Effect Of Value Added Tax On The Growth Of Nigerian Economy

This paper analyzed empirically the impact of Value Added Tax (VAT) on economic growth in Nigeria from 1994-2010. Data was collected from Central Bank of Nigeria (CBN) statistical bulletin. Ordinary Least Square techniques was used to estimate the model, which reveals a strong positive significant impact of VAT on economic growth in Nigeria. Therefore, this study recommends that the VAT should not be high on the infant industries, so as to enable them grow.

Introduction

1.1 Background of the Study

Value Added Tax (VAT) has become a major source of revenue in many developing countries like Nigeria. In sub Sahana Africa for example, VAT has been introduced in Benin Republic, Cote d‟Ivore, Guinea, Kenya, Madagascar, Mauritius, Niger Republic, Senegal, Togo. Evidence suggests that in these countries VAT has become an important contribution to total government tax revenue; (Ajakaiye 2000) the value Added Tax decree was established in 1993 and was imposed on 1994. Value Added Tax (VAT) in an ideal form of taxation in Nigeria tax system and has significantly contributed to resources mobilization as well as capital formation to the economy. It has positive and significant impact on revenue mobilization in Nigeria; it also has positive relationship with consumption.

VAT is a consumption tax that is relatively easy to administer and difficult to evade and it has been embraced
by many countries worldwide (Federal Inland Revenue Service 1993). Evidence so far supports the view that VAT revenue is already a significant source of revenue in Nigeria. For example, actual VAT revenue from 1994 was N8.189 billion which is 36.590 higher than the projected N6 billion for the year. Similarly, actual VAT revenue for 1995 was N21 billion compared with the projected N12 billion. In terms of contribution to total federally collected revenue, VAT accounted for about 4.06% in 1994 and 5.93% in 1995. As much as N404.5 billion was collected on VAT (5.1%) of total revenue in 2008.

VAT revenue is generated for distribution to the state and local government in Nigeria. Unlike the oil revenue whose market government has no control over. This helps to reduce over dependence on oil revenue, this assures a sustainable economic growth and development. While the performance of VAT as a source of revenue in Nigeria is encouraging, it means difficult to find attempts to systematically assess the impact on VAT on the economy.

Recent research work on the impact of taxation on the Nigeria economy impact up all the various taxes together without isolating VAT. How and in what direction VAT has be affecting the Nigeria economy? And the relationship of VAT on economic growth? Findings answers to these and other similar questions is the main trust of this paper.

1.2 Statement of the Problem

The attitude of Nigerians towards taxation is worrisome as many prefer not to pay tax if given the opportunity. The economy continues to lose hung amount of revenue through the unwholesome practice to tax avoidance and tax evasion this loss of revenue can change the fortune of many economies. Particularly, developing countries like Nigeria. This problem has been lingering for so long which urgent attention and solution is over due to the cost of collecting tax in Nigeria (both social and economic cost) is too high to the extent that if left unchecked the cost may soon outweigh the benefit or value derived from such operation and that will not the appropriate for the system. In Nigeria, VAT is one of the instruments the federal government introduced to generate additional revenue. Yet, most prominent Nigerians and interest groups had spoken against its introduction. It would appear that VAT is froth with some problems. For the purpose of this paper work we shall examine the implication of VAT on revenue generation in Nigeria and how VAT affect the economic growth in Nigeria.

1.3 Research Questions

This research work is set to answer the research question below.

What is the impact of VAT on economic growth?

1.4 Objective of the Study

The following are the objectives of the study:

To know the impact of value added tax on economic growth.

1.5 Statement of Hypothesis:

The following assumptions which are subject to testing are made for the purpose of this research work.

HO1: O1 VAT has no Impact on economic growth.

1.6 Significance of the Study:

The study will assist the government in policy formulation as it relates to value added tax. It will also help to broaden the nation‟s revenue base thereby making it less dependent on oil export.

This study will educate the stakeholders in the financial sector and the general public on the relationship between exchange rate fluctuation and value added tax and how both of them influence the Economic growth of Nigeria.

This research will be a contribution to the body of literature in the area of the effect of personality trait on student"s academic performance, thereby constituting the empirical literature for future research in the subject area.

