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The Impact of Petroleum Profit Taxes on Economic Growth in Nigeria (1981-

2020)

Article  in  SSRN Electronic Journal · January 2021

DOI: 10.2139/ssrn.3853434

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 The Impact of Petroleum Profit Taxes on Economic Growth in Nigeria (1981-2020)
BY
Pibowei, Wonders Ebimotimimowei
Department of Accounting, Ignatius Ajuru University of Education
drwondersng@gmail.com
Mohamed Marie
Faculty of Commerce, Cairo University, Giza, Egypt
mohamed_marei@foc.cu.edu.eg
Abstract
The primary function of a resilient oil and gas tax system is to raise enough revenue to finance
essential government expenditure that will raise the standard of living, promote sustainable firms
and create jobs of the future for economic growth. This study seeks to determine the impact of
petroleum profit taxes on economic growth in Nigeria from 1981 to 2020. An expo-facto research
design with two (2) objectives and one (1) baseline theory anchored this empirical paper. The
population of the study is Nigeria with a tax history of forty years from 1981 to 2020. The study
adopted an interval scale of measurement and the preceding year basis of sampling, with a sample
size of nine (9) years from 2010 to 2018. The source of data was secondary, obtained from the
Central Bank of Nigeria, National Bureau of Statistics, OECD Statistics, and World Bank Group.
The study adopted univariate analysis and bivariate analysis for data analysis with MS Excel 2019
and SPSS Statistics 26. The study found that PPT has no significant relationship on PCI and that
PPT has no significant relationship with JOB. The study concluded that: given high levels of oil
price stability and production boom, petroleum profit tax might not significantly contribute to per
capita income and the employment rate for economic growth, with a correlation of less than 10%.
The study recommended that government should reduce the tax incentives granted to petroleum
companies in Nigeria, and increase the tax rate of non-petroleum companies, which will increase
government revenue from petroleum taxes, during times of oil price volatility and production cuts.

Keywords: petroleum profit tax, economic growth, employment rate, per capita income, oil price
volatility, oil production cuts,

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 1- Introduction

The Nigerian oil and gas industry has been vibrant since the discovery of crude oil in 1956
by the Shell Group (Obara and Nangih, 2017). However, the sector was largely dominated by
multinational corporations until the early 1990s when Nigerian companies began to make a foray
into the industry (Obara and Nangih, 2017). Local participation was boosted with the
implementation of the Nigerian Content Directives issued by the Nigerian National Petroleum
Corporation (NNPC) about a decade ago, and eventually, by the promulgation of the Nigerian Oil
and Gas Industry Content Development (NOGIC) Act in 2010 (Obara and Nangih, 2017). The Act
seeks to promote the use of Nigerian companies/resources in the award of oil licenses, contracts
and projects. The upstream oil sector is the single most important sector in the Nigerian economy,
accounting for over 90% of the country’s exports and about 80% of the Federal Government (FG’s)
revenue. Oil and gas industry play an important role in the Nigerian economy through revenue
generation to the government, employment generation and being the major contributor to the
growth of the Gross Domestic Product (Obara and Nangih, 2017). The Nigeria economy, up to the
21st century has remained and oil economy, as it forms well over 60% of our Gross Domestic
Product (Osho, 2014). Until recently, when the Nigeria government, under sectors of the economy,
such as agriculture (which had been the mainstay of the economy before the discovery of oil and
gas), solid mineral and industries (Osho, 2014). It is the economy under which other economic
activities revolve. The Nigeria economy, one could conclude without missing words, that it is an
oil-push economy, at present (Labaran, 2011). The Nigeria Oil and Gas industry has been
described as the most dynamic sector of the Nigeria economy and the development of oil resources
as the most significant sector of the economic in recent years. Similarly, Igbasan (2017) submitted
that since the discovery of oil in the early 1970s, oil has become the dominant factor in the
economy because oil revenue constitutes over 70% of the total revenue in the last 30 years. In
terms of contribution to government revenue, petroleum profit tax and royalties have been
impressive. Similar remarks which dominate the press and literature have created certain euphoria
of optimistic expectations around the oil and gas industry. On the other hand, if the revenue from
taxes, licenses, and royalties are badly managed and/or used for unproductive purposes, it will
undermine the growth of the economy. Dwivedi (2004) defines economic growth as a sustained
increased per capita national output or net national product (NNP) in an economy over a long

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period of time. This implies that the rate of increase in total output must be greater than the rate of
population growth, while the national output should be composed of goods and services which
satisfy the maximum want of the greatest number of people (Ofishe, 2015). The macro-economic
indexes depend largely on the country’s fiscal system that is in place, and they can serve as
instruments to control inflation rate, unemployment level, amongst others (Awa, 2020).

