Accounting Project Topics

The Effect of Company Income Tax on Nigerian Economy (1981–2017)

The Effect of Company Income Tax on Nigerian Economy (1981–2017)

The Effect of Company Income Tax on Nigerian Economy (1981–2017)

Chapter One


The main objective of the study is to assess the impact of Company income tax on Nigerian economy. The specific objectives  are;

  1. To examine the effect of company income tax on economic growth in Nigeria.
  2. To evaluate  the trend of company income tax on economic growth in Nigeria.

Chapter Two

Literature Review

The concepts of tax and taxation in prior researches have been largely discussed in different contexts by tax experts, academic scholars, international organizations as well as different governments. For example, The World Bank (2000) noted that taxes are a compulsory transfer of resources to the government from the rest of the economy, while Adeyeye (2004) described tax as a liability on account on the fact that the taxpayer has an income of a minimum amount and from certain specified source(s). However, in a simple term for the purpose of this study, tax is a compulsory fee individual, as well as corporate bodies, are obliged to comply with as stipulated by the tax laws, while taxation is the process of administering the tax laws in the way that achieves government objectives. And so, tax revenue is a major source of fund for any government and the availability of fund is a very crucial aspect of running a State. Although several options according to Soyode and Kajola (2006) are available to governments for raising fund, company income tax remains the principal source (Kiabel & Nwokah, 2009). This chapter seeks to review the works of scholars who vehave written on the topic and to effectively explain the conceptual and theoretical frameworks of the impact of company income tax on economic growth.

Concept of company income tax

Companies Income Tax Act, LFN 2007 is the current enabling law that governs the collection of taxes on profits made by companies operating in Nigeria excluding companies engaged in Petroleum exploration activities. This Tax is payable for each year of assessment of the profits of any company at a rate of 30% (Adereti 2011). According to Ola (2006), Companies ‘income tax administration in Nigeria does not measure up to appropriate standards. If good old tests of equity, certainty, convenience and administrative efficiency are applied, Nigeria will score low considering the following points: Due to inadequate monitoring, persons in the self-employed and unquoted private companies group evade tax. In a study conducted by Festus and Samuel (2007) on company Income Tax and the Nigerian economy, they conclude that Company income tax is a major source of revenue in Nigeria but non- compliance with tax laws and regulations by taxpayers is deep in the system because of weak control. There is a need for general tax reform in the Nigerian company income tax system.


Taxes are considered a problem by everyone. Not surprisingly, taxation problems date back to earliest recorded history.

During the various reins of the Egyptians pharaohs tax collectors were known as ‘scribes’. During a period the scribes imposed a tax on cooking oil. To insure that citizens were not avoiding the cooking oil tax scribes would audit households to insure that appropriate amounts of cooking oil were consumed and that citizens were not using leavings generated by other cooking processes as a substitute for the tax oil.

In times of war the Athenians imposed a tax referred to as ‘eisphora’. No one was exempt from the tax which was used to pay for general wartime expenditures. The Greeks are one of the few societies that were able to rescind the tax once the emergency was over. Athenians also imposed a monthly poll tax on foreigners, people who did not have both Athenian mother and father.

The earliest taxes in Rome were customs duties on imports and exports called ‘portoria’. Caesar Augustus was considered by many to be the most brilliant tax strategist of the Roman Empire. During his reign cities were given the responsibility for collecting taxes instead of the publican and also instituted an inheritance tax to provide retirement funds for the military. Saint Matthew was a tax collector from Capernaum during Caesar Augustus reign. Income tax was announced in Britain by William Pitt who is often referred to as the father of income tax in his budget of December 1798 and introduced in 1799, to pay for weapons and equipment in preparation for the Napoleonic wars. The tax was repealed in 1816 and opponents of the tax who thought it should only be used to finance wars wanted all records of the destroyed along with its repeal.

Taxation can be explained from the administrative perspective. It is easier to tax import goods than domestic output. Import duties were among the earliest taxes. Similarly, the simple turnover tax (levied on gross sales) long held precedence over the conceptually preferable value added tax.

