Taxation As An Alternative To Dwindling Oil Revenue In Nigeria

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Taxation As An Alternative To Dwindling Oil Revenue In Nigeria


Nigeria has relied solely on oil revenue over the years. However, in view of the recent decline on oil revenue there is the urgent need to diversify the Nigerian economy through non-oil revenue. Tax revenue is a key component of non-oil revenue. The 2015 budget was the first to be driven by non-oil revenue. The paper seeks to examine alternative measures to over reliance on oil revenue in Nigeria and proffered suggestions that could be used as a blue print for diversifying the Nigerian economy.

Chapter One


1.1 Background to the Study

Nigeria is currently not enjoying the best of times. The country is presently suffering the adverse effects of the dwindling revenue from crude oil and gas sector, which today accounts for about 95 percent of its revenue. The fallen price of crude at the world market has orchestrated the devaluation of the Naira and increased inflation. The manufacturing and other productive sectors are worst hit because, as the country is highly import dependent, they find it extremely difficult to bring in raw materials, especially now that the central bank has closed its auction market window. The dollar is expensive to procure at the interbank window and the black market. More worrisome was the need for government to review its 2015 fiscal policy by slashing the benchmark of oil, in the 2015 budget from $120 to $75, and now to $53. The implication of the budget review may not manifest now (Vanguard, 2015). It may result to a scale down in capital and recurrent spending. That alone can translate to a reduction in money in circulation.

Looking at what this portends for the nation should this trend continue unchecked, experts have called on the government not to fold its hands, but to explore other potential sources of revenue through the diversification of the nation’s economy (Dike, 2015). While some urged the government to redirect its focus to the agriculture sector, others asked the government to explore the numerous mineral resources for alternative source of income. Yet, few others said Nigeria, like many other advanced countries, can rely on tax revenue for survival. However this study is examining taxation as an alternative to the dwindling oil revenue in Nigeria.

Taxation is a means of generating revenue by government for the purpose of providing social services to the people (Okauru, 2014). Taxation all over the world is a function of reciprocity (Okauru, 2014). While the government owes it as a duty to empower the citizens by providing jobs, infrastructure and other development projects, the citizens are usually expected to reciprocate by performing their own obligations, principal of which is payment of taxes (Okauru, 2014). Revenue generated from citizen’s taxes is usually recycled by the state (government) in the area of provision of basic amenities such as water, roads, electricity, schools, among others (Okauru, 2014).

The new reality considering the present situation in Nigeria is that governments at all levels have to raise the bar by embarking on an aggressive tax drive, considering the dwindling revenue profile arising from the fall in oil prices (Dike, 2015). Therefore, Nigerians have to come to terms with the present reality. Taxes come in various forms, ranging from personal income tax, value added tax and companies income tax, among others. To bridge the yawning gap in revenue accruals, there arose the need for government to embark on aggressive taxation which is the most recognized and plausible means of generating revenue for social services across the globe.

The Vanguard of December 15th, 2015 indicates that revenue accruable from value added tax from January to June 2015 came to about N376 billion, but this figure has doubled since July till December. The reason of course can be attributed to the Federal Government’s commitment towards diversification of revenue sources. With aggressive tax laws and enforcement, there is no doubt that Nigeria can withstand the shocks of the uncertainties in the oil market. What this means is that there will be more revenue available for the government to cater for the needs of the Nigeria people. This is the best time in our history for Nigerians to embrace the tax system. By this, Nigerians can be involved in the contributory social contract by paying their taxes regularly.

1.2 Statement of the Problem

According to reports that Nigeria has lost its position as the lead supplier of oil to the United States of America, there is need for Nigerian government to diversify its revenue base through taxation as the alternative means of revenue generation in order to keep fit in the face of dwindling revenue from oil. However, there is need to harmonize the tax system and ensure collaboration between government tax agencies and professional tax institutes and consultants. Government needs to practically shift attention from oil to development of other revenue sources especially non-oil exports to support internally generate revenue from taxes. The reliability of the institutional framework for tax processing and enforcement must not be questionable to ensure sustainable development through taxation. However, this study is examining taxation as an alternative to dwindling oil revenue in Nigeria.

1.3 Objectives of the Study

The following are the objectives of this study:

  1. To examine taxation as an alternative to dwindling oil revenue in Nigeria.
  2. To examine the effect of taxation on the taxation economy and development in general.
  3. To examine the effectiveness of the institutional framework for the collection and enforcement of tax duties.

1.4 Research Questions

  1. Can taxation serve as an alternative to dwindling oil revenue in Nigeria?
  2. What is the effect of taxation on the taxation economy and development in general?
  3. What is the effectiveness of the institutional framework for the collection and enforcement of tax duties?

