Tax Reforms and Nigeria’s Economic Stability

Abstract

Tax reforms represent a fundamental strategy of a country’s fiscal consolidation and governance. In this study, we examine the effect of tax reforms on economic stability of Nigeria over a 16-year period, 2000-2015. The study used a transformed econometric linear model to assess how and to what extent tax reforms support economic stability, proxied by gross domestic product (GDP). We identify company income tax and petroleum profit tax as key levers to Nigeria’s fiscal stability. However, while VAT reforms have positive relationship with economic stability, the effect is negligible. Although every tax reform has a positive effect on revenue accretion, greater attention should be paid to those components of fiscal reform that have prospective significant positive consequences on economic growth and stability as against a blanket reform proposal that includes aspects with a potential negative outcome. A decision-analytic prognosis about the governance architecture of Nigeria’s tax ecosystem suggests (a) that effective and efficient tax administration, as a component of fiscal policy, is central to a country’s fiscal management, macroeconomic growth and stability, and (b) an urgent improvement to validate the certainty and administrative integrity and transparency of the tax regime. In general, macroeconomic reforms, more so in SSA countries, must develop targeted and industry-focused fiscal initiatives and programmes that will stimulate productivity, competitiveness, efficiency, employment growth.