Taxes played relatively minor role in the ancient world and taxes on consumption were levied in Greece and Rome. Tariffs on imported goods were often of more considerable importance than internal excise duty so far as the production of revenue went. Later taxes on property were imposed temporarily and were confined to real property and later extended to cover other assets.

During the latter parts of the middle ages, some German and Italian cities introduced several direct taxes such as head taxes for the poor. Indeed, taxes have been a major subject of political controversy throughout history, even before they formed a sizeable part of the national income. A notable instance is the rebellion of the American colonies against Great Britain when the colonies refused to pay taxes imposed by parliament in which they have no voice, hence the slogan “No taxation no representation” raised by James Otis in 1764 according to Stanley L.Klos book (Economic Home Run, 1999). Payment of tax especially income tax is not a pleasant exercise to the taxpayer.




 Research design

This study adopts the exploratory and ex-post facto design. The exploratory design is used to gather relevant materials from text books, journal articles and so on while the ex-post facto design is adopted on the basis that it does not provide the study an opportunity to control the variables mainly because they have already occurred and cannot be manipulated. The data for this study were obtained mainly from secondary sources. In order to examine the impact of company income tax on gross domestic products in Nigeria, information from National Bureau of Statistics concerning Company Income Tax (CIT) and Gross Domestic Product (GDP) covering the the period of years 1981-2017 (35years) is used.

 Sources of Data

The study used secondary annual data that covers the period from 1993 to 2017 obtained from the NDIC Annual reports for various years and the Central Bank of Nigeria (CBN) Annual reports/statistical bulletins and, economic and financial journals, using the desk survey method. To check for and control probable sources of errors and spuriousness of results as well as maintain stochastic stability, data are compared from at least three different sources before acceptance and subsequently tested for stationarity. As a result of the time that has elapsed between when these frauds were consummated and the time of this study, as well as the unwillingness of companies to provide information on tax history (Onanuga and Oshinloye, 2012), the assessment tool of practical oral interviews/questionnaire was dispensed off and reliance placed on secondary data obtained as indicated above.

Methods of Data Collection

Time series data were collected for the period between 1993 and 2017 on company tax and economic growth, using the desk survey method. To bring out the focus of the study, the data on the variables were extracted from the publications, bearing in mind the study objectives and hypotheses. Nonetheless, the collection of data on its own is of limited value unless the data so collected is preserved and presented in a manner that makes it highly comprehensive, informative and usable (Eboh, 1998).



 Data Presentation

This section presents results and discussions of major findings of the study. Descriptive statistics areare discussed first, and finally, the multiple regressions result.





This study examines the impact of company income tax revenue on gross domestic products in Nigeria. It is stated that company income tax revenue plays a crucial role in the economy activity and making funds available in the government purse that can be used to adequately execute massive projects to the benefit of the citizens of the country. The findings of this study have contributed towards a better understanding of company income tax and show it contribution towards growth and economic development of Nigeria. Apparently, the place of taxation in a nation building has been described as irreplaceable.

According to the economic analysis, company income tax revenue remains a strong socio-political and economic tool for economic growth and national prosperity. Although the issue of tax leakages is of global concern the Nigerian situation seems inimitable when viewed against the scale of corrupt practices prevalent in Nigeria. Also, the poor state of the present gross domestic products rate in Nigeria is pointing to the direction of tax leakages in the form of avoidance and tax evasion which the government could minimize if proper tax reform strategies are establish. Therefore, the provision of basic infrastructure is quite necessary for development and growth of any society, and it is only by a good and an efficient tax system can a nation achieve its social responsibility.

The study thus makes the following recommendations:

  1.  Government should endeavour to support companies by providing basic public amenities to all nooks and crannies of the country as this will boost the level of tax compliance in Nigeria;
  2.  To enhance the tax base of government, employment opportunities should be created and a good environment for entrepreneurship and innovation to thrive made using tax proceeds;
  3.  Government should engage in a complete re-organization of the tax administrative machineries in order reduce tolerable problems of tax evasion and avoidance and;
  4.  The culture of good governance should be embraced by the government so as to secure the loyalty of the populace to good tax culture.


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