1.5 Hypothesis

  1. H0: Taxation cannot serve as an alternative to dwindling oil revenue in Nigeria.
    H1: Taxation serves as an alternative to dwindling oil revenue in Nigeria.
  2. H02: Taxation has no significant effect on the economic growth of Nigeria
    H2: Taxation has a significant effect on the economic growth of Nigeria

1.6 Significance of the Study

The following are the significance of this study:

The results from this study will educate the stakeholders saddled with the management of Nigeria’s economy and the general public on how huge revenue capable of replacing oil revenue can be generated through taxation and its effect on national development.

Findings from this study will also educate the government of Nigeria and the general public on the effectiveness of the institutional framework saddled with the responsibility of collection and enforcement of tax duties.

This research will be a contribution to the body of literature in the area of the effect of personality trait on student’s academic performance, thereby constituting the empirical literature for future research in the subject area.

1.7 Scope / Limitations of the Study

This study will cover the process of taxation in Nigeria. It will also cover the activities of the tax collection and enforcement officers.

Limitation of Study
Financial constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8 Definition of Terms


A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures


o become smaller in size or amount, or fewer in number: The community has dwindled to a tenth of its former size in the last two years.


In accounting, revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers.

1.9 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows.

  1. Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  2. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain the efficacy of taxation as an alternative to dwindling oil revenue in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of taxation as an alternative to the dwindling oil revenue in Nigeria.

5.2 Summary

This study examined the efficacy of taxation as an alternative to dwindling oil revenue in Nigeria. The result indicated that tax revenue has a positive and significant effect on human development. This study supports the thinking of Robert et al. (2009) that GDP is a measure of economic growth, and not the social well-being, economic equality, welfare, or the environmental well-being of people of a state. The implication is that tax revenue is not making as much impact on economic development as on gross domestic product of Nigeria. The increasing amount generated from tax every year should have ensured improved economic well-being and a better standard of living for the Nigerian citizens, but the present positions of HDI have not changed significantly over the years. Baghebo (2012) in his study on efficient utilization of tax revenue in Nigeria notes that high rate of poverty, unemployment, inflation, insecurity, and inadequate healthcare delivery still prevails despite the increasing tax revenue. The author attributed these problems to an ineffective and inefficient utilisation of tax revenue. Availability and mobilization of income are the primary factors on which economic development are managed and sustained. Global Alliance for Tax Justice (2015) considers tax as the most important, reliable, beneficial, and sustainable source of finance for development. Hence, less developed countries are being advised to have a long-run aim of replacing foreign aid with tax revenue especially in Africa.

5.3 Conclusion

It is evident from the empirical results revealed by the study that the non-oil sector is of strategic importance in achieving increased income and enhanced economic growth in Nigeria. Having evaluated the contribution of non-oil revenue to government income and economic growth, this paper concludes that non-oil revenue indeed has contributed positively to the income of the government and invariably to economic growth. It therefore holds that diversification of the nations‟ revenue base should not only be seen as an option but the part to sustained transformation of the nation‟s economic fortune in the long run. The study revealed that the nonoil sector offers a greater potential to increase Nigeria’s resilience against the vagaries it is currently experiencing with the world oil price and would contribute to achieving and sustaining long term economic growth and increased government revenuedependency, and the allure of the great wealth it generated has been responsible for spawning other economic distortions. The study therefore concur with Akujuru (2015) who concluded that if the type of adequate attention given to the oil sector can be extended to other non-oil sectors of the economy then the socio-economic status of the country will improve; as broader based economies active in a wide range of sectors are better able to generate robust and sustainable growth. As such, the development and expansion of the non-oil sector remains a daunting task for the government of the day to accomplish should any economic growth or transformation be desired. Setting Nigeria‟s economy on a more balanced, broad base and diversified growth part is not an easy task, however the responsible management of all natural resources, good governance and of course a conducive business climate are indispensable tools in harnessing the vast potentials of Nigeria‟s rich non-oil resources.

5.4 Recommendation

Haven completed the study, the researcher recommends that Provision of facilities that will ensure the comfortable existence of necessary amenities for the well-being of the majority of citizens of the state must not be treated with levity. If individuals and companies have no safe drinking water, no good road network, improved healthcare system and educational system, and have to live in perpetual fear, why would they be willing to pay tax. The citizens must feel the impact of development so as to pay tax voluntarilyThe federal government should prudently manage the financial resources generated from taxes and also reduce drastically municipal waste of funds. Practical application of tax revenue to solving problems surrounding welfare of the citizens’ will results into more generation of tax revenue

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