Taxation and Manufacturing Sector Performance in Nigeria

This study examines the relationship between taxation and the performance of the manufacturing sector in Nigeria, with a focus on the impact of key tax components on manufacturing output. Using annual time series data from 1994 to 2023, manufacturing sector output (MFG) is modelled as a function of Customs and Excise Duties (CED), Capital Gains Tax (CGT), Company Income Tax (CIT), Tertiary Education Tax (TET), Value Added Tax (VAT), Petroleum Profit Tax (PPT), Personal Income Tax (PIT), and Gross Domestic Product (GDP). The study employs the Autoregressive Distributed Lag (ARDL) approach and Vector Error Correction Model (VECM) to examine both short-run and long-run dynamics. The results indicate mixed orders of integration among the variables and confirm the existence of a stable long-run relationship. The VECM estimates reveal a significant speed of adjustment toward equilibrium following short-run shocks. Empirical findings show that while some taxes, such as the Value Added Tax, positively influence manufacturing output through improved infrastructure and a better business environment, others, including Customs and Excise Duties, Company Income Tax, and Tertiary Education Tax, exert constraining effects. The study concludes that the structure and administration of taxation play a crucial role in shaping the performance of the manufacturing sector. It recommends tax harmonization, reduction of multiple taxation, targeted fiscal incentives, and strengthened tax administration to boost the manufacturing sector's competitiveness and support economic diversification.