Tax Revenue in the Context of Budget Implementation: Evidence from Nigeria

Abstract

Budget performance is commonly assessed by the extent to which a government achieves its stated objectives within a fiscal year, although successful implementation is often constrained by weak political will, corruption, administrative inefficiencies, and social instability. In this context, this study examines the effect of taxation on foreign direct investment and budget implementation in Nigeria over the period 2000–2022. The study employs time-series data, using capital expenditure as a proxy for budget implementation, while company income tax and value added tax represent key taxation variables. Data were obtained from the Central Bank of Nigeria Statistical Bulletin and the World Development Indicators. To ensure econometric reliability, the time-series properties of the variables were examined using the Dickey–Fuller unit root test to establish stationarity, followed by a bounds test for cointegration to determine the existence of a long-run relationship among the variables. The empirical results provide mixed evidence on the impact of taxation on budget implementation in Nigeria. Specifically, company income tax is found to exert a statistically significant negative effect on capital expenditure, suggesting that higher reliance on this tax source may limit government investment in capital projects. Conversely, value added tax has a significant positive effect on capital expenditure, indicating its effectiveness in supporting budget implementation during the study period. Based on these findings, the study recommends that the Nigerian government should intensify economic diversification efforts and strengthen non-oil revenue mobilization, particularly through value added tax, in response to declining oil revenues available for intergovernmental fiscal allocation.