Value Added Tax and Economic Growth in Nigeria

International Journal of Research and Innovation in Social Science (IJRISS) | Volume II, Issue X, October 2018 | ISSN 2454–6186

Value Added Tax and Economic Growth in Nigeria

INIMINO, Edet Etim¹, OTUBU, Osaretin Paul², AKPAN, James Essien³

¹University of Uyo, Nigeria, ²University of Port Harcourt, Nigeria, ³Department of Economics and Management Science, Nigerian Police Academy Kano, Nigeria.

Abstract – The study examined value added tax and economic growth in Nigeria from 1994 to 2015. The econometrics methods of Co-integration and ECM were employed as the main analytical techniques. The Co-integration result revealed the existence of a long-run relationship among the variables. The Parsimonious Error Correction result revealed that value added tax, exchange rate and interest rate have a significant relationship with economic growth in Nigeria during the period of study. While, private domestic investment has no significant relationship with economic growth in Nigeria during the studied period. Also, the coefficient of the parsimonious ECM has the appropriate sign that is negative and statistically significant. Meaning that, the short run dynamics adjust to long run equilibrium relationship. The study therefore concluded that VAT revenue impacted on economic growth in Nigeria positively during the period of study. In the light of the above, government should boost VAT revenue. This can be achieved by removing all administrative loopholes, ensure all the companies in Nigeria are registered to make VAT collection easy, and sanction any company that do not remit VAT revenue adequately.

Key Words: VAT, RGDP, Co-integration, ECM and Taxation.

I. INTRODUCTION

The achievement of a high, rapid and sustained economic growth (i.e., promotion of economic growth) is one of the objectives of government involvement in the economy. It is necessary for an economy to grow over time. The reason for this is simple. Without economic growth the average citizen will have less goods and services to consume over the years (Akpakpan, 1999). In order to achieve adequate economic growth in the economy, governments (federal, state or local) need to incur expenditures on internal security, economic services, social and community services, etc., which in turn will lead to an improvement in the standard of living of the citizenry. But governments complain of lack of funds to embark on these projects, hence the necessity for urgent increase in revenue generation by the governments through taxation.

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