Impact of Taxation on Human Capital Development in Nigeria: 1994-2022

Infrastructure development, robust government institutions, and public spending on health and education are some of the possible catalysts for the growth of human capital. However, from the government’s point of view, taxation and tax policy seem to be the most effective means of promoting the development of human capital, since taxes affect both the efficient utilization of production resources (people and capital).Thus, the paper used the Autoregressive Distributed Lag (ARDL) to examine the impact of taxation on human capital development in Nigeria from 1994 to 2022. The estimated regression result demonstrated that the company income tax, one period-lagged company income tax, petroleum profit tax, value-added tax, and customs and excise taxes are the main short-run determinants of human capital development. In a similar vein, value-added tax and petroleum profit tax are long-term drivers of human capital development. The paper’s a priori expectations of a positive relationship are met in terms of each individual independent variable. The coefficient estimates and t-statistic of company income tax, one period lagged company income tax, one period lagged petroleum profit tax, value added tax, and one period lagged customs and excise duties all have the expected sign. But when viewed statistically, petroleum profit tax, value added tax, one period lagged value added tax, customs and excise duties and one period lagged customs and excise duties contributes to human capital development in the short-run. Because human capital, which is measured using the Human Development Index, is recognized to be quantitatively and qualitatively measurable, the paper recommended tax authorities such as the Federal Inland Revenue Services to support development-driven tax policies. The paper also urges the Federal government, acting through the Nigeria Customs Service, to ensure that indirect tax revenues, such as VAT and Customs and Excise Duty, are sufficiently utilized to enhance human well-being through the implementation of efficient policies and the maintenance of accountability regarding tax revenues obtained.