Effect of Petroleum Profit Tax on Capital Expenditure in Nigeria

Abstract

Taxation is considered the most sustainable and reliable source of revenue used to promote economic growth and development. It is the responsibility of the government to identify, generate, and harness the various revenue opportunities and effectively allocate such scarce resources among the productive sectors in the economy. To this end, the study examines the effect of petroleum profit tax in Nigeria covering a period of 36 years ranging from the year 1985 – 2020. Secondary data were collected from the Central Bank of Nigeria Statistical Bulletin, National Bureau of Statistics (NBS), Federal Inland Revenue Service (FIRS), and Organisation for Economic Cooperation and Development (OECD) for the period 1985 - 2020. The data were analysed using multiple regression techniques. Findings reveal the tax revenue exerts a positive and significant effect on public expenditure in Nigeria. In addition, the F-test and coefficient determination discloses that the models of the study were significant in explaining the relationship between the dependent and independent variables which were captured by CE and PPT. The study, therefore concludes that; tax revenue has a significantly positive impact on public expenditure and by extension on public sector financial management and does substantially reduce the inefficiencies associated with the budgetary frameworks, particularly in the agricultural sector in Nigeria. The study recommended that Government should focus not only on petroleum profit tax revenue generation but should also re-direct its attention to proper management of the tax revenue and effective control of necessary expenditure that would adequately enhance economic growth. Revenue generated from CED should be used judiciously to develop other sectors of the economy most especially the agricultural sector at large to boost economic growth.