Abstract
This study examined
the effect of petroleum profit tax on Nigerian economy using some selected
economic performance indicators between 1986 and 2019.
It specifically: i. determined the effect of petroleum profit tax on per capita
income (PCI) of Nigerians; ii. Examined the effect of petroleum profit tax
revenue on government expenditure on the education sector; iii. Evaluated the
effect of petroleum profit tax revenue on government expenditure on the
agricultural sector and iv. assessed the effect of petroleum profit tax revenue
on government expenditure on the health sector. The
study adopted the ex-post facto research design as data were already in
existence and was sourced from relevant publications the Central Bank of
Nigeria statistical bulletins, and the releases of the National Bureau of
Statistics. The exogenous variable for the study is Revenue from Petroleum
Profit Tax while the endogenous variables are per capita income, government
expenditure on education, government expenditure on health, and government
expenditure on agriculture. Simple Linear Regression was used to test the
hypotheses. The result obtained showed a positive beta coefficient for
petroleum profit tax as against per capita income at 1% statistical
significance. The result gave residual statistics to support the strength and
relevance of the regression estimate such as the r-squared of 89% approximately
and f-statistics which has a significance of 1%. The analysis of the second
hypothesis also revealed that petroleum profit has significant impact on
government expenditure on education. The result further showed that petroleum
profit tax impacts positively and significantly on agriculture expenditure at
the lag of 6 years. The regression result was further strengthened by the
residual outcomes which reflected r-squared of 73% and f-statistics that has
probability of 1%. The result obtained from the fourth hypothesis showed that
petroleum profit tax has significant impact on health expenditure in Nigeria.
The result is premised on the positive outcome of the beta coefficient for
petroleum profit tax as against government expenditure on health at the lag
length of 2 years. The residual statistics supported the regression estimation
by showing a goodness of fit since the r-squared is 86% and probability of the
f-statistics is at 1%. Based on the findings reported during tests of all four
hypotheses raised in this thesis, the study therefore concludes that there is a
positive and significant association between petroleum profit tax revenue
collected and the four test variables used in this study. In other words,
government revenues from petroleum profit tax flows in the same direction as
per capita income of Nigerians, expenditure on education, Agriculture and
health as a measures of the nation’s economic performance. The study therefore
concludes that there is a positive effect of income from petroleum profit tax
and the economic indices investigated. The study therefore recommends that the
attitude of Nigerians to taxation should be encouraged to grow into voluntary
compliance to tax since it has been proved in this study that petroleum profit
tax and by extension tax revenues has significant positive impact on various
government expenditures. The Nigerian government should endeavor to solve
adequately the current national problem of mono-economy. This is because robust
regression estimate obtained for petroleum profit tax and various government
expenditures suggest that petroleum profit tax may account for a large part of
total government income obtained via taxation. And this reflects a picture of
more than proportionate dependence on the oil sector of the economy to generate
national income.
TABLE OF CONTENTS
Cover Page i
Title Page ii
Certification iii
Declaration iv
Dedication v
Acknowledgements vi
List of Tables viii
Abstract ix
CHAPTER
1
INTRODUCTION 13
1.1
Background to the Study 16
1.2
Statement of the Problem 17
1.3
Objective of the Study 18
1.4
Research Questions 18
1.5 Research Hypotheses 18
1.6
Significance of the study 19
1.6
Scope of the Study 19
1.7
Limitation of the study 20
CHAPTER 2
Review of Related Literature 21
2.1 Conceptual Issues 21
2.1.1 Concept of Taxation 21
2.1.2 Tax Administration in Nigerian 25
2.1.3 Brief History of Tax revenue
System in Nigeria 29
2.1.4 The Nigerian Tax Structure and
tax System 30
2.1.5 Federal Government Collectible
Taxes in Nigeria 34
2.1.6 Petroleum Profits Tax 35
2.1.7 Role of Tax revenue in Economic
Growth and Development 37
