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1.1   Background to the Study

The reliance on oil revenue has long been a cornerstone of Nigeria’s economy, but the volatility of global oil prices has exposed the vulnerabilities of this dependency. Scholars such as Iyoha and Oriakhi (2008) have highlighted the cyclical nature of oil prices and the subsequent economic instability it brings to oil-dependent nations like Nigeria. As oil revenues dwindle, there is a growing consensus among economists and policymakers that diversifying the revenue base through taxation could provide a more stable and sustainable economic framework. This literature review explores the potential of taxation as an alternative to dwindling oil revenue in Nigeria, drawing on various academic sources and empirical studies.

One of the primary arguments for enhancing the tax system in Nigeria is its potential to provide a more predictable and stable revenue stream. According to Adebisi and Gbegi (2013), the Nigerian tax system has historically been underutilized, with tax revenues contributing only a small fraction to the national budget compared to oil revenues. They argue that improving tax collection mechanisms and broadening the tax base could significantly increase government revenue. This view is supported by the work of Okoye and Gbegi (2013), who emphasize the importance of tax reforms in achieving fiscal sustainability. They suggest that a well-structured tax system can mitigate the economic shocks associated with fluctuating oil prices.

Moreover, taxation has the potential to promote economic diversification, which is crucial for long-term economic stability. As noted by Ocheni and Gemade (2015), a diversified economy is less susceptible to external shocks and can provide a more resilient economic structure. By implementing effective tax policies, the government can incentivize investment in non-oil sectors such as agriculture, manufacturing, and services. This, in turn, can create jobs, reduce poverty, and stimulate economic growth. Empirical evidence from countries like Malaysia and Indonesia, which have successfully diversified their economies through strategic tax policies, underscores the potential benefits for Nigeria.

However, the effectiveness of taxation as an alternative revenue source is contingent upon addressing several challenges. One significant issue is the pervasive problem of tax evasion and avoidance in Nigeria. As highlighted by Fagbemi, Uadiale, and Noah (2010), the informal sector, which constitutes a large portion of the Nigerian economy, often escapes the tax net. Strengthening tax administration and enforcement is therefore critical to ensuring compliance and maximizing revenue. Additionally, public trust in the tax system must be bolstered through transparency and accountability in the use of tax revenues, as noted by Fjeldstad and Heggstad (2012).

Another challenge is the need for comprehensive tax reforms that align with international best practices. According to Bird and Zolt (2008), developing countries like Nigeria can benefit from adopting modern tax policies that are equitable, efficient, and easy to administer. This includes the implementation of value-added tax (VAT), property taxes, and progressive income taxes. The work of Keen and Lockwood (2010) suggests that VAT, in particular, can be a significant source of revenue if properly managed. They argue that VAT is less susceptible to evasion compared to other forms of taxation and can be effectively implemented with the right administrative framework.

In conclusion, while the transition from oil dependency to a tax-based revenue system presents several challenges, the potential benefits for Nigeria are substantial. By enhancing tax collection mechanisms, broadening the tax base, and implementing comprehensive tax reforms, Nigeria can achieve greater economic stability and sustainability. The literature underscores the importance of political will, administrative capacity, and public trust in realizing these goals. As Nigeria navigates this critical juncture, the insights from academic research and empirical evidence provide a valuable roadmap for policymakers seeking to secure the nation’s economic future.

1.2   Statement Of The Problem

Nigeria has long been heavily dependent on oil revenue to finance its national budget and economic development. However, the volatility of global oil prices and the depletion of oil reserves have exposed the vulnerability of this mono-economy. The sharp decline in oil prices, particularly in recent years, has led to significant revenue shortfalls, creating fiscal deficits and economic instability. This situation has necessitated the exploration of alternative revenue sources to ensure sustainable economic growth and development. One such alternative is the enhancement of the tax system to generate more reliable and consistent revenue streams.

The current tax system in Nigeria is fraught with inefficiencies, including a narrow tax base, widespread tax evasion, and inadequate enforcement mechanisms. These issues have resulted in suboptimal tax revenue collection, which is insufficient to offset the losses from dwindling oil revenue. The informal sector, which constitutes a significant portion of the Nigerian economy, remains largely untaxed, further exacerbating the revenue shortfall. Addressing these challenges is crucial for the successful implementation of taxation as a viable alternative to oil revenue.

Moreover, the public perception of taxation in Nigeria is generally negative, with many citizens viewing taxes as burdensome and unfair. This perception is partly due to the lack of transparency and accountability in the use of tax revenues, as well as the prevalence of corruption within the tax administration system. To gain public trust and compliance, it is essential to reform the tax system to ensure that it is fair, transparent, and efficient. This includes improving tax administration, simplifying tax laws, and enhancing taxpayer education and awareness.

The potential of taxation to serve as a sustainable revenue source is also hindered by the limited capacity of tax authorities to effectively collect and manage taxes. This is compounded by the lack of modern infrastructure and technology to support tax administration processes. Strengthening the institutional capacity of tax authorities through training, technological upgrades, and better resource allocation is imperative for improving tax collection and management.

