Effect of Tax Incentives on Non-Oil Tax Revenue: Econometric Case Study from Nigeria (1981-2022)

The non-oil tax income in Nigeria is low and contributes less than 10% of the GDP. Also, non-oil export in Nigeria contributes less than 15% to the GDP reflecting an abysmal performance over the years. This study therefore empirically examined the effect of tax incentives on non-oil tax revenue in Nigeria from 1981-2022. Tax incentives was measured by export expansion grant while non-oil tax revenue was measured by total tax revenue, non-oil export, tax rate and real effective exchange rate. Unit root test was conducted using Augmented Dickey Fuller (ADF), Phillip Perron statistics and Kwiatkowski-Phillips-Schmidt-Shin test statistic and it was found that the variables are not in the same order of integration. Bound test result indicated long run significant relationship within the variables. Autoregressive Distributive Lag Model (ARDL) found that Export expansion grant had short run significant negative effect on non-oil tax revenue in Nigeria (β9 = -0.07, p-value = 0.0299 < 0.05) but had an insignificant positive effect in the long run (α8 = 1.29, p-value = 0.3738 > 0.05). Tax rate had positive significant effect on non-oil tax revenue in the short run (β3 = 0.01, p-value = 0.0027 < 0.05). However, in the long run, tax rate had negative insignificant effect on non-oil tax revenue (α2 = -0.28, p-value = 0.4822 > 0.05). the study concluded that export incentives have become a drain to government resources over the years. Based on the result, we recommended that export expansion grant processing time frame and payment should be improved.