Abstract
This research tests the consequences of Nigeria’s indirect taxes on consumption. There are two reasons why the government imposes taxes on goods and services in Nigeria. The primary purpose is to produce income for the smooth running of the administration. Another silent reason is to discourage the ingestion of prohibited products and services, and that is through customs and excise duties (CED). This study assesses both Value Added Tax (VAT) and CED to determine their effects on consumption using various econometric tools, such as trend analysis, pairwise Granger causality tests, unrestricted co-integration rank test, least squares technique, and data that cover the period from 2005 to 2019. The results indicate that VAT insignificantly but positively influences consumption, while CED has a considerable auspicious influence on use. This result shows that VAT imposition on merchandises and services is discouraging the absorption of specific foodstuffs and services and allowing the operation of informal economic activities to thrive in Nigeria. However, CED charges do not reduce the use of certain illegal products purposely taxed to discourage their consumption. This study recommends a reduction in the prices of food items and services to enable consumers to increase their patronage, while the products that attract CED but are harmful should be banned entirely. Thus, offenders should be allowed to face the wrath of the law.
Highlights
Value Added Tax (VAT) is an indirect tax levied on all merchandises and amenities manufactured or rendered in a country except for supplies and facilities that are VAT relieved
It implies that VAT is a consumption tax collected from individuals who only suffer a little incidence of taxation that allows the persons who pays VAT not to bear the entire cost of the charge [1]
Value Added Tax Act (VATA) 1993, VAT was introduced in Nigeria as specified in No 102 of the VATA
Summary
Value Added Tax (VAT) is an indirect tax levied on all merchandises and amenities manufactured or rendered in a country except for supplies and facilities that are VAT relieved. VAT is a levy on the number of products and provisions that the end user endures, and its collection is designed and made possible at each phase of the manufacturing and delivery sequence. It implies that VAT is a consumption tax collected from individuals who only suffer a little incidence of taxation that allows the persons who pays VAT not to bear the entire cost of the charge [1].
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