The necessity for taxation emanated from the need for government to provide essential
amenities for societal growth and development (Onoja and Ibrahim, 2020). This will enable the
government to effectively superintend human affairs in a given geographical space (Onoja and
Ibrahim, 2020). The government will need financial and material resources to carry out its
functions which include the provision of basic amenities of life such as good roads, pipe borne
water, electricity, health facilities as well as security over lives and property (Onoja and Ibrahim,
2020). Petroleum profit tax is an important source of revenue to the government because of the
special position which petroleum occupies in the Nigerian economy. This tax which is regulated
by the Petroleum Profit Tax Act (1959) as amended is imposed on the profit of oil-producing
companies in Nigeria to raise revenue for the government. It offers an opportunity for government
to collect additional revenue in addition to other sources of income, which is needed in discharging
its pressing welfare of the people of a country with focus on promoting economic growth and
development of a country through the provision of basic amenities for improved public services
via proper administrative system and structures. Supporting this, Anyanwu (1993) argued that the
objectives of petroleum profit tax are to raise revenue for the government, to regulate the economy
and economic activities and to control income and employment. Onaolapo, Fasina & Adegbite
(2013) stated that aside of the provision of revenue through petroleum profit taxes; it is also an
instrument for regulating participants in the petroleum industry. Meaning that it is the
responsibility of the Nigerian government to make a decision regarding the level of taxes to impose
on the profit of oil companies in the country. Since the oil sector in Nigeria is regarded as the
mainstay of the economy, petroleum profit tax, therefore, is one of the major taxes in Nigeria in
terms of its share of total revenue contributing 95 and 70 per cent of foreign exchange earnings
and government revenue, respectively (Onaolapo, et al 2013). Similarly, Umo (2012) and Igbasan
(2017) submitted that since the discovery of oil in the early 1970s, oil has become the dominant
factor in the economy because oil revenue constitutes over 70% of the total revenue in the last 30

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years. In terms of contribution to government revenue, petroleum profit tax and royalties have
been impressive. It receipts in 1980 was ₦ 8564.3 million, increased to ₦12504.0 million,
₦26909.0 million, ₦525100 million, ₦2038300 million in 1987, 1990, 2000 and 2006 respectively
(CBN, 2007). Furthermore, revenue from petroleum profit tax has continued to increase since its
introduction in Nigeria. The increases in petroleum profit tax revenue signify that more revenue is
available for economic growth. Moreover, the revenue from petroleum profit tax will benefit the
economy by enhancing its growth and future economic independence if it (the tax revenue from
petroleum profit tax) is invested in viable projects. On the other hand, if the tax revenue is badly
managed and/or used for unproductive purposes, it will undermine the growth of the economy.
Dwivedi (2004) defines economic growth as a sustained increased per capita national output or net
national product (NNP) in an economy over a long period of time. This implies that the rate of
increase in total output must be greater than the rate of population growth, while the national output
should be composed of goods and services which satisfy the maximum want of the greatest number
of people (Ofishe, 2015). The macro-economic indexes depend largely on the country’s tax system
that is in place, and they can serve as instruments to control inflation rate, unemployment level,
amongst others (Awa, 2020). The issue here is determining to what extent has the revenue from
petroleum profits tax positively or significantly affected the growth of the Nigeria economy?

2- Statement of Problem

Ogbonna (2011) documented that Nigeria’s petroleum industry constitutes a major source
of revenue to the government, and occupies a strategic position in the economic growth of Nigeria.
Oil and non-oil revenue are major sources of revenue to finance government expenditure, however
in times of recession in Nigeria there is a shift from oil and gas, to tax revenue and agribusiness.
Onaolapo, Fasina and Adegbite (2013) continued that the petroleum industry is the largest
generator of Gross Domestic Product (GDP) in Nigeria, which is Africa’s most populous nation,
and contributed to national economic growth in varied ways through employment generation,
income generation, industrialization, as well as improvements in other economic variables. The
Economic Recovery and Growth Plan (ERGP, 2017) believes that the economic growth recorded
during 2011-2015 which averaged between 4.8% per annum was mainly driven by high oil prices,
and was largely non-inclusive. Although much has been made of its status as a major exporter of
oil, Nigeria produces only about 3.3% of the world supply and though it is ranked as 15th in
4

