Value-Added Tax Revenue Transfers and Regional Social Development: Evidence from Nigeria

Abstract

The gross social underdevelopment in Nigerian communities and villages is the underlying reason for investigating the effectiveness of VAT revenue transfers to states and local governments in providing the necessary social and community development services to meet the needs of the entire populace. This study examined the impact of VAT revenue devolution on social development in Nigeria from 1995 to 2021, with a focus on community welfare, making use of secondary data retrieved from the Central Bank of Nigeria’s statistical archive. In analyzing the data, we used an ex post facto research design and a cross-sectional econometric approach. The study examined the relationship between variables and included a trend analysis, a causality evaluation, and a regression analysis to determine the impact of VAT transfer on social welfare in Nigeria. According to the findings, VAT transfer to states has a positive relationship with social development, and the effect is both significant and beneficial at the 0.01 level. Local governments’ share of VAT collection, on the other hand, has an intangible positive effect on social development at the 0.05 degree of importance. As a result, we concluded that VAT revenue autonomy is now required in Nigeria. The study strongly advocates for the total transfer of revenue receipts to states and local governments for the benefit of society.