Underground Economic Activities in Nigeria: Implications on the Total Tax Revenue Generation (1980 - 2013)

Substantial and increasing volumes of economic activities take place outside the formal sector of the Nigerian economy and this has economic implications on the government revenue profile. This study examined the impact of underground economic activities on the total tax revenue generation in Nigeria, using microeconomic data for the period 1980 – 2013 extracted from National bureau of statistics and the Central Bank of Nigeria Statistical bulletin. Causal comparative design was adopted and the area of study is Nigeria. The data collected were analyzed using regression model. These data were further subjected to stationarity test using Augmented Dickey Fuller test, as well as Johanson co integration test. The result showed that there is a negative relationship between total tax revenue generation and the size of underground economy. Thus a naira increase in size of underground economy will bring about -1.520810 decrease in total tax revenue. It is therefore recommended that government should create avenue of bringing underground sector activities into the tax net by imposing minimum taxes on all unregistered business that do not pay company income tax irrespective of their actual level of operation. Secondly, there is need for accountability and transparency by the government to avoid public doubt and mistrust which triggers their willingness to go underground.