Investigating The Relationship Between Taxation and Price Fluctuations In Nigeria

Abstract

This study examined the relationship between taxation and price fluctuations in Nigeria using quarterly data from 2015 Q1 to 2021 Q4. The study used company income tax, petroleum profit tax, and value-added tax as independent variables, while the consumer price index was used to measure price fluctuation. The data analysis used the autoregressive distributed lag (ARDL) technique with structural breaks. It was found that there was a long-run relationship between taxation and consumer price index. In the long run, company income tax had a negative but insignificant impact on the consumer price index, while petroleum profit tax and value-added tax were found to have caused an upward trend in the consumer price index. Also, the dummy for the structural break was statistically significant, implying that the break period between 2012 and 2019 had a significant impact on price fluctuation, meaning that the state of the economy in these years triggered a considerable impact on price fluctuations in Nigeria. It was then concluded that taxation caused a significant impact on price fluctuation in Nigeria; that is, the higher the tax collected by the government, the greater the increase in price fluctuation. Hence, it was advocated that the tax authorities encourage businesses to pay taxes and reinvest the amount collected into productive sectors to increase domestic productivity towards effective price control.