards Sustainable Growth: Does Indirect Tax Revenue Enhance Nigeria's Economic Growth?

Abstract

This study investigates the impact of indirect tax revenue on Nigeria's economic growth using the Autoregressive Distributed Lag (ARDL) model. Employing quarterly data from the period between 2011q1 and 2023q4, we evaluate both the short-run and long-run contribution of indirect tax revenue to Nigeria's growth trajectory. The short-run results reveal that company income tax (CIT) and petroleum profit tax (PPT) are significant drivers of economic growth. In the long run, PPT and capital gain tax (CGT) positively influence gross domestic product (GDP), whereas CIT, gas income (GI), and stamp duty (SD) have negative effects. Furthermore, the error correction term (ECM) coefficient of -0.84, which is statistically significant at the 1% level, confirms a strong short-run adjustment mechanism, indicating that 84% of disequilibria are corrected within one period. The study concludes that while indirect tax revenue can positively affect economic growth, poor administration and mismanagement, particularly in CIT and SD, hinder their developmental impact. Therefore, we recommend modernising the tax system, enhancing transparency, and aligning fiscal policies with 21st-century demands to improve efficiency, accountability, and inclusive economic growth in Nigeria.