ILLICIT FINANCIAL FLOWS AND REVENUE MOBILIZATION IN NIGERIA

Abstract

Illicit financial flows deprive government of the revenue required for infrastructural development and growth. Studies relating tax mobilisation and illicit financial flows have mainly concentrated on the money laundering aspects of illicit financial flows thereby neglecting the trade mispricing aspect of illicit financial flows. This study therefore identified four components of illicit financial flows and evaluated their long-run implications on tax mobilisation in Nigeria. The empirical analysis was based on the Keynesian Theory of Taxation. Variables used were over-invoiced exports (OX), under-invoiced exports (UX), over-invoiced imports (OM), under-invoiced imports (UM), and revenue as a percentage of gross domestic product, corruption, and inflation for the period 1981 to 2020. An Autoregressive Distributed Lag (ARDL) model was used. Data used were sourced from Central Bank Statistical Bulletin, the Federal Inland Revenue Service (FIRS) database, World Governance indicators, World Development Indicators and OPEC open database. The results were analysed at ?<0.05 level of significance. Findings revealed existence of long-rung cointegrating relationships between illicit financial flows and tax mobilisation in Nigeria. Additionally, a negative relationship was shown to exist between illicit financial flows and tax mobilisation in Nigeria. Illicit financial flows undermine efficient tax mobilisation in Nigeria.  For tax mobilisation to expand, international cooperation among countries, effective monitoring of international trade transactions by the Central bank, and information sharing among financial, trade and anti-corruption agencies is crucial.