PETROLEUM PROFIT TAX AND ECONOMIC GROWTH IN NIGERIA
ABSTRACT
This study examines petroleum profit tax and economy growth. In the light of the empirical review and other discussions, a number of questions arose as to whether there is relationship between petroleum profit tax and economy growth. Using the Ordinary Least Square (OLS) regression technique with the aid of computer software, for a 1970 – 2011 time series data, the empirical findings revealed among other things, that there is a significant positive relationship between Petroleum Profit tax and GDPGR. The study recommends, that the government should ensure that revenue generated from taxation is utilized in the development of the general economy, and not just a segment of it as this will go a long way to improve the lacking standard for her citizens and hence lead to a growth in Gross Domestic Product (GDP).
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
BACKGROUND TO THE STUDY
STATEMENT OF THE RESEARCH PROBLEM
RESEARCH OBJECTIVE
STATEMENT OF HYPOTHESIS
SCOPE OF THE STUDY
RELEVANCE AND SIGNIFICANCE OF THE STUDY
RESEARCH METHODOLOGY
CHAPTER TWO: LITERATURE REVIEW
BRIEF HISTORY OF THE NIGERIAN TAXATION SYSTEM
THEORIES OF TAXATION
NATURE AND SCOPE OF TAXES
THEORETICAL FRAMEWORK/EMPIRICAL EVIDENCE
ECONOMIC IMPLICATIONS OF PETROLEUM POLICIES IN NIGERIA
TAX REFORMS IN NIGERIA
ECONOMIC GROWTH
EMPIRICAL STUDIES
CHAPTER THREE: METHODOLOGY
3.1    INTRODUCTION
THE RESEARCH DESIGN
SOURCES OF DATA COLLECTION
THE POPULATION OF THE STUDY
MODEL SPECIFICATION
METHOD OF DATA ANALYSIS
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF RESULT
4.1    INTRODUCTION
4.2    PRESENTATION AND ANALYSIS OF RESULT
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
INTRODUCTION
SUMMARY OF THE FINDING
POLICY RECOMMENDATIONS
CONCLUSION
RECOMMENDATIONS FOR FUTURE RESEARCH
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
Between 2000-2010, the price of crude oil which has contributed about 80% of the country’s GDP rose from $13 per barrel to a high of $125 per barrel. This also resulted in significant increase in revenue generated. The annual budget expenditure between the period increased from 470 billion (naira) to 2.676 trillion (naira), (Ogbonna, and Appah, 2012). Budgeted Capital expenditure stood at 36.2% of total budget in 2000 which amounted to 300 billion naira and 20.6% in 2009 amounting to 1.524 trillion naira. Total recurrent expenditure increased between this period as a result of increase in salaries and expansion of government ministries and agencies (Nigeria budget office, 2009). In addition to the low capital budget ratio, government ministries have been unable to deploy capital funds effectively. One of the reasons being that some of these ministries still operate an ineffective manual system which has given rise to inconsistency, lack of transparency and accountability problems. Increased unemployment, poor health facilities and lack of adequate power supply are some of the economic problems that have resulted. Available evidence in shows that the country has proven oil reserves of 36 billion barrels, condensate of 4 billion barrels, proven gas reserves of 187 trillion cubic feet and the present average daily production of oil is 2.6 million bbl/b (Agbogun, 2004, Egbogah, 2010).
Previous studies on the Nigeria economy in the last decade show that the petroleum industry has been playing a dominant role and occupies a strategic position in the economic development of Nigeria (Azaiki and Shagari (2007). This is evidenced by the total oil revenue generated into the Federation Account from 2000 to 2010 which amounted to N34.2 trillion while non-oil was N7.3 trillion, representing 82.36% and 17.64% respectively. The mean value of oil revenue for the 10 year period is N3.42 trillion compared to non-oil revenue at N732.2 billion (CBN Statistical Bulletin, 2009). Further evidence was ten year’s average crude oil and condensates production of 832,866,752.1 barrels from 2000 to 2009.
The importance of crude oil to the economic development of Nigeria cannot be over emphasized, and the evidence presented in Binda and Van Wijnbergen (2008) which states that Nigeria gained an extra $390 billion in oil-related fiscal revenue between 1971 and 2005, or 4.5 times 2005 gross domestic product (GDP).
Unfortunately, the economy has been bedeviled by sustained underdevelopment evidenced by poor human developmental and economic indices including poor income distribution, militancy and oil violence in the Niger Delta, endemic corruption, unemployment, relative poverty (Nwezeaku, 2010). Irrespective of Nigeria’s huge oil wealth, the country has remained one of the poorest in the world. In particular, the Niger Delta which produces the oil wealth that accounts for the bulk of Nigeria’s earnings has also emerged as one of the most environmentally degraded regions in the world evidenced from the World Wildlife Fund report released in 2006 (Ekaette, 2009).
