DIRECT TAXES AND INCOME INEQUALITY IN NIGERIA

Abstract

This study investigates the relationship between direct taxation and income inequality in Nigeria, focusing on personal income tax, companies' income tax, petroleum profit tax, and tertiary education tax. Using time series data from 1980 to 2022, the study employs regression analysis to examine the impact of these direct taxes on income inequality, proxied by Gini's coefficient. The findings of the study reveal a negative but statistically non-significant relationship between direct taxation and income inequality. Personal income tax reveals a non-significant reduction in income inequality, while companies' income tax exhibits a significant negative relationship, implying a considerable decrease in inequality. Petroleum profit tax shows a negative but non-significant impact, and tertiary education tax indicates a non-significant decrease in income inequality. Based on the above, the study recommends enhancing the collection of direct taxes, improving companies' income tax revenue, strengthening transparency in the petroleum sector, and increasing the income from education tax to address income inequality. This is against the backdrop of the negative but non-significant relationship between the components of direct taxes and income inequality with the exception of the company’s income tax.