International Journal of Research and Scientific Innovation (IJRSI) | Volume VII, Issue VII, July 2020 | ISSN 2321–2705 www.rsisinternational.org Page 129 Does Taxation Drive Economic Development in Nigeria? Etim Osim Etim 1* , Nsima Johnson Umoffon 2 , David Johnny Ekanem 3 1,2 Department of Accounting, Faculty of Business Administration, University of Uyo, Nigeria 3 Department of Accounting and Finance, Faculty of Social and Management Sciences, Ritman University, Ikot Ekpene, Nigeria *Corresponding Author Abstract:- This study examined whether taxation drive economic development (Human Development Index) in Nigeria used data spanning from 1985 to 2018 obtained from the Central Bank of Nigeria (CBN) statistical Bulletin, Federal Inland Revenue Service (FIRS) tax reports and Human Development Report by United Nations Development Programme (UNDP) reports. Data collected were analysed using descriptive and inferential statistics involving multiple regression analysis. Findings revealed that an inverse and significant relationship exist between Company Income Tax (CIT) and Human Development Index (HDI) in Nigeria; direct and significant relationship between Value Added Tax (VAT) and HDI direct and insignificant relationship between Personal Income Tax (PIT), Petroleum Profit Tax (PPT) and HDI. It was concluded that taxation has the capacity to cause positive economic development in Nigeria if the tax base is expanded and loopholes in the tax administrative system which causes tax revenue hemorrhage are closed and the strengthen of taxation framework to make the Nigerian economy tax base economy rather than oil base economy. Keywords: Human Development Index, Taxation, Oil base economy, tax base economy I. INTRODUCTION evenue generated by an individual, organization or government determines the extent of socio-economic infrastructural provision as well as the living standard of the people. From ancient times, public finance is majorly funded through taxes often imposed on subjects by the government in power. Revenues may be derived from tax and non-tax sources, oil and non-oil, internally and externally generated, among other sources or classification. Whatever the source or classification, taxation revenue are the most potent, reliable and efficient source of revenue to both developed and developing economies (Konrad, 2014). Taxation in any country is required to serve several purposes some of which include generation of revenue to government, redistribution in income, instrument of social and economic development, fiscal policy tool for correcting balance of payment disequilibrium, protection of indigenous and infant industries, among others. How well these roles are fulfilled and the viability of taxation as instrument of stabilization is a function of the administrative machinery and focus of the central and regional governance. Taxation, „as a component of fiscal policy framework in economic theory, thus has implications in the economic growth rate and other micro and macro-economic variables.‟ The connection between taxation and economic growth is long been debated in accounting, finance and economic literature. For instance, the United Nations (2005) aver that for developing countries to attain rapid economic growth and development, they must have to increase their domestic revenue through taxation in accordance with the Millennium Development Goals (MDGs). Many empirical studies such as UN (2005); Popoola (2019), Adegbie and Fakile (2011); Onefeiwu, 2012; Lyndon and Paymaster, 2016; Ogbanna and Appah (2016), and others had tried to associate taxation and economic growth. In Nigeria, the extent to which taxation affects the economy has remained a subject of debate amongst professionals and even the ordinary people since it is assumed that taxation in practical sense of it does not work in the country as applicable in other nations of the world. The premise for this debate strongly holds water giving the many economic distortions and sorry state of the nation‟s infrastructures as well as the level of poverty in the country. It is also documented elsewhere the ineffective administrative machinery and corruption among the tax authority personnel which hampers efficiency in tax administration in the country. Bird (2008) posits “that despite the resulting variety of tax systems and possibilities found in the developing world, all developing countries, Nigeria inclusive, face the same basic tax challenge. One of which is how to meet public spending needs by raising revenue in a way that is conducive to the political survival of those making policy decisions.” Thus, with fiscal imbalances which characterize the Nigerian public sector and the ever increasing public needs, policy thrusts need to be put in place to enhance steady revenue flows to the government (Etim and Nweze, 2015). Generally, therefore, an underlying premise might be that when the government prudently applies tax revenue to the provision of infrastructures and social security, and creates an enabling environment for businesses to thrive through fiscal policies, economic growth and development is enhanced. Economic development is measured by a prolong and sustained economic growth and an increase in economic performance indicators of any country at a particular period of time. Some studies (Chen, 2007; Fullerton and Heute, 2007; Keshap, 2010; Muraina, 2018; Lyndon and Paymaster, 2016) which have attempted to identify the determinants of the level of taxation, often cite one of the most commonly used R