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THE ECONOMIC CONSEQUENCES OF MULTIPLE TAXATION AND FISCAL FEDERALISM REFORMS ON BUSINESS COMPETITIVENESS IN AKWA IBOM STATE.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Nigeria is a federally governmental system with a fiscal type of federalism which entails the distribution of revenue generation, allocation, and expenditure in a constitutionally guaranteed division between the federal, state, and the local government. Since independence, fiscal federalism in Nigeria has taken a new form that has been influenced by revenue allocation formulas, derivation principles, and intergovernmental fiscal transfers which are largely based on oil revenues. The system, however, has been criticised as contributing to over-reliance on Federation Account, shallow bases of internally generated revenue (IGR) at sub-national levels, and the existence of overlaps in taxing powers, leading to multiple taxation (Ewetan 2020). Multiple taxation can be defined as similar or overlapping taxes, levies, and other charges imposed by varying levels of government or agencies on the same tax base or economic activity, disjointedly. This has been pointed out to be a big hindrance to business activities, attracting of investments and economic competitiveness in Nigeria.
Over the past few years, Nigeria has experienced significant reforms in fiscal federalism which are meant to deal with these structural inefficiencies. The historic Nigeria Tax Reform Acts of 2025 (which includes the Nigeria Tax Act, Nigeria Tax Administration Act, Nigeria Revenue Service Establishment Act, and Joint Revenue Board Establishment Act) can be seen as the largest overhaul of the tax system in decades. The aim of these reforms is to harmonize the tax administration, trim multiple taxes, stream compliance, and exempt small businesses (with turnover less than ₦100 million) of some of their corporate income taxes and to modify revenue-sharing formulas of Value Added Tax (VAT) in favour of states and local governments (Ben, 2025). Advocates believe that these reforms will increase fiscal independence, ease of doing business and competitiveness. Nevertheless, their application and economic implications, especially on a state level, are still an area of empirical research.
Akwa Ibom State, which is in the South-South geo-political region of Nigeria and is among the top oil-producing states in the country offers a good case-study in studying such dynamics. Oil derivation (13% derivation fund) and federal allocations provide the state with great resources of income, and its business climate still struggles with prohibitively expensive costs of operating business caused by numerous taxations. The consequences of uncoordinated levies on their businesses affect SMEs, which make up the bulk of the state economy, as it provides jobs, reduces poverty, and diversifies the economy by supplying non-oil businesses (agriculture, tourism, manufacturing, etc) to supplement their federal taxes (Johnny, 2021; Offiong 2022). These taxes increase the cost of operation, decrease profit margins, discourage investments, and lower competitiveness compared to businesses operating in jurisdictions with a favorable tax regime.
Research on taxation highlights the negative impacts of multiple taxation on the performance of companies. Eteng (2025) observed that the relation between multiple taxation and SME financial performance in Nigeria has a statistically significant negative value ( -0.641 0.000) and multiplicity also decreased compliance with taxes by about 50.8. In Akwa Ibom State, in particular, Johnny. According to (2021), there are various taxes, which were found to greatly impact SME survival and growth in Uyo metropolis, resulting in increased rates of business closure and compromised growth. Similarly, Offiong. Multiplied by (2022) it was indicated that one of the most severe threats to the sustainability of microfinance banks in the state is multiple taxation where taxes negatively influence sustainability measures with a coefficient of (-0.255, p = 0.042).
Sub-national competitiveness is ambivalent, although alike fiscal federalism reforms are expected to be more efficient. Ukpabio (2024) noted that the current fiscal federalism model in Akwa Ibom State has adversely affected social-economic growth in core areas like education, healthcare, and infrastructure, at least partly, because of revenue-sharing systems that help restrain fiscal autonomy of states. In a research that concentrated on Akwa Ibom, Ben (2025) observed that Company Income tax (CIT) has a positive impact on GDP (as a measure of economic growth), but Personal Income tax (PIT) has a negative impact, and endemic multi-taxation by the pre-reform regime remains a costly factor to the operations of a business and business competitiveness. These concerns are likely to be countered by the harmonisation focus and the digital administration emoted in the 2025 reforms, however, their impact on the state level, especially in terms of attracting, retaining and growing businesses in resource-intensive states such as Akwa Ibom needs stringent review.
This chapter provides the basis to explore what economic implications multiple taxation and fiscal federalism reforms has on business competitiveness in Akwa Ibom State. It brings out the interaction between constitutional fiscal provisions, recent policy interventions, and actual business performance in a state experiencing a considerable economic potential and a history of structural problems.