According to Odularu (2008), outside of the energy sector, Nigeria’s economy is highly inefficient. Moreover, human capital is underdeveloped. Nigeria ranked 151 out of 177 countries in the United Nations Development Index in 2004 and non-energy-related infrastructure is inadequate. Nigeria’s economy is struggling to leverage the country’s vast wealth in fossil fuels in order to displace the devastating lack that affects about 57 percent of its population. In 2009, persistent inflation and environmental degradation led to deprivation of means of livelihood and other socio-economic factors to the people of Niger Delta which is the major oil producing state in Nigeria. Despite the fact that crude oil has been the source of Nigerian economy, the economy is faced with high rate of unemployment, wide spread oil spillage, increasing poor standard of living as a result of decreasing gross domestic product, per capita income and high rate of inflation which has led to the effect of the economic development .(Nwezeaku, 2010)
Oil revenue which is supposed to be a source of finance for economic development has turned out to be a bone of contention between many interest groups, precisely the government and oil and gas companies.
STATEMENT OF THE RESEARCH PROBLEM
The problems with Nigerian economy have been traced to failure of successive governments to use oil revenue and excess crude oil income effectively in the development of other sectors of the economy. Over all, there has been poor performance of national institutions such as power, energy, road, transportation, politics, financial systems, and investment environment have been deteriorating and inefficient (Nafziger, 2008).
The contributions of the petroleum industry to growth and development of the Nigeria economy can be enumerated in terms of the industry’s impacts on the economic variables responsible for economic growth in Nigeria. The contributions of petroleum industry can also be analyzed in terms of its share of revenue generation in the Nigerian economy. The petroleum industry has contributed immensely in both foreign exchange reserves and government revenues. It has been observed that the government share of crude oil revenue as a result of various joint venture agreements with the international oil producing companies is roughly 70 percent of revenues accruing from crude oil transactions.
In the light of the above, the relevant research questions are:
What is the relationship between revenue from Petroleum Profit Tax (PPT) and Gross Domestic Product (GDP)?
What is the relationship between revenue from petroleum profit tax and total tax revenue?
What is the relationship between revenue from Petroleum Profit Tax (PPT) and Gross fixed capital formation?
RESEARCH OBJECTIVE
The objective of this research work includes the following:
To examine the relationship between revenue from Petroleum Profit Tax (PPT) and Gross Domestic Product (GDP).
To ascertain if there is relationship between revenue from petroleum profit tax and total tax revenue.
To find out if there is relationship between revenue from petroleum profit tax and Gross fixed capital formation.
STATEMENT OF HYPOTHESIS
This aspect of the research work is concerned with the acceptance or rejection of decision.
The research hypotheses relevant to the above stated questions and objective were:
Hypothesis I
Ho:    There is no positive relationship between revenue from Petroleum Profit Tax (PPT) and Real Gross Domestic Product (GDP) growth rate.
H1:    There is a positive relationship between revenue from Petroleum Profit Tax (PPT) and  Real Gross Domestic Product (GDP) growth rate.
Hypothesis II
Ho:    There is no positive relationship between revenue from petroleum profit tax and total tax revenue.
H1:    There is a positive relationship between revenue from petroleum profit tax and total tax revenue.
Hypothesis III
Ho:    There is no positive relationship between revenue from petroleum profit tax and Gross fixed capital formation.
H1:    There is a positive relationship between revenue from petroleum profit tax and Gross fixed capital formation.
SCOPE OF THE STUDY
This study covers the impact of Petroleum Profit Tax (PPT) and economy growth of Nigeria. Also the subject matter of this study is “Tax Administration from Petroleum Profit in Nigeria”.
    The time period for the research is for the period of forty-one (41) years (1970 to 2011) fiscal year.
    The sample size is more concerned with Nigeria’s Federal Inland Revenue Service of Edo State. Geographically, the study which will be specifically be restricted to Edo State in Nigeria.
RELEVANCE AND SIGNIFICANCE OF THE STUDY
This research work is being undertaken in order to bring to light the bright prospects and impact of PPT as a source of revenue in Nigeria and as it affects the general price level of economic activities in the country.
Much attention of revenue generated in Nigeria is focused on the oil industry, which made this research most significant. Yet it has not really attended it full potential through it generates over 90% of government revenue.
Petroleum profit tax administration is very significant in the sense that, if the proceeds are well put into use and accounted for, it will yield almost double of what is expected and the immediate impact of these will be enormous on all aspect of Nigeria economy.
RESEARCH METHODOLOGY
The study will involve the use of secondary data, the data will be obtained from various issues of the CBN statistical bulletins and other sources of data relevant to the study.
The data obtained will be analyzed using the regression analysis from which conclusion will be drawn on the basic of the estimated model.