Impact of Income Tax Rates on Tax Revenue in Nigeria: 1986 - 2015 in Focus

Abstract

Governments all over the world have formulated policies and fixed tax rates
aimed at generating required quantum of revenue to foster growth and
productivity in their respective economies. The problem has been that not much has been achieved in terms of tax rates regulations over the years across the globe. It is indisputable fact that Government need tax revenue to meet her fiscal need. Various literatures and theories have suggested one way or another that increased tax revenue cannot be achieved without increase in tax rates. Hence, this study examines the impact of income tax rates on tax revenue in Nigeria from 1986 to 2015. The study equally takes scientific analyses of a directional influence of tax rates on tax revenue. It adopts the survey inferential research design. Population of the study consists of all the eight major tax handles under the jurisdiction of the federal government. Purposive sampling technique was adopted in the selection of a sample of three taxes on income. Data for analyses were obtained from both primary and secondary sources. The hypotheses formulated were tested using the Karl Pearson's product moment correlation analysis and
findings made. It was discovered that income tax rate have significant relationship with tax revenue as a whole but one of the coefficients of explanatory variables - company income tax rate exhibited a negative correlation with tax revenue. This result explains that company income tax rate and tax revenue are inversely related. This concludes that the lower the rate on company tax, the higher the revenue yields from company tax and vice versa. The study suggests that income tax base should be vertically broadened so as to capture more taxable items into the tax net. This will conveniently result in increase in tax revenue where ever practiced.