PETROLEUM PROFIT TAX AND ECONOMIC PERFORMANCE IN NIGERA

Abstract

This study examined the effect of petroleum profit tax on economic performance in Nigeria using real gross domestic product and gross fixed capital formation as indicators of growth and investment. The study employed an ex post facto research design and relied on secondary time series data obtained from the Central Bank of Nigeria Statistical Bulletin, the Federal Inland Revenue Service official publications covering the period 1995 to 2024. The data were analysed using the Error Correction Model to determine the short run effect of petroleum profit tax on real output and the Autoregressive Distributed Lag model to assess the short run influence of petroleum profit tax on capital formation. The findings showed that petroleum profit tax has a positive and statistically significant short run effect on real gross domestic product, indicating that petroleum tax receipts support immediate economic activities and government expenditure. However, the study revealed that petroleum profit tax does not exert a significant short run effect on gross fixed capital formation, suggesting that petroleum revenue is not adequately channelled into long term investment or productive capital accumulation within the short horizon. These results support existing empirical evidence which shows that petroleum taxation contributes more strongly to short term output fluctuations than to structural investment growth. The study concludes that petroleum profit tax remains vital for stabilising short run economic performance in Nigeria but requires more efficient allocation to enhance investment and long term development. Based on the findings, the study recommends improved management of petroleum tax revenue, stronger fiscal frameworks and enhanced transparency in public investment planning.