Sustaining Taxation in Rentier Economies: Evidence from Nigeria

Abstract

The rentier state thesis was proposed to explain the unique political and economic nature of governance in resource-rich countries starting in the 1970s. The wealth in a rentier state is usually accrued through extraction and selling of valuable natural resources under the full control of the government which is mainly directed by a ruling elite group. Nigeria is described as a ‘rentier state’ as a result of its mono-economy in which oil rents play a dominant part. The paper examines the rentier state syndrome in Nigeria and how it affects tax revenues, which are largely based on non-oil sector development. The Rentier State Theory was adopted as the theoretical framework of the study. A documentary research design was used for the study. Data collection was done using secondary sources while data analysis involved the use of descriptive statistics and content analysis. Findings of the study revealed that oil revenue has over the years surpassed tax revenue and remains the mainstay of the Nigerian economy. It also showed that the imbalance between tax revenues and resource rents in Nigeria is due to quick profits from oil; opportunistic rent seeking and rent grabbing; weak private sector; and the desire by political elites to undermine transparency and accountability that comes with a functional tax system. The study recommends economic diversification, deregulation, digitalization and tax transparency as mechanisms for sustaining tax revenues in Nigeria’s rentier economy.