Effect of PAYE and other Internally Generated Revenue Taxes on Expenditure of Government in Southwest State, Nigeria

Abstract

A tax is a compulsory charge on income, consumption and production imposed upon an individual, Partnership or companies by the government of a nation in order to fund various public expenditures. The intricate relationship between the collection of PAYE and other internally generated revenue taxes and the allocation of funds towards public services, infrastructure development, and social welfare programs poses a complex challenge. The study therefore examines the tax revenue and government expenditure in Southwest, Nigeria. The study adopts ex-post facto research design while data was sourced secondarily from the audited annual financial reports and budgets of southwestern states governments for the period of forty (40) years 1982-2022. The population of the study were the entire six (6) states of south west Nigeria.  Analytical techniques used in the study involved both descriptive and inferential statistics. Descriptive statistics include minimum, maximum, mean and standard deviation values. Variance Decomposition Analysis (VDA) and Impulse Response Function (IRF) as components of time series regression analysis was used in assessing all the study variables at 5% significant level. Regression analysis was used to examine the effect of PAYE and other internally generated revenue taxes on expenditure. The result of the regression analysis implies that four explanatory variables INT and COT were significant in explaining variation on the effect of PAYE and other internally generated revenue taxes on expenditure of government in southwest state with p values of (0.0202 and 0.0116). The study concludes that Pay AsYou Earn (PAYE) and other internal generated revenue taxes has significant effect to government expenditure in southwest states, Nigeria. Therefore, the study recommends that Government in the southwestern states should develop and implement effective strategies to further boost revenue generation, especially from internal sources like Pay As You Earn (PAYE) and other internally generated taxes.