Title Page                                                                                        i

Certification                                                                                     ii

Approval Page                                                                                iii

Dedication                                                                                                 iv

Acknowledgements                                                                        v

Abstract                                                                                           vi

Table of Content                                                                                      vii



  • Background to the Study 1
  • Statement of the Problem 3
  • Research Questions 4
  • Research Objectives 5
  • Research Hypotheses 6
  • Scope and Limitation of the Study 6
  • Significance of the Study 7
  • Organization of the Study



2.1 Theoretical Literature Review                                                 8

2.1.1 Conceptual Issues                                                                8

2.1.2 Basic Theories                                                                      26

2.1.3 Other Theoretical Literature Review                                   28

2.2 Empirical Literature Review                                                    32

2.3 Summary of Literature Review                                                         36

2.4 Justification of the Study                                                                   37



3.1 Theoretic Framework                                                               38

3.2 Model Specification                                                                 39

3.3 Method of Analysis                                                                            43

3.4 Estimates Techniques and Procedure                                  43

3.5 Evaluation of Estimates                                                                    45

3.6 Nature and Sources of Data                                                   50




4.1 Result Presentation                                                                 51

4.1.1 Descriptive Statistics                                                            54

4.2 Data Analysis                                                                           55

4.3 Research Hypotheses




5.1 Summary of Findings                                                              61

5.2 Conclusion                                                                                64

5.3 Recommendation                                                                     65












This study examines the role of personal income tax on the economic growth of Nigeria. The objective of the study was to determine how tax income affects economic growth in Nigeria. To achieve this objective, relevant secondary data from the period of 2000-2012 on personal income tax were collected from the Central Bank of Nigeria (CBN) statistical bulletin. The data collected for the study  were analyzed using the ordinary least square (OLS) method of regression using SPSS to explore the relationship between the GDP (the dependent variable) and the PIT, TTR and TGOv Exp (the independent variables) head over the period, which where considered as the model. The result shows that there is a significant positively relationship between the dependent variable (GDP) and the independent variable (PIT, TTR, Gov Exp). The model indicates that the variables as a group explains economic growth and development of Nigeria. It was gathered that personal income tax is generally effective in the growth and development of Nigeria as it is one of the source of revenue to the federal, state and local government. It is recommended that well equipped database on tax payers should be established by the federal state and local government with the aim of identifying all possible source of income to tax payer for tax purposes.







  • Background to the Study

Social scientists maintain that there is a social contract between the people and the government whereby the former accept of forget some of their fundamental rights and also make certain contributions in return for the provision of common services by the latter. Alas (2003). These common services include the maintenance of internal and external security, provision of health and educational facilities, roads, electricity, communication network and so on. To enable the government carry out these welfare services or responsibilities. It is imperative that adequate finances be raise. One of the means through which such funds are raise by government is taxation, Ebiringa and Emeh (2012). Taxation can be defined as a system and procedure adopted by government to raise revenue. It is also the process of employing method of raising money for government by the imposition of taxes on goods and services. A substantial part of government revenue comes from tax. Olorunleka (1985), also define taxation as the process or machinery by which a community or group of people is made to contribute part of their income in some agreed quantum and method for the purpose of the administration and development of the society.

Ola (1999) defined tax as a compulsory financial contribution made to the government by individual and corporate bodies. It is a form of withdrawal made by government for a particular or some economic development purpose. Tax as a compulsory contribution from a person to government is to defray the expenses incurred by the common interest of all without reference to social benefit.

The essence of taxation is to generate income for the government, and the money realized from tax is used by the government to provide economic development and social benefit to the public such as education and wealth, redistribution of income, economic development, maintenance and construction of roads, provision of pipe borne water etc, and also to meet government demand and financial responsibility in Nigeria.

