Mobilization of domestic resources for economic development financing in Nigeria: does tax matter?

Abstract

The vagaries of flow of external financing and its negative impact on the sustainable financing of development in developing countries has made it expedient that developing countries look inward to domestic resources as a reliable and sustainable source of financing development as well as achieving sustainable economic growth and development. Nigeria as a developing country has heeded this policy option and has initiated different policies and programmes towards strengthening her domestic resource mobilization through improved taxation and non-taxation revenues. This study seeks to investigate whether tax matters to domestic revenue mobilization for development financing in Nigeria. Using time series data sourced from the Central Bank of Nigeria (CBN) and World Bank data base and applying Autoregressive Distributed Lag Model and Error Correction Model, the study found that lagged values of tax and total export matter in domestic resource mobilization. The study also found that certain lagged values of taxation displayed an inverse relationship with development which suggest some level of tax evasion, weak administrative tax system as well as official corruption. On the strength of the findings, the study recommended that government should intensify her tax drive through rationally expanding the tax base through creation of employment, closing loopholes for tax evasion and official corruption as well as reduced over-reliance on crude oil revenue which engenders resource course. In addition, the government should re-enforce the Freedom of Information (FOI) Bill to promote information sharing that will ensure compliance to tax laws by tax payers.