FISCAL CAPACITY AND CAPITAL SPENDING IN NIGERIA: ROLE OF PETROLEUM PROFIT TAX AND COMPANY INCOME TAX
Abstract
This study examined the relationship between fiscal capacity and capital spending in Nigeria with particular emphasis on petroleum profit tax and company income tax. The study was motivated by the need to understand how tax revenue mobilization influences government capital expenditure, which plays a crucial role in infrastructure development and long-term economic growth. The research adopted an ex-post facto research design because the study relied on historical macroeconomic data that could not be manipulated by the researcher. Secondary data covering the period 1994 to 2023 were obtained from the Nigerian Revenue Service Tax Promax database. Capital expenditure served as the dependent variable, while petroleum profit tax and company income tax were used as the explanatory variables. The study employed several econometric techniques to analyze the data. Given this mixture of integration orders, the Autoregressive Distributed Lag modelling technique was adopted because it is suitable for variables integrated at both level and first difference. The bounds cointegration test confirmed the existence of a long-run equilibrium relationship among the variables. The long-run Autoregressive Distributed Lag estimation results revealed that petroleum profit tax has a positive and statistically significant effect on capital expenditure in Nigeria, indicating that oil tax revenue plays an important role in financing government capital projects. Similarly, company income tax was found to have a positive and significant relationship with capital expenditure, suggesting that corporate tax revenue enhances the government’s fiscal capacity to undertake infrastructure investment. The study concluded that fiscal capacity derived from petroleum profit tax and company income tax significantly influences government capital spending in Nigeria. However, the findings also highlight the structural dependence of Nigeria’s fiscal system on petroleum revenue, which exposes government capital expenditure to volatility associated with fluctuations in global oil markets. Consequently, the study recommended that the Nigerian government should strengthen tax administration, improve compliance within the corporate sector, and diversify revenue sources by expanding the non-oil tax base. Such fiscal reforms would enhance the sustainability of government capital expenditure and support long-term economic development in Nigeria.
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References
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Firozpur Jhirka, Haryana, India
