THE EFFECT OF DIRECT AND INDIRECT TAXES ON ECONOMIC GROWTH: EVIDENCE FROM NIGERIA

Abstract

Aim/Purpose: The tax structure and reforms that could give the optimal benefit is not always easy to determine, this is responsible for different tax laws, structures and reforms that are rather harmful to the economic growth. Therefore, the study examines the effect of direct and indirect taxes on economic growth: evidence from Nigeria. Design/methodology/approach: The study adopted Ex-Post Facto research design. Secondary data was collected from Central Bank Statistical Bulletin between 1995 and 2021. Descriptive statistics, ARDL regression analysis, and post estimation tests were used to analyzed the data. Findings: The study revealed that direct tax (LPPT & LCIT) had significant negative effect on economic growth. It also revealed that indirect tax (LVAT) had positive and significant effect on economic growth in Nigeria while LCED was found insignificant. The study therefore concluded that both direct and indirect taxes had significant effects on economic growth. Research Implications/limitations: Based on the findings, the study recommended that Value Added Tax(LVAT) should be encouraged such that more goods are brought into the VAT list in order to expand the tax net in Nigeria. Meanwhile, excise duties on local manufacturing firm sourcing for raw materials abroad should not be excessive to prevent local firms’ crowd out. The research is limited by the data available to the researcher. Originality/value/contribution: unlike some other studies which say otherwise, this study contributes to the literature by establishing that both direct and indirect taxes can contribute positively to economic growth in Nigeria if properly configured, monitored and controlled. KEYWORDS: Direct Taxes, Indirect Taxes, Economic Growth, Valued Added Tax (VAT), Custom and Excise duty (CED).