1.2 Statement of the Problem.
With the abundance of natural resources in Nigeria and policy provisions to diversify the economy, survival of multi-taxation in the example of fiscal federalism has remained to play down on the competitiveness of businesses. In Akwa Ibom State, firms, especially the SMEs have overlapping taxation requirements including federal (e.g., VAT, Company Income Tax), state (e.g., Personal Income Tax, stamp duties) and local government (e.g., charges, levies, and environmental fees). This pluralism burdens the business, creates a distortion in resource allocation, prevents foreign direct investment, and stifles the capacity of the state to utilize its oil resource, agricultural potential and tourism resources to drive inclusive growth (Johnny et al., 2021; Eteng et al., 2025).
The 2025 fiscal federalism and taxation reforms came up to counter these challenges by harmonising the administration of taxes, cutting duking levies and giving more independence to the sub-national governments in some areas of revenue collection. Nonetheless, even early indicators indicate that the shift could have some unintentional side effects, including a change in the way different amounts of revenues are shared, higher compliance costs in the implementation process, or disproportionate benefits among states. GR in Akwa Ibom is considered relatively low still in comparison with other peer states and high reliance on oil thus, these reforms might easily boost or limit business competitiveness because of the effectiveness of implementation (Ben, 2025; Ukpabio, 2024).
Previous research has mostly dealt with national level effects or overall performance of the SMEs without adequately incorporating the unique interaction of multiple taxation, on-going fiscal federalism reforms, and business competitiveness in Akwa Ibom State. The available state-specific empirical evidence of moderation and exacerbation of the economic effects of multiple taxation between these reforms is scarce. The critical question is put by this discrepancy: Does post-reforms make businesses in Akwa Ibom to become more or less competitive? Are improvements or worsening of investment climates with fiscal federalism changes possible? Which are the implications on the economy in terms of employment, revenue generation, and sustainable development at the state as a whole? These questions that remain unanswered justify the current research.

1.3 Aim and Objectives of the Study

The aim of this study is to examine the economic consequences of multiple taxation and fiscal federalism reforms on business competitiveness in Akwa Ibom State.

The specific objectives are to:

1. Assess the extent and nature of multiple taxation faced by businesses in Akwa Ibom State.
2. Evaluate the impact of multiple taxation on key indicators of business competitiveness (e.g., cost of doing business, profitability, investment decisions, and market expansion).
3. Analyse the provisions and implementation of recent fiscal federalism reforms (particularly the 2025 Tax Reform Acts) and their direct effects on tax administration in Akwa Ibom State.
4. Determine the moderating role of fiscal federalism reforms on the relationship between multiple taxation and business competitiveness.
5. Propose policy recommendations for enhancing business competitiveness through improved tax harmonisation and fiscal federalism practices in Akwa Ibom State.

1.4 Research Questions

1. What is the extent and nature of multiple taxation imposed on businesses operating in Akwa Ibom State?
2. To what extent does multiple taxation affect business competitiveness indicators such as profitability, investment, and operational efficiency in Akwa Ibom State?
3. How have the 2025 fiscal federalism and tax reforms influenced tax administration and burden on businesses in Akwa Ibom State?
4. In what ways do fiscal federalism reforms moderate the relationship between multiple taxation and business competitiveness?
5. What policy measures can be adopted to mitigate the negative economic consequences and enhance business competitiveness in the state?

