EFFECTS OF TAXATION ON INDUSTRIAL SECTOR OUTPUT IN NIGERIA

Abstract

This paper studies the connection between taxation and industrial output in Nigeria using time series data from the Central Bank of Nigeria (CBN) Statistical Bulletin (2022). The research employs the Augmented Dickey-Fuller (ADF) test to confirm stationarity, followed by the ARDL bounds test to assess cointegration among variables. A Non-Linear Autoregressive Distributed Lag (NARDL) model is then used to reflect the asymmetric effects of corporate income tax (CIT), value-added tax (VAT), and institutional quality (INSQ) on industrial output. The results reveal that in the long run, increased CIT negatively affects industrial output, while improved VAT and institutional quality positively impact output. In the short run, VAT and institutional quality are statistically significant in enhancing industrial performance. The error correction model (ECM) displays a 36% swiftness of change towards equilibrium. Based on these findings, the study recommends reforming corporate tax policies to reduce the burden on industries, which could include reducing the CIT rate for key sectors, offering tax incentives for industries with high growth potential, and simplifying tax administration to improve compliance. In addition, strengthening VAT collection and improving institutional quality are crucial steps to stimulate Nigeria’s industrial sector.