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production at 2.2 million barrels per day. Continuing, this document (ERGP, 2017) maintains that:
“majority of Nigerians remain under the burden of high poverty, inequality and unemployment”.
In the opinion of the growth plan document, this unfavourable economic scenario may be due
largely to the seeming lack of critical investments in agricultural production and food security,
infrastructural development; power and energy provision, roads and rail construction,
industrialization, education and critical skills acquisition, solid minerals development, the
provision of good quality health care for a healthy work force, as well as high corruption and
mismanagement of public finance, thereby leading to a positive but jobless economic growth
trajectory. The ERGP document believes that after more than a decade of economic growth, the
sharp and continuous decline in crude oil prices since mid-2014, along with a failure to diversify
the sources of government revenue and foreign exchange in the economy, led to economic
recession in 2016 (Onoja and Ibrahim, 2020). The capacity of government spending to stimulate
economic growth was equally constrained, especially due to lack of fiscal buffers to absorb the
shock, thereby culminating in the resultant socio-economic crises that accompanied the economic
recession in the country (Onoja and Ibrahim, 2020). According to Edewusi and Ajayi (2019), the
Nigerian economy is dwindling day by day and institutions are performing poorly due to the
unsuitable state of transportation, politics, power. Therefore, the performance of the Nigerian
economy is below expectation due to poor management of its oil and non-oil revenues. In addition,
Nafziger (2003), as well as Onaolapo, Fasina & Adegbite (2013), traced the problems with
Nigerian economy to failure of successive governments to use oil revenue and excess crude oil
income in the development of other sectors of the economy effectively and efficiently. In general,
the performance of the various sectors of the economy such as education, agricultural, power,
transportation, etc. has been poor (Inimino, Otubu and Akpan, 2020). The Niger Delta area where
oil and natural gas companies are primarily located has been a source of conflict. This is because
the oil and gas companies operating in Niger Delta, as well as the government, have not played
the expected role to meet the economic needs of the Niger Delta region. Strictly speaking, the
Niger Delta region where the oil and gas companies operate cannot boast of potable water, good
health system, good schools, good roads, etcetera. This disappointment has made local groups in
Niger Delta seeking a share of their wealth to often attack the oil infrastructure and sometimes
collect the oil illegally (oil theft). At the same time, oil theft leads to pipeline damage that is often

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severe, causing pollution, loss of production, compelling companies to shut down production and
sometimes reduction in federally collected revenue (CBN 2013, Yahaya & Bakere, 2018).

Odusola (2006) documented that Petroleum Profit Tax (PPT) is a tax applicable to
upstream operations in the oil industry; is particularly related to rents, royalties, margins, and profit
sharing elements associated with oil mining, prospecting and exploration leases. According to
Onaolopo, Fasina and Adegbite (2013), Petroleum Profit Tax (PPT) is the most important tax in
Nigeria in terms of its share of total revenue, contributing 95% and 70% of foreign exchange
earnings and government revenue; and the importance of foreign exchange to Nigeria’s import-
dependent economy cannot be over-emphasized. Onaolapo, Fasina and Adegbite (2013) continued
that the petroleum industry is the largest generator of Gross Domestic Product (GDP) in Nigeria,
which is Africa’s most populous nation, and contributed to national economic growth in varied
ways through employment generation, income generation, industrialization, as well as
improvements in other economic variables. This state of affairs the Nigeria petroleum sector, raises
a pertinent question: what is the significant relationship oil and gas taxes and the economic growth
of Nigeria? This question pleads for an answer and to provide an answer to this question was the
main concern of this study on the impact of oil and gas taxes and economic growth in Nigeria.
Will a drift in microeconomic forces or macroeconomic policy between the preceding years of
2010 down to the current year of 2021, record a positive & significant impact with unchartered
economic indicators such as oil & gas trade, balance of payments and external reserves? The scope
of this study includes four dimensions namely, geographical scope, content scope, measurement
scope, and unit of analysis. The scope of this study includes four dimensions as explain as follows.
The geographical scope is the Federal Republic of Nigeria, a lower middle-income country and
one of the fastest growing economy in Sub-Saharan Africa. The content scope is the independent
variable known as petroleum profit taxes (PPT), the dependent variable known as economic
growth is measured by per capita income (PCI), and employment rate (JOB). The measurement
scope is an interval scale covering a time period from 2010 to 2018 and an ordinary least square
(OLS) regression employed to estimate the study model, because of its ex post facto research
design. The unit of analysis is organizational because time series data were obtained from the
Nigerian government and multinational corporations. Macroeconomics studies the economy as a
whole, and measures the effects of such factors, such as per capita income, consumer inflation rate,