2.1.8 Contributions of Petroleum Industry to Growth of the Nigerian
Economy 37
2.2 Theoretical Framework 45
2.2.1 Theories of Taxation 45
2.2.2 Theories of Economic Growth 46
2.3
Empirical Reviews 47
2.3.1 Effect of Taxation on Economic Growth 47
2.3.2 Effect of Petroleum Profit Tax on
Economic Growth 50
2.4 Summary and Gap In literature 56
CHAPTER 3
3.0 METHODOLOGY 57
3.1 Research Design 57
3.2 Area of Study 57
3.3 Source of Data 58
3.4 Research Variables 58
3.4.1 Dependent variables 58
3.4.2 Independent Variables 58
3.5 Method of Data Collection 59
3.6 Method of Data Analysis 59
3.7 Model Specification 59
3.8 Data Estimation and Evaluation
Technique 62
CHAPTER 4
4.0 Results and Discussions 63
4.1 Descriptive Analyses of Variables 63
4.2 Unit Root Tests 66
4.2.1 Unit Root at Level 66
4.2.2 Unit Root at First Differencing 67
4.3 Co-integration Analysis of Variables
68
4.4 Granger Causality Tests 70
4.5 Tests of Hypotheses 73
4.5.1 Test of Hypothesis 1 73
4.5.2 Test of Hypothesis 2 75
4.5.3 Test of Hypothesis 3 77
4.5.4 Test of Hypothesis 4 79
4.6 Discussion of Findings 81
CHAPTER 5
5.0 Summary, Conclusion and Recommendations
84
5.1 Summary of Findings 84
5.2 Conclusion 85
5.3 Recommendations 86
References 89
Appendix
1 93
Appendix
2 95
LIST OF TABLES
Table
1: Descriptive Analyses of Variables 66
Table
2: Unit Root Test Results at Level 70
Table
3: Unit Root Test Results at First Differencing 71
Table
4: Co-integration Test Result 72
Table
5: Granger Causality Test Result 74
Table
6: Regression of Petroleum Profit Tax on Per Capita Income of Nigerians 77
Table
7: Regression of Petroleum Profit Tax on Government Expenditure on Education of Nigerians 79
Table
8: Effect of Petroleum Profit Tax on Government Expenditure on Agriculture
81
Table
9: Effect of Petroleum Profit Tax on Government Expenditure on Health 83
Table
10: Appendix I Research data 93
CHAPTER
1
INTRODUCTION
1.1 Background to the Study
Every nation of the world is faced with
the responsibilities of providing adequate security, sound health facilities,
education facilities, infrastructure and other welfare packages to its
citizenries. To carry out these primary and other functions, adequate funding
is need.
Over the years, Nigerian economy has been
dependent on revenue from Oil and gas industry. Since oil and gas was
discovered in 1967, crude oil and gas has become the pivot of the economy
having witnessed a shift from the agricultural sector. The dominance of the
economy by the petroleum sector from the late 1960s to the early 1970s reduces
the contribution of agricultural sector to the nation's economy; but how much
oil and gas sector has contributed to economic development of Nigeria is the
main thrust of this study as there is no much improvement in the life of her
citizens (Azaiki & Shagari, 2007).
Previous studies on the impact of this
sector to the development of Nigerian economy in the last decades indicated
that the petroleum industry has been playing a dominant role and occupies a
strategic position in the economic growth of Nigeria (Azaiki & Shagari,
2007). But how this has translated to the improvement of lives of the citizens
especially, with the continued increase in the nation's population and the
recent fall in the price of crude oil still remained unanswered.
Nigeria can be arranged as a nation that
is fundamentally rustic, which relies upon essential item sends out,
(particularly oil items) to subsidize its formative projects. Unrefined
petroleum revelation has affected the Nigeria economy both emphatically and
unfavorably. On the negative side, this can be considered as for the
encompassing networks inside which the oil wells are abused.
A portion of these networks still endures
natural corruption, which prompts hardship of methods for occupation and other
monetary and social variables. Albeit enormous continues are gotten from the
household deals and fare of oil-based goods, its impact on the development of
the Nigerian economy as respects returns and profitability is as yet flawed.
The disclosure of oil in Nigeria additionally proclaimed oil tax collection
approach.
The Policy utilized both as a monetary
strategy and pay creating apparatus is broadly utilized by the government in
both creating and created nations. The administration at different occasions
settles on what level of assessments that can be forced on the benefits earned
by oil outfit. The assessment framework is an open door for the government to
gather extra income required in releasing its squeezing commitments (Nwete, 2004).
