Evaluating the Impact of Tax Incentives on Revenue Generation: Evidence from the Nigeria Revenue Service

This study examines the effect of tax incentives on revenue generation of Nigeria Revenue Service (NRS), utilizing annual dataset from 1990 to 2023 and applying a Vector Error Correction Model (VECM) for analysis. The findings reveal a distinct dynamic between tax incentives, inflation, and foreign direct investment across different time horizons. In the long run, the tax incentive annual allowance does not have a significant impact on revenue, while the tax incentive investment allowance presents a significant negative impact, suggesting it detracts from revenue generation. Conversely, inflation positively influences revenue, highlighting its role in enhancing government income. In the short run, the tax incentive annual allowance significantly reduces revenue, whereas the investment allowance shows no notable impact. Both inflation and foreign direct investment do not significantly impact revenue in the short term. To optimize NRS revenue generation, this study recommends reevaluating the structure of tax incentives, particularly the investment allowance, and implementing more targeted, performance-based incentives. Additionally, maintaining a stable inflation environment and improving regulatory frameworks to attract foreign direct investment are essential for long-term revenue enhancement.