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employment rate, and unemployment level, on economic activity (CFA Institute, 2019) which
necessitated the adopted of these factors by the researcher to measure economic growth. To the
best of my knowledge, no prior related studies have studied the impact of PPT revenue on Nigerian
economic growth in, proxied by per capita income and employment rate from 1981 to 2020.

3- Aims and Objectives

The aim of the study is to investigate whether oil and gas taxes significantly affects
economic growth in Nigeria between 1981 and 2020. The independent variable is oil and gas taxes
measured by petroleum profit taxes & income taxes on gas; while the dependent variable is
economic growth measured by per capita income & employment rate. The specific objectives of
the study are to ascertain the effect of PPT revenue on per capita income for economic growth;
and to ascertain the effect of PPT revenue on employment rate for economic growth.

4- Conceptual Review

According to the Taxes and Levies (Approved List For Collection) Act of 1998, taxes are
divided into three parts including taxes to be collected by the Federal Government of Nigeria, taxes
and levies to be collected by the State Governments, and levies & charges to be collected by the
Local Governments of Nigeria. On the basis of incidence, taxes in Nigeria can be structured into
direct tax systems including: personal income tax (PIT), petroleum profit tax (PPT), companies’
income tax (CIT), educational tax (ET) as well as indirect tax systems including value added tax
(VAT) and custom & excise duty (CED). The government can collect revenue from the oil and
gas sector through a variety of tax and nontax instruments (Davis, Ossowski, and Fedelino, 2003).
Petroleum profit taxes and income tax on gas exploration are some of the fiscal instruments of
economic growth in Nigeria. Odusola (2006) documented that PPT is a tax applicable to upstream
operations in the oil industry; is particularly related to rents, royalties, margins, and profit-sharing
elements associated with oil mining, prospecting and exploration leases. Petroleum profit tax is
one of the major taxes in Nigeria in terms of its share of total revenue contributing 95 and 70 per
cent of foreign exchange earnings and government revenue, respectively (Onaolapo, Fasina &
Adegbite, 2013). Onaolapo, et al (2013) stated that aside of the provision of revenue through
petroleum profit taxes; it is also an instrument for regulating participants in the petroleum industry.

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Adeyemi (2012) stated that the principal legislation applicable to petroleum operation in Nigeria
is the Petroleum Profits Tax Act (PPTA) which became operative on the 1st of January, 1958.
Ilaboya & Ofiafor (2014) agree that although the act was dated 23rd April 1959, the Act has
retroactive effect from 1st January 1958. Since then, the PPTA has been amended by several pieces
of legislation, which have now been consolidated into the current PPTA (1990) and has also since
1990 been subjected to several (Ojutawo, Adegbie, and Salawu, 2020). According to the definition
of the Act (PPTA), petroleum operations essentially involve petroleum exploration, development,
production and sale of crude oil. Section 8 of Petroleum Profit Tax Act (PPTA) states that every
company engaged in petroleum operations is under an obligation to render return, together with
properly annual audited accounts and computations, within a specified time after the end of its
accounting period. Any person answerable for the payment of petroleum tax on behalf of a
company will be indemnified against any person or company where such money has been used on
the settlement or petroleum tax due from the company (Section 27 of the Act). Those chargeable
on petroleum income tax shall include a Nigerian oil and gas company, joint venture or partnership
operation, non-resident oil and gas company, company in liquidation (Ojutawo, et al, 2020).

