Effect of Indirect Tax Revenue on Government Expenditure in Nigeria

Abstract

Government expenditure has continued to grow in a stepwise direction without a proportionate increase in revenue generation. The Nigeria economyhas witnessed spiral fall in oil revenue which accounts for its major source of income with less emphasis on indirect taxation. The objective of the study is to determine the effect of indirect taxation on government recurrent expenditure and capital expenditure in Nigeria. Ex post facto research design was adopted to test the cointegration between indirect taxation (independent variable) and government recurrent and capital expenditure (dependent variable). Time series data are used in this study.For this study secondary data was collected from the Central Bank of Nigeria Statistical Bulletin and Organization for Economic Cooperation and Development (OECD) for the period 1995 to 2018. The data were analysed using the Ordinary Least Squares (OLS) regression technique. The analyses revealed that indirect tax revenue has a positive and significant effect on both government recurrent and capital expenditure. The result also revealed that indirect tax revenue is contributing to government recurrent expenditure than government capital expenditure in Nigeria. Therefore, the Government needs to consider merging its Agencies and Parastatal to reduce the high personnel and administrative cost. Reduce borrowing to curb the high debt servicing which accounts for the huge recurrent expenditure. Increase and diversify its revenue base to indirect taxation considering the dwindling oil revenue, while similar studies have proven that taxation remains the most sustainable means of government revenue. Development of an automated tax collection system should be deployed across the Federation for seamless tax administration.