**3.3. Evaluation criteria and data sources**

level, Chiumia and Simwaka, [40] analysed the effects of taxation in sub-Saharan Africa. They found that taxes levied on personal and corporate income reduces economic growth. From their study, one could be tempted to conclude that the tax structure is largely irrelevant in less developed economies, although we know from theory that embedded in an effective tax

The model specified for this study is adopted from Appah [41], Okafor, [42], Ogbonna and Ebimobowei [43] and Nwakanma and Nnamdi, [19]. We used a multiple linear regression model to capture the relationship between taxation and economic growth in Nigeria for the period 1986–2015. Included in the model are; real gross domestic product growth rate (RGDPgr), as the dependent variable; and companies income tax (CIT) revenue, petroleum profit tax (PPT) revenue, as well as customs and excise duties (CED) revenue as the

**i.** Petroleum profit tax (PPT) is the tax imposed on companies which are engaged in the extraction and transportation of petroleum products. It is related to rents, royalties, margins and profit-sharing elements associated with oil mining, prospecting and exploration leases [44]. Apart from providing revenue for the government, PPT also serves as an instrument through which the government regulates the number of participants in the petroleum industry and gain control over public assets [45]. In the context of Nigeria, like in other developing countries, the PPT is, in a sense, an instrument for wealth redistribution between the wealthy and industrialised economies who own the technology; and expertise and technical know-how, as well as the capital needed to develop the oil

**ii.** Companies income tax (CIT) is charged on the profit or gain of any company accruing in, derived from, brought into, earned in or received in Nigeria. The tax rate has been 30% and it is applied on the total profit or chargeable profit of the company but was reduced to 20% under the new (2010) tax policy. It should be noted that oil marketing companies, oil services companies are liable to tax under CITA at the rate 20% and Education Tax at

**iii.** Custom Duties constitute one of the oldest kinds of modern taxation in Nigeria having been introduced in 1860 as import duties. Excise duties are *ad-valorem* taxes on the output of manufactured goods and are administered by the country's Custom Service. They are taxes on the country's imports charged either as a percentage of the value of the imports

RGDPgr = a0 + a1 CIT + a2 PPT + a3 CED + U (1)

VAT though an important source of government revenue was only introduced in 1994 and as such its inclusion would

system are benefits for both the taxpayers and the government.

**3.2. Model specification and estimation technique**

explanatory variables.8

72 Taxes and Taxation Trends

and gas sector [34].

the rate of 2% on the assessable profit.

or as a fixed amount contingent on quality.

call for a major adjustment in the temporal scope of the study.

The model was thus explicitly specified as:

8

The results were evaluated based on the following criteria: economic *a-priori* criterion, statistical criterion and econometric criterion. We carried out tests to check if the signs and magnitudes of the estimated parameters conform to what economic theory postulates. The coefficient of determination (R<sup>2</sup> ), was estimated to capture the proportion of the total variation in the dependent variable, Real GDP growth rate, that can be explained by the explanatory variables explicitly captured in the model. We also used the F-test to test whether the explanatory variables included in the model are, jointly, significant or not in determining the level of economic growth while the T-Test was used to test the statistical significance of individual parameters of the regression model. To test autocorrelation, we adopted the Durbin Watson (D-W) statistic because of the absence of lagged dependent variables in the specified regression model while for Heteroscedasticity, we adopted the White's General Heteroscedasticity Test to ensure that the variance of the stochastic error term is constant. Our regression analysis relied heavily on secondary data published by the Central Bank of Nigeria (CBN), the National Bureau of Statistics (NBS), and Federal Inland Revenue Service (FIRS) covering the fiscal period 1986–2015 while data for descriptive analysis of tax trends in Nigeria, as well as cross country tax trends and performance among selected African countries, were sourced from FIRS and the International Monetary Fund (IMF).