Economic growth is defined as a persistent increase in per capita aggregate output and in
the aggregate physical capital per worker in an economy (John, and others 2013). It implies that
the rate of increase in total output must be greater than the rate of population growth, and the
national output should be composed of goods and services which satisfy the maximum want of the
maximum number of people. Ndalu (2016) identified four wheels of economic growth as 1) human
resources – labour supply, education, discipline and motivation 2) natural resources – land,
minerals, fuels, environment quality 3) capital formation – machines, factories and roads 4)
technology – science, engineering, management, entrepreneurship. Adeyemi (2012) stated that in
achieving sustainable development in the social and economic sectors of a country, the government
must consider the trade-off involved in attracting foreign direct investment (FDI) in terms of giving
incentives and the impact of these on the country’s sustainable development. Continuing rapid
economic growth enables economies to provide more of everything to its citizens – better food and
homes, more resources for medical care and pollution control, universal education for children,
more resources for military and public pensions for retirees (Ndalu, 2016). An economy that is
growing does not necessarily lead to a developing or developed economy, subject to constraints of

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changes in labour, production, supply, and pricing as well as changes in population, demand,
wages and consumption. Owhondah (2018) corroborates that a high rate of economic growth does
not necessarily mean that the masses are better off where economic development has taken place.
Gross national income (GNI), or per capita income is one of the basic concepts of national income,
and one of the subjects of population growth or decay rates. Oxford Dictionary of Economics
defined per capita income, as national income of a country, or region, divided by its population
(John, et al, 2013). Per capita income, also called income per capita may be defined as the average
income of the individual in a period of time, usually a year (Cole, 2015). Per capita serves as an
economic indicator of the level of standard of living (which is the level of economic well-being or
welfare attained by individuals in a country at a particular time. Demographic change is the reason
why per capita may be a more useful measure than GDP or GNI, for measuring and reporting the
changes in economic wellbeing of the citizens of a nation. It can be measured in many ways,
including per individual, counting everybody, per adult or per adult equivalents. Likewise,
employment rate is proportion of the labour force to total population of a country. It covers all
persons aged 15 to 64 years who are willing and able to work regardless of whether they have a
job or not (National Bureau of Statistics, 2018). It is the number of people in an economy who
provide services for pay under a contract, that includes both full-time and part-time workers in
private, public, non-profit and household sectors, as well as under self-employed arrangements
(John, et al, 2013). It refers to a job or work that someone does to earn a living, and could be
regarded as one’s regular trade, vocation or profession (Owhondah, 2018). It refers to persons of
working age who, during a short reference period, were engaged in any activity to produce goods
or provide services for pay or profit, whether at work in a job for at least one hour, or not at work
due to temporary absence from a job, or to working-time arrangements (World Bank Group, 2020).

5- Theoretical Review

The benefit received theory of taxation holds that people (including oil producing
companies) should be taxed according to the benefits they received from tax financed projects.
These benefits from government projects such as the provision of good roads, power, national
security, conducive business environment, will in turn increase private sector or foreign direct
investment and improve national output of goods and services for economic growth. The benefits
principle is applicable for this study on the premise that the existence of mutually reinforcing
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relationship between the taxpayers (citizenry) and tax recipients (government) to sustain the
anticipated growth of the Nigerian economy. According to concentration theory, each tax tends
to concentrate on a particular class of people who happen to enjoy surplus from their products.
According to the human labour applied in land, is able to generate a surplus and this surplus is
called the net product. Hence, labour when applied to land is able to generate a surplus in the form
of net product, which is appropriated by the landlords. Hence, physiocrats believed that in an
economy, those could bear the taxes, which are appropriating a surplus. Hence on whatever class
the tax imposed, the payment would ultimately be made by the landed proprietors. All other classes
and occupations are sterile, they did not yield any surplus, so that they cannot bear the burden of
taxation. If a tax was levied on these sterile classes, it will be shifted and re-shifted and ultimately
fell on the landlords, who extracts a surplus. Only a tax imposed on landlords can’t be shifted
further because tax fall upon surplus income and it is paid out of it. This theory was accepted by
the classi-cal economists Adam Smith and David Ricardo with some modification that, taxes could
rest only on net income or rent. Wages and profits were for the most part cost of production. Since,
labour and business obtained little net income; most taxes imposed on them had to be shifted
through an increase in prices and wages. Here, the benefits are primarily received by the oil
producing companies, and they are regarded as the landlords upon whom oil and gas taxes are
chargeable. For the purpose of this study, a theory will be adopted based on two (2) factors such
as the cuts in production capacity and the volatility of crude oil prices. In the light of the foregoing,
the most relevant theoretical framework on PPT for economic growth was benefits received
theory and concentration theory of taxation. Therefore, economic growth indicators are a
function of petroleum profit tax revenues, and the ability of government to put the anticipated
earnings from tax revenue into judicious uses that would translated to the growth of its economy.