An expense framework offers itself as one
of the best methods for assembling a country's inside assets and it fits making
a situation helpful for the advancement of financial development. Oil is the
predominant wellspring of government income, representing around 90 percent of
the absolute fares, and this approximates 80 percent of all-out government
incomes.
The significant wellsprings of oil salary
are the clearance of unrefined petroleum and gas (oil income), Petroleum
benefits expense and sovereignties, authorizing charges and different
miscellaneous items as appeared in CBN Statistical Bulletin (2017). The
principle focal point of Petroleum Profits Tax (PPT) is the upstream part of
the Petroleum business, which manages oil investigation, prospecting,
improvement, and creation (EPDP). Oil Profits Tax pulled in 85% assessment rate
on the fare and 65.75% on household clearance of oil and gas and this record
for a piece of income that gathers from the expense in Nigeria.
In spite of the fact that numerous
investigations showed that income from this part had a positive effect on the
Nigerian economy, one may ask why different areas of the economy that assume to
uncover the viability of the commitment keeps on the affliction. The job of oil
area towards the procedure of national advancement should be found in the part
of business age, outside trade profit, pay age, industrialization,
infrastructural advancement, great wellbeing, rural improvement and improvement
in other financial factors.
While the real financial specialists in
the oil business are the global oil organizations, the legislature controls oil
tasks in Nigeria through the Petroleum Profit Tax Act (PPTA) of 2007 as
altered, with its primary monetary instrument as the Petroleum Profit Tax
(PPT), through which Petroleum income accumulate to the administration. As
indicated by Nwete (2004), the goals of oil tax collection incorporate;
accomplishing government's goal of practicing right and power over the open
resource, just as managing the number of members in the business and
debilitating its fast exhaustion so as to ration some of it for a future age.
An expense framework offers one of the
best methods for activating the nation's interior assets, and it fits making a
situation favorable for the advancement of financial development. Since there
is no target measuring stick for sharing monetary riches between the different
gatherings associated with the oil movement, a discussion will consistently
exist among speculators and the host government.
Duty rates that are set too low can leave
the legislature or the country, the proprietor of the asset, with a little and
biased segment of the expense income. Be that as it may, if expense rates are
excessively high, the venture can be disheartened in both new extends and in
continuing the capital speculation required to augment future worth included
from existing activities (Joanne, Lester & Hunt, 2011).
Thus, there ought to be an ideal duty rate
that won't discourage ventures and will create a genuinely necessary income to
create other basic parts of the economy. This will be conceivable to decide
when an observational examination on the effect of oil charge on monetary
execution markers has been set up and this is the primary point of this
investigation.
1.2 Statement of Problem
A decent charge framework causes the
administration to assemble income to release administration to her natives and
create other significant divisions of the economy. Of the considerable number
of kinds of expenses in Nigeria, oil benefit duty has the most elevated expense
pace of 85% charged on the assessable pay of organizations engaged with the
upstream part of the oil business. This infers oil benefit charge (PPT)
represents the bigger extent of assessment income in Nigeria.
A few contentions have trailed the spot of
oil benefit assesses as a device for upgrading infrastructural improvement in
Nigeria. Some have presented that oil benefit duty has enormously helped the
income base of the legislature and accordingly bolster monetary development.
Others have it that the expenses have not altogether influenced financial
development in Nigeria.
These studies failed to reveal how revenue
realized from petroleum profit tax translate to the improvement of the citizens
lives. For example the standard of living of the citizens has continue to be in
a poor state, education sector, agricultural sector, health sector are in poor
states and other infrastructural facilities has nothing to write home about.
The over dependence on the oil sector as
revealed by previous researchers is also a threat to the stability of Nigerian
economy especially of the fact that there is wide speculation that the oil
deposit which is major determinant of petroleum profit tax will dry up in
future. Hence, if Nigerian economy is driven by revenue from the oil and gas
sector, one begin to wonder what will happen if the oil dries up? One would
have thought that since there is this prediction of oil drying up in the near
future, the nation ought to have utilized the revenue generated from oil to
develop the revenue potentials of the other critical sectors; but this appears
not to be so.
