INVESTIGATING TAXATION AND INCOME INEQUALITY IN NIGERIA

INVESTIGATING TAXATION AND INCOME INEQUALITY IN NIGERIA

Uzoma Chidoka Nnamaka, Ph.D

Rivers State Universal Basic Education Board, Port Harcourt, Nigeria

chidoka1@yahoo.com

Nwanyanwu, Kingdom Uchenna

Department of Accounting, Faculty of Business Studies, Ignatius Ajuru University of Education, Port Harcourt, Nigeria

Abstract

This study empirically examined the effects of taxation on income inequality in Nigeria for a 40-year time period, from 1980 to 2019. The specific objectives were to determine how value added tax, personal income tax, company income tax and custom duty affects income distribution measured by Gini index. Time series data on the underlying tax indicators was sourced from the Central Bank of Nigeria (CBN) statistical bulletin and Federal Inland Revenue. The study adopted the Ordinary Least Square technique. The test for unit root was carried out using the Augmented Dickey-Fuller (ADF) test for stationarity and the result showed that all the variables used in the study were stationary at first difference.  The Johansen cointegration test result showed that the variables in the model have long run relationship. It was further revealed that value added tax and company income tax intensified income inequality in Nigeria for the period covered by the study. Personal income tax and custom duty on the contrary played a significant role in reducing income inequality in Nigeria within the period reviewed. Going by the findings from the study, it is recommended that government, through the tax authority, should put systems in check to tackle tax evasion by companies. Also, for taxation to serve the purpose of redistribution of income to bridge the wide gap between the rich and the poor, the Nigerian government should implement tax structures that are purely progressive.

Keywords: Taxation, Income inequality, Gini index, Error Correction Mechanism.

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Nnamaka, U.C & Nwanyanwu, K.U (2022). Investigating Taxation and Income Inequality in Nigeria. African Journal of Business and Economic Development, 2 (1), pp49-60. Available online at: https://www.ijaar.org/articles/ajbed/v2n1/ajbed-v2n1-Jan22- p211.pdf.

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