Tax incentives and economic growth: is incentive good for economic growth in Nigeria

Abstract

Incentive policy has remained challenging for developing countries and sub-Saharan African region in particular. Despite the large scale of incentive given by the sub-Saharan African countries in the last decades, economic growth has been sluggish in almost all the countries in the region. The authors examined the effect of tax incentives represented by corporate income tax, investment allowance and import duty rebate on economic growth in Nigeria. The study adopted Ex Post Facto Research Design and time-series data was used. Relevant secondary data for this study were collected from the Central Bank of Nigeria (CBN) Statistical Bulletin and the National Bureau of Statistics (NBS) and the Federal Inland Revenue Service (FIRS) between 1987 and 2018. The study shows that tax incentive is negatively and significantly related to gross domestic product which is an indication that incentive is good for economic growth in Nigeria. The result also indicates that a higher company income tax rate is associated with lower private investment and slower economic growth. The implication of this finding is that since tax incentives on gross domestic product, policy reform in other factors that affect economic growth is needed also. Tax incentive policy should be designed bearing in mind the economy's macroeconomic objectives.