Effect Of Value Added Tax On The Growth Of Nigerian Economy

Effect Of Value Added Tax On The Growth Of Nigerian Economy

Abstract

Effect of Value Added Tax (VAT) on the Development of the Nigerian Economy with Special Reference to Enugu State Board of Internal Revenue (ESBIR) is the title of the study project. The researcher investigated the connection between Nigeria’s GDP and VAT revenue. The association between Nigeria’s unemployment rate and VAT revenue. Additionally, the impact of the VAT income growth pattern on Nigeria’s inflation rate was assessed. Data for the study was gathered from the CBN Annual Report and relevant journal articles. Using SPSS, the data that was gathered was examined. The study’s findings showed that, at the 0.05 level of significance, the estimated t-statistics for GDP (t = 0.415) are lower than the tabulated t-statistics. The overall goodness of fit of the regression model is statistically significant (f = 0.555, p 0.05). Due to this, the analysis accepts the alternative hypothesis, indicating that there is a substantial association between Nigeria’s GDP and VAT revenue. The study noted the impact of Nigeria’s inflation rate on the growth pattern of value added tax income. Additionally, it was noted that there is a strong correlation between Nigeria’s unemployment rate and VAT revenue. The study also showed that there is a strong correlation between Nigeria’s GDP and VAT revenue. The researcher suggests that the Tax Act 1993 be developed in light of the findings in order to decrease instances of tax evasion and remittance of tax receipts, particularly custom and excise duties, which have been shown to have a negative impact on GDP. The task of administering taxes should only be left in the hands of experts and reliable individuals. All taxes must be paid electronically or directly into the accounts of the various taxing authorities. This will strengthen and promote the recently implemented cashless economy system. Tax Clearance Certificates and other tax documents should be returned to the appropriate revenue body for validation when utilized in government transactions.

Chapiter 1

Introduction

1.1 The Study’s Background

Value Added Tax (VAT) is a consumption tax that is assessed at every point in the supply chain and is paid for by the customer who receives the good or service. VAT is administered in a straightforward, non-selective, and challenging manner. Globally, nations are looking for ways to increase their tax revenues, which has led to the introduction of value added taxes on goods and services in many countries. For instance, in Africa, the Benin Republic, Cote d’Ivore, Guinea, Kenya, Madagascar, Mauritius, Senegal, Togo, and Nigeria have all implemented VAT. Evidence suggests that VAT has grown to be a significant source of government revenue in these nations (Ajakaiye, 2000; Shalizi and Square, 1988; Adereti, Adesina and Sanni, 2011).

The VAT was first implemented in Nigeria in 1993, although it wasn’t fully implemented until the first of 1994. Researchers and academics have taken notice of this due to its advantages for Nigeria’s economic development. According to Chinwuba and Amos (2011), referenced in Ihendinihu and Onwuchekwa (2012), economic growth is defined as an increase in the national income or overall volume of production of goods and services of a nation accompanied by improvements in the overall standard of life of the population. Related publications on this subject concentrated on the effect of VAT on GDP-based economic growth. Investigating the relationship between the growth pattern of VAT and GDP, the changes in target and real VAT, and the impact of VAT revenue on tax revenue are all goals of this study.

In order to replace the sales tax in Nigeria, the value added tax decree 102 of 1993 was established and implemented in 1994. As a replacement for the sales taxes that were previously levied on all items manufactured in the nation as well as those produced outside the nation and sold in Nigeria, the value added tax was established in Nigeria. In Nigeria’s tax system, the Value Added Tax (VAT) is the best type of taxation and has made a substantial contribution to capital production for the economy as well as resource mobilization. It has a favorable and considerable impact on Nigeria’s ability to raise revenue, and it also positively affects consumption. It has a favorable and considerable impact on Nigeria’s revenue mobilization.

Many nations across the world have adopted VAT, a consumption tax that is both reasonably simple to administer and challenging to avoid (Federal Inland Revenue Service, 1993). According to the available data, Nigeria’s VAT revenue is already a sizable source of income. As an illustration, the actual VAT collection for 1994 was N8.189 billion, which is 36.59% more than the N6 billion forecasted for the year. Similar to this, actual VAT revenue for 1995 was N21 billion as opposed to N12 billion expected. In terms of its percentage contribution to the overall amount of federal taxes collected, VAT was roughly 4.06% in 1994 and 5.93% in 1995. VAT receipts in 2008 was N404.5 billion, or 5.1% of total revenue.

In contrast to oil money, VAT revenue in Nigeria is generated and distributed to the state and local governments. This promotes sustainable economic growth and development by reducing overdependence on oil money. Although the performance of the VAT as a revenue source in Nigeria is good, it is challenging to find attempts to systematically measure the impact of VAT on the economy.

Recent studies on how taxes affect the Nigerian economy add together all the different taxes without separating out VAT. What impact has VAT had on the Nigerian economy, and in what way? And how does VAT affect economic expansion? The primary focus of this work is on identifying solutions to this and other related concerns.

1.2 Description Of The Issue

Nigerians’ attitude toward taxation is concerning because many would rather forego paying taxes if given the chance. Through the dishonest practice of tax avoidance and tax evasion, the economy continues to lose a significant amount of money. This loss of money has the potential to affect the course of many economies, particularly those in emerging nations like Nigeria. The cost of collecting taxes in Nigeria is the reason why this issue has been going on for so long without receiving immediate attention or a remedy. If left unchecked, the cost (both social and economic cost) may quickly outweigh the advantage or value generated from such operation, which would not be appropriate for the system. One of the tools the federal government of Nigeria employed to increase revenue was the VAT. However, the majority of notable Nigerians and interest groups had opposed its introduction. It would seem that there are some issues with VAT. For the purposes of this study, we will investigate how the VAT affects Nigeria’s economic growth and its effects on revenue generation in Nigeria.