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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.
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 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.
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.
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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