Indirect Tax and Economic Growth in Nigeria: The Case of VAT

Abstract

This paper empirically investigated the impact of value added tax (VAT) on economic growth in Nigeria from 1994–2018. This was done against the background that VAT as an indirect tax was introduced by the Federal Government of Nigeria in 1993 to replace sales tax with the sole aim of increasing the revenue base of government and make funds available for developmental purposes. The aim of the study is to examine the effect of value added tax on economic growth in Nigeria and determine the impact of other tax revenues particularly, custom and excise duties on economic growth in Nigeria. Thus, secondary data on GDP, VAT revenues, custom and excise duties were sourced from CBN statistical bulletin. Also, ARDL technique was used to analyze data. The variables were subjected to ADF unit root test prior the ARDL and found to be stationary. The ARDL co-integration test showed that there is a long run association amongst the variables. The ARDL short run result showed that the value of VAT has a positive relationship with economic growth in Nigeria. Also, custom and excise duties revenue positively impacted on economic growth in Nigeria. Hence, it was concluded that Value Added Tax (VAT) as an indirect tax system in Nigeria has direct relationship with economic growth in Nigeria since its inception in 1994. It has contributed to the total revenue of the nation as a result of reduction in tax evasion. Based on the findings, the paper recommended that government should put in place adequate measure to ensure that revenue generated from VAT is effectively utilized to develop and grow the economy in order to better the lives of the citizenry.