Another problem worthy of looking into is
the lack of developmental effect felt by other sectors living the entire
nation's economy in a perpetual ailing state despite the huge revenue realized
from petroleum profit tax over years with no practical effect of economic
growth witnessed in the other real sectors of the economy? Furthermore, the
failure of previous researchers to use economic indicators that would reveal
the practical developmental effect of petroleum profit tax revenue on the other
real sectors of the economy, aside the traditional GDP which is mostly an
economic growth indicator, cover up the developmental contributions of
petroleum profit tax revenue on those other real sectors. It is in view of this
that this study is conducted to establish the effect of petroleum profit tax on
Nigerian economic development using some selected economic performance
indicators such as government expenditure on education, health, agriculture,
per capita income.
1.3 Objectives of the Study
The broad objective of this study is to
examine the effect of petroleum profit tax on Nigerian economic performance
between 1986 and 2019.
The specific objectives therefore are to:
1. Determine the effect of petroleum
profit tax on per capita income (PCI) of Nigerians
2. Examine the effect of petroleum profit
tax revenue on government expenditure on the education sector.
3. Evaluate the effect of petroleum profit
tax revenue on government expenditure on the agricultural sector.
4. Assess the effect of petroleum profit
tax revenue on government expenditure on the health sector.
1.4 Research Questions
Arising from the above objectives are the
following Research Questions:
1. To what extent does Petroleum Profit
tax revenue affect per capita income (PCI) in Nigeria?
2. To
what extend does petroleum profit tax revenue exert impact on government
expenditure in education?
3. To what extent does petroleum profit
tax revenue affect government expenditure in agriculture?
4. How does petroleum profit tax revenue
affect government expenditure in health?
1.5 Research Hypotheses
The accompanying speculations are figured
and were exactly tried in the investigation:
HO1: Petroleum Profit Tax
does not fundamentally have effect on per capita income of Nigerian
HO2:
Petroleum Profit Tax does not have noteworthy effect on government expenditure
in Education
HO3:
Petroleum Profit duty does not have
significant effect on government expenditure in Agriculture
HO4:
Petroleum profit Tax does not have huge effect on government expenditure in
Health
1.5 Significance of the Study
In Nigeria, oil benefit expense is a
noteworthy wellspring of income to the central government (Jerry, 2005). The
Petroleum Profit Tax gathered by the government empowers the administration to
do its arranged spending plan and consumption, in this way converting into
monetary development.
The examination discoveries would be of
significance to strategy creators at national level as they structure
arrangements planned for upgrading monetary development and improvement through
a superior assessment income framework. Arrangement producers, particularly the
Federal Inland Revenue Service will utilize the result of the examination to
measure its exhibition, and decide the degree of information it would need to
make to impact decidedly to the Nigerian economy.
Understudies, academicians and different
researchers who wish to embrace further explore on oil benefit charge and
monetary execution will discover the writing, discoveries, ends and suggestions
emerging from this investigation to be of incredible worth, as it will be added
to the current writing.
1.6 Scope of the Study
This study covers the impact of petroleum
tax revenue on selected economic indices over a period of 33 years (from 1986-2019).
The focus was based on data obtained from
the federal Inland Revenue Service (FIRS), Central Bank of Nigeria (CBN)
Statistical Bulletin and National Bureau Of statistics of the respective
periods. The choice of the date is informed by the fact that it covers period
of increasing revenue as a result of oil boom. The dependent variables are four
economic indices/sectors of Nigeria: per capita income of Nigerians, Federal
Government expenditures on Health, Education and Agriculture
1.7 Limitations of the study
The research despites the success recorded
just like other research works is not free from some setbacks and challenges
which were battled through. Prominent among these limitations are:
1.
Time: The challenges of sharing the limited time between this study and
office schedule has not been easy.
2.
Financially resource: Another major setback encountered during the course of
this study is the finances involved which was not sufficient especially with
the current state of the nation's economy.
3. Office Pressure: This accounted for the
major setback of the study; these involves scheduling the researcher for
special assignment and even posting out to a far station without consideration
for the programme under study thereby leaving the researcher spending most of
his time travelling from North and west to East for the programme.
4. Difficulty in material gathering is
also a setback suffered during the course of the study.
5. Distance of the study centre
Despite all these challenges, the study
was made possible through borrowing, pleading with my boss in the office to
accord the researcher time, proper time management and liaising with friends to
access data for this work. At certain places tips were given for data to be
released.
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