Income tax applies generally to the commodities consumed by the private sector (i.e, household, individuals and businesses) and their income. It is one of the fiscal tools government use in both developing and developed economies to achieve the goals of economic growth. The legal basis for personal income tax is found in the provision of the personal income tax decree (now Act) 104 of 1993 thereafter sub-sequence amendment Act has taken place till date. Every tax payer in Nigeria is liable to pay tax on the aggregate amount of his income whether derive from within or outside Nigeria, the salary, wages, fees, allowance and other gains of benefit given or granted to an employee are chargeable tax. In the view of Okafor (2012), Income tax is levied on income such as salaries, interest, dividends, commission, royalties and rent. Income tax yields very substantial revenue to government. Therefore, it has a bearing on the Gross Domestic Product (GDP) which is the standard indicator for measuring the economic wellbeing of a nation. But the feature of compulsory levy inherent in tax is usually under mined because people dislike the civic responsibility that the payment of tax connotes. In Nigeria, people especially the rich and the elites, deliberately dodge the civic responsibility and sometimes employ the service of tax specialists in order to pay less tax to government. There is also problem of falsification of ages and the number of children and dependents one’s has in order to reduce the amount of tax payable Ebiringa and Emeh (2012).

Ariwodola (2000) in its text introduced solution as regard strategies to be adopted by revenue authorities for expanding the income tax net to improve personal income tax collection drive covering the self-employed to increase revenue for the economic growth and development in Nigeria.

1.2 Statement of the Problem

It is the duty of the government of any country to provide its citizens with those basic amenities that will make life enjoyable to them. This is because individual cannot single handedly provides amenities themselves. The provision of these basic amenities can only be possible through payment of taxes by the citizen.

There have been a heart provoking outary by various state government in Nigeria over their poor financial base. This situation is becoming even more compounded by the obvious dividing feature of our oil economy. Inspite of the broadness and the comprehensive nature of our tax system, tax avoidance and evasion are on the increase. The ugly development has placed most state government in a situation where they cannot cope with their civic responsibilities to their citizens, hence a compelling need to put an end to this unwhole some circumstance in Nigeria through proper problem identification. Due to lack of fund arising from low revenue receive from personal income tax. It has not contributed some basic amenities to the economic growth and development of Nigeria, Problem regarding poor method of collections of income tax which have reduce a part of revenue of income tax for economic growth and Citizen do not enjoy some basic amenities benefit because of not payment of income tax.

  • Research Questions

For the purpose of this study the following research questions have been formulated.

  1. How can personal income tax contribute to the economic growth of Nigeria?
  2. Will total tax revenue contribute to total economic growth of Nigeria?
  3. Will total tax revenue affect government expenditure on social amenities.
    • Research Objectives

The specific objective of this study are stated below:

  1. To examine the extent at which personal income tax has contributed to the economic growth of Nigeria.
  2. To examine how total tax revenue has contributed to the economic growth of Nigeria.
  3. To determine how total tax revenue affects government expenditure on social amenities.

1.5Research Hypothesis

For the purpose of this study the following hypothesis have been formulated:

  1. H0: There is no relationship between personal income tax and economic growth in Nigeria.

H1: There is a relationship between personal income tax and economic growth in Nigeria.

  1. H0: There is no relationship between total tax revenue and economic growth in Nigeria.

H1: There is a significant relationship between total tax revenue and economic growth in Nigeria.

  1. H0: There is no significant relationship between total tax revenue and government expenditure in Nigeria.

H1: There is significant relationship between total tax revenue and government expenditure in Nigeria.


  • Scope and Limitation of the Study

The study cover the period 1986 to 2016, following the research questions and the objectives of the study. Data unavailability is the major limitation of the study. However, the researchers relied on the CBN statistical bulletin and Natural Bureau of statistic Data sets.


  • Significance of the Study

The importance of the study is throwing more light on the role of personal income tax on the economic growth in Nigeria. Findings from the research will enable the following group of people benefit the following:

CITIZEN: The result of this study will help to create an awareness to the citizens on benefit that can be derive from payment of taxes.

GOVERNMENT: It will help the government aware of the benefit provided by them through payment of taxes.

SOCIETY: It will help provide meaningful recommendation to the society on the way taxes should be handled and administered.

STUDENT: It will help researchers especially student to be educated on the roles of personal income tax on the economic growth in Nigeria.

  • Organization of the Study

The study is divided into five chapters. Following chapter one in the chapter two, which in on the related literature review. Chapter three in on the research method while chapter four is the result presentation, analysis and discussion of findings finally, chapter five in on the summary, conclusion and recommendations of the study.