1.5 Significance of the Study

This study is significant for several reasons. Theoretically, it contributes to the literature on fiscal federalism and taxation by providing a nuanced, state-level analysis of how constitutional arrangements and recent reforms interact with business outcomes in a resource-rich but tax-burdened economy. Empirically, it fills a gap in Akwa Ibom-specific research, offering fresh data on the post-2025 reform era.

Practically, the findings will benefit policymakers at federal, state, and local levels in Akwa Ibom by highlighting reform implementation gaps and recommending harmonisation strategies. Business operators and investors will gain insights into the evolving tax landscape, aiding strategic decision-making. Development partners and civil society organisations can use the results to advocate for pro-business fiscal policies. Ultimately, the study supports Nigeria’s broader goals of improving the ease of doing business, diversifying the economy, and achieving sustainable development.

1.6 Scope of the Study

The study focuses on the economic consequences of multiple taxation and fiscal federalism reforms on business competitiveness in Akwa Ibom State. It covers businesses (with emphasis on SMEs) operating in the state, particularly in Uyo metropolis and other major commercial hubs. The temporal scope centres on the period 2020–2026, encompassing pre- and post-2025 tax reform implementation. Competitiveness is assessed through indicators such as cost of operations, profitability, investment attraction, and survival rates.

1.7 Limitations of the Study

The study may be constrained by challenges in accessing comprehensive primary data from businesses wary of tax-related disclosures, potential respondent bias, and the evolving nature of 2025 reform implementation, which may limit long-term impact assessment. These limitations will be mitigated through triangulation of data sources, anonymity assurances, and robust statistical controls.

1.8 Definition of Terms

• Multiple Taxation: The imposition of two or more taxes, levies, or charges by different government tiers or agencies on the same tax base or economic activity.
• Fiscal Federalism: The constitutional and practical division of revenue-raising, expenditure, and borrowing powers among federal, state, and local governments.
• Fiscal Federalism Reforms: Policy changes, particularly the 2025 Tax Reform Acts, aimed at harmonising tax administration and revenue allocation in Nigeria.
• Business Competitiveness: The ability of firms in Akwa Ibom State to operate profitably, attract investment, expand markets, and compete effectively, measured by reduced operational costs, improved profitability, and sustainable growth.
• SMEs: Small and Medium Enterprises as defined by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) guidelines.

References

Ben, I. P. (2025). Tax reforms and performance of business firms in Akwa Ibom State, Nigeria. IIARD International Journal of Economics and Business Management, 11(9), 365-378. https://doi.org/10.56201/ijebm.vol.11.no9.2025.pg365-379

Eteng, C. O., Numaliya, P. F., Antuwa, G. D., & Richards, A. O. (2025). Evaluating the impact of multiple taxation on the financial performance and compliance behavior of small and medium enterprises (SMEs) in Nigeria. SSR Journal of Economics, Business and Management, 2(8), 1-13. https://doi.org/10.5281/zenodo.17467060

Ewetan, O. O., Matthew, O. A., Babajide, A. A., Osabohien, R., & Urhie, E. (2020). Fiscal federalism and economic development in Nigeria: An auto-regressive distributed lag approach. Cogent Social Sciences, 6(1), Article 1789370. https://doi.org/10.1080/23311886.2020.1789370

Johnny, A. E., Nseobot, I. R., & Ikoroha, I. S. (2021). Effect of multiple taxations on SMEs growth in Akwa Ibom State. JournalNX – A Multidisciplinary Peer Reviewed Journal, 7(10). https://repo.journalnx.com/index.php/nx/article/view/3623

Offiong, P. E., James, E. E., & Etim, R. S. (2022). Multiple taxation and microfinance banks sustainability in Akwa Ibom State, Nigeria. Indian Journal of Economics and Financial Issues, 3(2), 223-236. https://doi.org/10.47509/IJEFI.2022.v03i02.04

Ukpabio, M. S. (2024). Fiscal federalism and socio-economic development in Akwa Ibom State, Nigeria. Nigerian Journal of Management Sciences.