THE NEXUS BETWEEN FINANCIAL DEEPENING AND NON-OIL TAX REVENUE IN NIGERIA

Abstract

Tax revenues are the major drivers of government revenue sources for many economies all over the world. In Nigeria, the non-oil tax component has been the major source of tax revenue for government, growing by approximately 126% over the last 15 years. Despite the huge amount of non-oil tax revenues in Nigeria, it still constitutes an abysmal portion 
of government’s annual budgets. The extent to which the economy churns tax revenues is intricately connected to the level of financial deepening. In view of this, this study investigated the nexus between financial deepening and non-oil tax revenues in Nigeria over the last fifteen years. The study measured financial deepening using private sector credit and stock market activities while non-oil tax was proxied by total annual tax revenues from non-oil sources. Specifically, private sector credit was measured using Core Credit to the Private Sector (CCPS) and stock market activities were measured using volume of shares traded (VOL). Data was collected on quarterly basis over the period 2010 
to 2024. Inferential analysis was conducted using ADF test for unit root, long run form bounds test for cointegration and the ARDL model. The paper documented significant positive effects of CCPS and VOL on non-oil tax revenue in Nigeria. The study concluded that financial deepening in terms of money and capital market activities do influence positively the size of non-oil tax revenues the Nigerian government can realize. It was 
recommended that government should put in place special credit schemes to promote non oil private sector credit and equally ease access to the stock market by private firms in Nigeria so as to promote growth in non-oil tax revenues in Nigeria. 

Keywords: financial development, credit to private sector, value of shares traded, non-oil tax revenue, Nigeria