6- Review of Prior Studies

This study has reviewed up to twenty (20) extant prior related studies, as presented in brief
sentences below. Alhassan, Musa and Mahmud (2020) found that: the existence long-run
relationship between petroleum profit tax and economic growth in Nigeria; petroleum profit tax
impact positively on economic growth at a statistical significant level; governance impact
positively on economic growth in Nigeria; while non-oil tax revenue impact negatively on
economic growth in Nigeria. Awa (2020) found that: VAT and CED are insignificant in
10

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determining the economic growth in emerging market economy context with special interest and
that the higher the amount of tax revenue generated, the higher the level of economic growth in
the economy. Awa and Ibeanu (2020) found that: petroleum profit tax and company income tax
have significant effect on economic development while value added tax does not significantly
influence economic development. Inimino, Otubu and Akpan (2020) found that: historical
variation in PPT can be used to predict the future variation in RGDP, at the same time, historical
variation in RGDP can also be used to predict the future variation in PPT. Ojutawo, Adegbie, and
Salawu (2020) found that: Petroleum profit tax volatility had positive and significant effect on EG
in Nigeria (R2 = 0.56, β1 = 0.422, t(107) = 6.927, p<0.05). Onoja and Ibrahim (2020) revealed
that Petroleum Profit Tax (oil tax revenue) has a positive but no significant relationship with
Nigeria Economic Growth, while Value Added Tax and Companies Income Tax (non-oil Tax
Revenue) have significant relationship with Nigeria Economic Growth. Uket, Wasiu, and Etim
(2020) found that: a positive relationship with a coefficient of determination of 99.2% of the
variation in economic development attributable to the tax income streams studied; although there
is a significant effect of taxes from companies’ profits and Value Added Tax on Gross Domestic
Product Growth, there is little or no significant impact of taxes on profits of Petroleum companies
on Gross Domestic Product growth in Nigeria due to restriction by OPEC production ceiling on
Nigeria’s production/sales and the global price shocks of crude oil over the decade. Amadi, and
Alolote (2019) found that: all the independent variables (VAT, CIT and PPT) used in this study
have a significant positive relationship on the dependent variable (GDP), which is used to measure
economic development while value-added tax, company income tax, and petroleum profit tax were
used to measure taxation. Edewusi and Ajayi (2019) found that: petroleum profit tax exerts a
positive significant impact on economic growth with a coefficient an estimate coefficient of
3.707601(p=0.5150>0.05). Etim, Austine, and Nsima (2019) found that: there is a positively
significant association of studied variables with (0.9844) and (0.9471) coefficients for petroleum
profit tax and companies income tax respectively in relation independent variables integrate with
the dependent variable at first order, while the parsimonious results shows a positive co-efficients
of (3.6344) and (2.7644) and (2.7629) for t-values of CIT and PPT on economic growth. Uzoka
and Chiedu (2018) found that: CGT and EDT have no major effect on economic growth but there
is a significant effect from PPT, CIT, VAT and CED on the growth of Nigeria economic. Igbasan
(2017) found that: CIT shows a significant positive effect on the GDP, PPT shows a significant

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positive effect on the GDP, CED shows a significant positive effect on the GDP, VAT shows a
significant positive effect on the GDP. Wilson, Innocent and Johnson (2017) found no significant
difference in average changes in economic growth between the oil boom and oil slump periods,
which implied that Nigeria’s petrodollar windfall had no significantly stimulating effect on the
country’s growth and development trajectory. Cornelius, Ogar and Oka (2016) found that:
petroleum profit tax and non-oil revenue have significant impact on economic growth of Nigeria;
and that company income tax has insignificant influence on the growth of Nigerian economy.
Okoh, Onyekwelu and Iyidiobi (2016) found that: petroleum profit revenue has significant
positive influence on gross domestic product in Nigeria. Madugba, Ekwe, and Kalu (2015) found
that: there is a positive significant relationship between PTI and TCR, there is a positive significant
relationship between CIT and TCR, and that there is a negative significant relationship between
PTI and TCR and CIT and TCR. Usman, Madu and Abdullahi (2015) found that the test statistics
(|t|) of 3.897 is greater than the critical value of 1.960, showing that petroleum resources, measured
by Coil-REV, has significant and positive impact on GDP. Ogbonna and Ebimobowei (2012),
found that oil revenue has a positive and significant relationship with GDP and PCI, but a positive
and insignificant relationship with INF; that PPT/R has a positive and significant relationship with
GDP and PCI, but a negative and insignificant relationship with inflation; that LF has a positive
but insignificant relationship between GDP, PCI and INF, respectively. However, none of these
prior studies reviewed, investigated the role of income tax for gas exploration on economic growth.

