ABSTRACT
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.
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TABLE OF CONTENT
TITLE PAGE – – – – – – – – -i
APPROVAL PAGE – – – – – – – -ii
DEDICATION – – – – – – – – -iii
ACKNOWLEDGEMENT – – – – – – -iv
ABSTRACT – – – – – – – – -v
CHAPTER ONE: INTRODUCTION
1.1 Background of the study – – – – – -1
1.2 Statement of problem – – – – – -3
1.3 Research Questions – – – – – – -4
1.4 Objectives of Hypothesis – – – – – -4
1.5 Statement of Hypothesis – – – – – -4
1.6 Significance of the study – – – – – -5
CHAPTER TWO: LITERATURE REVIEW
2.1 Theoretical Framework – – – – – -6
2.2 Empirical Literature Review – – – – -27
CHAPTERTHREE: RESEARCH METHODOLOGY
3.1 Research Methodology – – – – – -32
3.2 Model Specification – – – – – -32
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3.3 Method of Evaluation – – – – – -34
3.4 Justification of the Model – – – – -35
3.5 Transformation of the Data – – – – -35
3.6 Data Source – – – – – – – -36
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Presentation of Result – – – – – -37
4.2 Interpretation of Result – – – – – -37
4.3 Evaluation of Research Hypothesis – – – -46
CHAPTER FIVE: SUMMARY, POLICY
RECOMMENDATION AND CONCLUSION.
5.1 Summary of Findings – – – – – -47
5.2 Policy Recommendation – – – – – -48
5.3 Conclusion – – – – – – – -48
BIBLIOGRAPHY
APPENDIX
1
CHAPTER ONE
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
2
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.
3
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
4
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.
1. What is the impact of VAT on economic growth?
1.4 OBJECTIVE OF THE STUDY
The following are the objectives of the study:
1. 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.
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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.
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