The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis

One of the most commonly discussed issues in Economics is how tax rates relate to economic growth. An effective tax system ought to satisfy the twin purposes of raising maximum revenue as well as encourage production. In light of this, the paper examined the nexus between the Nigerian Tax System and economic growth using correlation method and Granger Causality to establish the relationship. The paper revealed that the tax system has no significant impact on growth because of the numerous challenges confronting the system. Further analysis of the components of the tax system shows that Custom Duties have more impact on economic growth than Company Income Tax, Value Added Tax and Petroleum Profit Tax. The paper also revealed a negative and insignificant relationship between Petroleum Profit Tax and Company Income Tax on the one hand, and between Petroleum Profit Tax and Value Added Tax on the other hand. Consequently, the paper recommended that the Nigerian tax system should be reformed so that it can have a significant impact on economic growth. Government should also embark on policies and programmes that will enhance the level of income of the citizens with a view to accelerating consumption, investment, employment, and tax revenue.