7- Data collection and methodology

To achieve the objective of this study, ex-post facto research design which employed
quantitative methods of data presentation, data analysis, and hypothesis testing. The population of
study is Nigeria with a tax history of forty (40) years from 1981 to 2020. The study adopted interval
scale of measurement and preceding year basis of sampling, with a sample size of nine (9) years
from 2010 to 2018; using income tax on gas exploration as base year. The source of data was
secondary, obtained from the Central Bank of Nigeria, National Bureau of Statistics, OECD
Statistics, and World Bank Group. The study adopted univariate analysis for presentation of data,
and bivariate analysis for test of hypothesis with MS Excel 2019 and SPSS Statistics 26. Univariate
analysis used were mean, standard deviation, variance, skewness and kurtosis. Bivariate analysis
used were linear regression, analysis of variance (ANOVA), F-test statistics and T-test statistics.
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 8- Presentation of Data

Table 1 presents data for the dimensions of independent variable and proxies of dependent
variable from 2010 to 2018, while table 2-6 present results for descriptive statistics and hypothesis
testing. The dimensions of petroleum tax revenue adopted by this study were petroleum profit tax
(PPT) and income tax on gas (ITG) while proxies of economic growth adopted by this study were
per capita income (PCI) and employment rate (JOB).

Figure 1: Scatter Plot on Oil & Gas Taxes and

Economic Growth in Nigeria (2010 - 2018)
3500000

3000000

2500000

2000000

1500000

1000000

500000

0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

PPT ITG PCI JOB

Source: Microsoft Excel 2016 output from the Researcher

9- Tests of Hypotheses
Ho1 There is no significant relationship between petroleum profit tax (PPT) revenue and
per capita income (PCI) for economic growth.

The study found that the correlation coefficient (r) is 0.048407528, which shows a 4.84%
correlation between petroleum profit tax (PPT) revenue and per capital income (PCI); that the
coefficient of determination (r2) is 0.002343289, which shows a 0.23% linear impact of petroleum
profit tax (PPT) revenue on per capital income (PCI); and that the P value of the F-test and T-test
is 0.901577361, which is greater than α (0.05). Therefore, Ho1 is accepted as there is no significant
relationship between petroleum profit tax (PPT) revenue and per capital income (PCI).
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Ho2 There is no significant relationship between petroleum profit tax (PPT) revenue and
employment rate (JOB) for economic growth.

The study found that the correlation coefficient (r) is 0.068804895, which shows a 6.88%
correlation between petroleum profit tax (PPT) and employment rate (JOB); that the coefficient of
determination (r2) is 0.004734114, which shows a 0.47% linear impact of petroleum profit tax
(PPT) on employment rate (JOB); and that the P value of the F-test and T-test is 0.860383619,
which is greater than α (0.05). Therefore, Ho2 is accepted as there is no significant relationship
between petroleum profit tax (PPT) and employment rate (JOB).

10- Discussion of Findings

Ho1 – There is no significant relationship between petroleum profits tax (PPT) and per
capita income (PCI) for economic growth. This finding is not in agreement with Ogbonna and
Ebimobowei (2012), who found that oil revenue has a positive and significant relationship with
GDP and PCI, and that PPT/R has a positive and significant relationship with GDP and PCI.

Ho2 – There is no significant relationship between petroleum profits tax (PPT) and
employment rate (JOB) for economic growth. None of the prior studies reviewed in this paper,
have investigated the significant relationship between PPT and JOB for economic growth. Thus,
our study has filled gap in literature and contributed to knowledge, on the effect of PPT on JOBS.

11- Conclusion and Recommendations

The study concluded that: given high levels of oil price stability and production boom,
petroleum profit tax might not significantly contribute to per capita income and employment rate
for economic growth, with a correlation of less than 10%. The study recommended that
government should reduce the tax incentives granted to petroleum companies in Nigeria, and
increase the tax rate of non-petroleum companies, which will increase government revenue from
petroleum taxes, during times of oil price volatility and production cuts.