Furthermore, the economic diversification efforts in Nigeria have been slow and insufficient to reduce the over-reliance on oil revenue. While there have been initiatives to promote other sectors such as agriculture, manufacturing, and services, these sectors have not yet reached their full potential in contributing to the national revenue. A robust tax system can provide the necessary financial support for these sectors to grow and diversify the economy, thereby reducing the dependency on oil.

The dwindling oil revenue in Nigeria presents a significant challenge to the country’s economic stability and development. However, by addressing the inefficiencies in the current tax system, improving public perception and compliance, and strengthening the capacity of tax authorities, taxation can serve as a viable alternative revenue source. This requires comprehensive reforms and a concerted effort from both the government and the citizens to create a sustainable and diversified economy.

1.3   Objectives Of The Study

The following are the objectives of this study:

  1. To examine taxation as an alternative to dwindling oil revenue in Nigeria.
  2. To examine the effect of taxation on the taxation economy and development in general.
  3. To examine the effectiveness of the institutional framework for the collection and enforcement of tax duties.

1.4   Research Questions

  1. Can taxation serve as an alternative to dwindling oil revenue in Nigeria?
  2. What is the effect of taxation on the taxation economy and development in general?
  3. What is the effectiveness of the institutional framework for the collection and enforcement of tax duties?

1.5   Hypothesis

HO: Taxation cannot serve as an alternative to dwindling oil revenue in Nigeria.
HA: Taxation serve as an alternative to dwindling oil revenue in Nigeria.

1.6   Significance Of The Study

The following are the significance of this study:

The significance of studying taxation as an alternative to dwindling oil revenue in Nigeria cannot be overstated. Nigeria’s economy has long been heavily dependent on oil revenue, which has made it vulnerable to fluctuations in global oil prices. This dependency has led to economic instability and has hindered sustainable development. By exploring taxation as a viable alternative, this study aims to provide a pathway for economic diversification, which is crucial for the country’s long-term stability and growth.


One of the primary benefits of focusing on taxation is the potential for a more stable and predictable revenue stream. Unlike oil prices, which are subject to global market volatility, tax revenues can be more consistent and reliable. This stability can help the Nigerian government plan and execute long-term development projects, thereby fostering economic growth and improving public services. Moreover, a well-structured tax system can reduce the fiscal deficit and lower the country’s reliance on external borrowing.

Another significant aspect of this study is its potential to promote social equity. Oil revenue in Nigeria has often been associated with corruption and unequal distribution of wealth. By contrast, a progressive tax system can help redistribute income more fairly, thereby reducing income inequality. This can lead to a more inclusive economy where the benefits of growth are shared more broadly among the population. Additionally, a transparent and efficient tax system can enhance public trust in government institutions, which is essential for social cohesion and political stability.

The study also has implications for governance and institutional development. Effective tax administration requires robust institutions and good governance practices. By focusing on improving tax collection and compliance, the study can contribute to strengthening Nigeria’s institutional framework. This, in turn, can lead to better governance and more effective public administration, which are critical for sustainable development.

Furthermore, the study can provide valuable insights for policymakers. By analyzing the challenges and opportunities associated with taxation as an alternative revenue source, the study can offer evidence-based recommendations for policy reforms. These recommendations can help the Nigerian government design and implement tax policies that are both efficient and equitable. Policymakers can use these insights to create a more diversified and resilient economy, capable of withstanding external shocks.

Lastly, the study has broader implications for other oil-dependent economies facing similar challenges. The findings and recommendations can serve as a model for other countries looking to diversify their revenue sources. By sharing best practices and lessons learned, the study can contribute to global knowledge on economic diversification and sustainable development. This can foster international cooperation and support efforts to build more resilient and inclusive economies worldwide.

1.7   Scope/Limitations Of The Study

The study examines taxation as an alternative to dwindling oil revenue in Nigeria. The is limited to tax enforcer in Lagos, Nigeria.

Limitation Of Study

Financial constraint– Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8. Operational Definition of Terms

  1. Alternative: An alternative is a choice or option that can be used in place of another. It represents a different method, strategy, or course of action that can be taken to achieve a similar outcome. In the context of the topic, taxation is considered an alternative to oil revenue.
  2. Dwindling: Dwindling refers to something that is gradually decreasing in size, amount, or strength. It implies a continuous reduction over time. In the context of oil revenue, it means that the income generated from oil is steadily declining.
  3. Oil Revenue: Oil revenue is the income that a country or organization earns from the extraction, production, and sale of oil. For countries like Nigeria, which are rich in oil resources, this revenue can constitute a significant portion of the national income and is crucial for economic stability.
  4. Tax: A tax is a compulsory financial charge or levy imposed by a government on individuals, businesses, or other entities. Taxes are used to fund public expenditures, such as infrastructure, education, and healthcare. They can take various forms, including income tax, sales tax, property tax, and corporate tax.

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