1.7 Scope / Limitations of the Study

This study will cover the relationship between exchange rate fluctuation and value added tax and how the duo influence Economic growth in Nigeria.

Limitation of Study

Financial constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work

Summary of Findings Conclusion And Recommendations

5.1 Summary of Findings

This Study sought to establish a functional relationship between VAT and Economic growth and outputs (GDP).

In testing for the hypotheses prescribed for the study, we employed the use of correlation and regression analysis. The analyses show that there is a very strong and positive association between VAT and Economic growth and output (GDP).

We also found that the value Added Tax has significant relationship Federally Collected revenue. We also found that there is a strong relationship between Economic growth and output and other explanatory variables Consisting of Federally Collected revenue, Value Added Tax and Exchange rate

5.2. Conclusion

This study shown that value Added Tax impacts significantly on the economic growth and output of the Nigeria economy. We found that VAT has a strong relationship with federally collected revenues and affects government spending to a lager extent. Government expenditure has an important role is stimulation growth in the Nigeria.

Change in VAT revenues to the federal, State and local governments have direct effects on the pattern of expenditure of these units and thus the growth rate of the natural economy.

We can thus conclude that the lack of synchronization between the expenditure pattern of government and VAT revenues constitutes a major limitations to the growth of the national economy.

5.3 Recommendations

Based on the findings from the study we made the following recommendations:

To broaden the tax base and to bring VAT administration closer to the taxpayer, new local VAT offices should be established all over the country.

The government should strengthen tax administration to ensure more efficient tax collection, through training of staff, awareness campaigns and computerization of customs tariff.

Government on its part should use VAT proceeds to improve on the standard of living of the populace and improve on infrastructures such as transport, power, communication and information technology so as to strengthen the productive capacity and motivate taxpayers in paying their taxes.

Since taxation with representation "is now the global trend we recommend that stakeholders, be involved in VAT rate increase by widespread enlightenment campaign, so as to foster high rate of compliance. Thus, government should always consider taxpayers and other key stakeholder" interest in fiscal policy formulation and to achieve improved tax compliance rate in the country.

VAT rate increases should be compensated with palliatives for the taxpayers. Such palliatives include reduction in the personal tax burden.

Prosecution of corrupt tax officials and tax payers that default on tax payment should be intensified.

Government should be made to cut down unnecessary expenditure rather than increase tax rate.

Chapter One

Introduction

Background of the study

Statement of the problem

Objectives of the study

Statement of Hypotheses

Significance of the study

Scope of the study

Limitations of the study

Organization of the study

Chapter Two

Literature Review

Conceptual Frame work

What is VAT

Evolution of Value Added Tax in Nigeria

Objectives of Value Added Tax

Services Exempted

Features of the Value Added Tax in Nigeria

Advantages and Disadvantages of VAT

Types of Value Added Taxes

Economic Effects of Taxation

Problems of Tax Planning, Administration and Collection in Nigeria

Theoretical Frame Work

Harrod-Domar Model

Structural Change Theory

Empirical Studies

Chapter Three

Research Methodology

Research Design

Data Collection

Data Analysis

Regression Analysis

Correlation Analysis

Coefficient of Determination

Model Specification

Chapter Four

Data Presentation Analysis and Discussion

Data Presentation

The Results of the Analysis

Test of Hypotheses

Test of Hypotheses One

Test of Hypotheses Two

Test of Hypotheses Three

Discussion of Findings

Chapter Five

Summary of Findings / Conclusion and Recommendations

Summary of Findings

Conclusion

Recommendation

References

• Effect Of Value Added Tax (VAT) On The Profitability Of Manufacturing Firms
• Assessment Of The Effectiveness Of Value Added Tax Administration In Nigeria
• Value Added By The Farmers Cooperative Societies On The Socio-Economic Development Of The Rural Areas
• Effect Of Value Added Tax On Price Stability In Nigerian Economy
• Value Added Tax As A Tool For Revenue Generation
• Effect Of Value Added Tax (VAT) On Consumers Standard Of Living
• Value Added Tax: An Important Source Of Revenue To The Government In Nigeria

• Accounting Project Topics and Materials