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 Appendix

Table 1: Presentation of Data on PPT, ITG, PCI, and JOB from 2010 to 2018
YEAR PPT ITG PCI JOB
2010 1480363.99 0.0 341.9678 8.70
2011 3070591.30 45227.10 383.5591 6.84
2012 3201319.50 9727.00 424.8456 8.06
2013 2666366.90 7726.90 461.3627 7.81
2014 2453947.40 17749.76 498.0068 6.99
2015 1289960.70 115569.20 511.2129 6.94
2016 1157808.10 85878.10 425.6620 7.04
2017 1520481.70 34838.60 425.3480 6.99
2018 2467580.70 75987.80 426.1528 7.02
Source: CBN Statistical Bulletin, NBS Report, OECD Statistics & World Bank Data (2018)

Table 2: Descriptive Statistics on PPT, ITG, PCI, and JOB from 2010 to 2018
PPT ITG PCI JOB

Mean 2145380.032 43633.83 433.1242 7.376666667

Standard Error 263028.9188 13488.07 17.52161 0.218078732

Median 2453947.4 34838.6 425.662 7.02

Mode #N/A #N/A #N/A 6.99

Standard Deviation 789086.7565 40464.22 52.56483 0.654236196

Sample Variance 6.22658E+11 1.64E+09 2763.061 0.428025

Kurtosis -1.87405319 -0.762599 0.012028 0.564907

Skewness 0.015167357 0.715902 -0.12082 1.30905429

Range 2043511.4 115569.2 169.2451 1.86

Minimum 1157808.1 0 341.9678 6.84

Maximum 3201319.5 115569.2 511.2129 8.7

Sum 19308420.29 392704.5 3898.118 66.39

Count 9 9 9 9

Confidence Level (95.0%) 606545.7745 31103.56 40.4049 0.502890458

Source: Microsoft Excel 2016 output from the Researcher

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Table 3 – Statistical Analysis 1
Ho1 There is no significant relationship between petroleum profit tax (PPT) revenue and per
capita income (PCI) for economic growth.

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.048407528
R Square 0.002343289
Adjusted R Square -0.140179099
Standard Error 56.12828455
Observations 9

ANOVA
df SS MS F Significance F
Regression 1 51.79719646 51.79719646 0.016441548 0.901577361
Residual 7 22052.69029 3150.384327
Total 8 22104.48748

COEFFICIENT
Standard
Coefficients Error t Stat P-value
Intercept 440.0423013 57.10497106 7.7058493 0.000115689
PPT -3.22466E-06 2.51485E-05 -0.128224601 0.901577361

RESIDUAL OUTPUT
Observation Predicted PCI Residuals Standard Residuals
1 435.2686368 -93.3008368 -1.777050392
2 430.1407009 -46.58160091 -0.887214467
3 429.7191474 -4.873547448 -0.092823813
4 431.4441855 29.91851449 0.569841705
5 432.1291653 65.8776347 1.254735548
6 435.8826219 75.33027811 1.434774916
7 436.3087686 -10.64676855 -0.202783221
8 435.139271 -9.791270986 -0.186489023
9 432.0852026 -5.932402603 -0.112991252

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 Table 4 - Statistical Analysis 2
Ho2 There is no significant relationship between petroleum profit tax (PPT) revenue and
employment rate (JOB) for economic growth.

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.068804895
R Square 0.004734114
Adjusted R Square -0.137446727
Standard Error 0.697750411
Observations 9

ANOVA
df SS MS F Significance F
Regression 1 0.016210552 0.016210552 0.033296424 0.860383619
Residual 7 3.407989448 0.486855635
Total 8 3.4242

COEFFICIENT
Coefficients Standard Error t Stat P-value
Intercept 7.254280204 0.709891944 10.21885129 1.85455E-05
PPT 5.70465E-08 3.1263E-07 0.182473077 0.860383619

RESIDUAL OUTPUT
Observation Predicted JOB Residuals Standard Residuals
1 7.338729816 1.361270184 2.085644118
2 7.429446749 -0.589446749 -0.90310958
3 7.436904338 0.623095662 0.954664121
4 7.406387154 0.403612846 0.618387715
5 7.394269361 -0.404269361 -0.619393581
6 7.327867972 -0.387867972 -0.594264506
7 7.320329126 -0.280329126 -0.429500917
8 7.341018392 -0.351018392 -0.537806127
9 7.395047093 -0.375047093 -0.574621242

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