Effect of Value Added Tax Policies on Economic Growth in Nigeria

Sharon O. OMOTAYO; Mary A. ADEOYE

Sharon O. OMOTAYO
Mary A. ADEOYE

Keywords: VAT Policies, Economic Growth, OLS technique, Granger Causality Test

Abstract

As a result of the uncommon nature of value added tax (VAT) system, majority of the populace in the country are unaware of its existence, consequently, the low credibility of the government makes people scorn the payment and collection of VAT. The purpose of this study is to examine the effectiveness of VAT policies on the economic growth of Nigeria.

Secondary data were used. The data were sourced from the Federal Inland Revenue Service (FIRS) for the period 1994 to 2022. Descriptive statistics used included tables while econometric statistics such as Ordinary Least Square regression analysis (OLS) technique and Granger causality test was adopted to examine the nexus between VAT and economic growth in Nigeria.

The results of the study revealed a negative relationship between VAT and economic growth, but a positive relationship between customs and excise duties (CED) and growth rate of GDP. However, the values of VAT and customs and excise duties (CED) were found not to have a significant effect on the growth rate of GDP. The R square and the adjusted R square (51% and 42% respectively). However, the Durbin-Watson (DW) value is relatively good and approximates to 2.05 suggesting absence of autocorrelation as it implies that the model is adequate.

Based on the findings the researchers recommend that the appropriate policies should be introduced to reduce cases of tax evasion and remittance of tax collections especially custom and excise duties which reported a non-significant effect on GDP.

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