Tax–trade nexus in Nigeria: An empirical analysis of oil and non-oil imports and exports

Abstract

This study examined the impact of taxation on oil and non-oil trade flows in Nigeria between 2011Q1 and 2024Q4. The study employs the Autoregressive Distributed Lag (ARDL) modelling framework to analyse the short- and long-run effects of key tax variables, customs duties (CDT), value-added tax (VAT), and corporate income tax (CIT), on oil and non-oil trade flows in Nigeria. The results reveal that positive shocks to customs duties significantly increase oil imports and non-oil exports in the short run. In contrast, VAT demonstrates limited influence across the different trade categories. Corporate income tax is found to stimulate non-oil exports in the short run but exerts minimal effects on imports. Exchange rate depreciation reduces both non-oil imports and exports. In the long run, customs duties remain a significant driver of trade flows, while both corporate income tax and VAT tend to constrain trade activities. The findings highlight the heterogeneous effects of taxation on different components of trade in Nigeria. While certain tax instruments, particularly customs duties, can stimulate trade flows, others may impose constraints that affect the performance of the external sector over time. The study suggests that policymakers should design tax strategies that balance revenue mobilisation with trade promotion. In particular, tax policies should account for sectoral differences between oil and non-oil trade, while also considering the interactions between taxation, exchange rate dynamics, and investment conditions to ensure sustained external sector stability and diversification of Nigeria’s trade base.