COMPANY INCOME TAX: A SINE QUA NON TO ECONOMIC GROWTH OF NIGERIA

Abstract

This study investigates the critical role of Company Income Tax (CIT) in fostering economic growth in Nigeria, with a particular emphasis on how capital flight undermines its effectiveness. Despite the growing demand for public services and infrastructural development, Nigeria continues to experience significant revenue shortfalls, largely due to illicit financial flows such as over-invoicing, under-invoicing, and excessive debt servicing. These activities distort the taxable profit base of corporations and deprive the government of essential revenue needed for national development. Using an adapted model from Ichoku and Fonta (2006) and grounded in Wagner’s Law of expanding state activity, this study employed time series data from 1994 to 2016 to examine the empirical relationship between capital flight components and company income tax revenue. The study utilized the Error Correction Model (ECM), Augmented Dickey-Fuller Unit Root Tests, Johansen Cointegration Tests, and Granger Causality Tests to assess both short-run and long-run effects. The findings revealed a statistically significant negative impact of over-invoicing and under-invoicing on CIT, indicating that these forms of capital flight erode the corporate tax base. The study also found evidence of both unidirectional and bidirectional causality between capital flight indicators and CIT. Though debt servicing had a negative but statistically insignificant effect, its longterm implications for fiscal sustainability remain concerning. The study concludes that company income tax is indispensable to Nigeria’s economic growth but is severely threatened by unchecked capital flight. It recommends robust reforms in customs enforcement, tax administration, and international cooperation to stem illicit financial flows, enhance tax compliance, and ultimately strengthen Nigeria’s fiscal capacity.