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Empirical Analysis of Value Added Tax on Economic Growth in Nigeria (1994-2018)

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  • John Ayodele Ajayi

    (Department of Finance, Faculty of Management Sciences, University of Lagos-Akoka, Nigeria)

  • Rotimi Sopelu

    (Department of Finance, Faculty of Management Sciences, University of Lagos-Akoka, Nigeria)

Abstract

This study examined the effect of Value Added Tax (VAT) on economic growth in Nigeria from 1994 to 2018. Secondary data, used for the study as relevant data on Value Added Tax Revenue, Total Revenue, Total Expenditure and Gross Domestic Product at current basic prices, were collected from the Central Bank of Nigeria statistical bulletin of 2018. Auto-Regressive Distributed Lag (ARDL) technique was used to estimate a multiple linear regression model that was tailored in line with the formulated hypotheses. Results from the study showed that there is a positive and insignificant effect between log value of total revenue and log value of total of value added tax on log value of gross domestic product while total expenditure has a negative and insignificant effect on log value of gross domestic product. The general hypothesis testing using F statistics (0.023**) also revealed that VAT has made significant impact on economic growth in Nigeria which is proxied by gross domestic product since its inception in 1994. Consequently, it was recommended among other things that there should be stringent penalty imposed on any individual or corporate body that indulges in any form of value added tax malpractices, if the high correlation between value added tax and overall tax revenue in Nigeria should be maintained. It is also recommended that government through Federal Inland Revenue Service should create an effective and reliable database for every vat-able person in Nigeria in order to minimize the incidence of tax evasion.

Suggested Citation

  • John Ayodele Ajayi & Rotimi Sopelu, 2021. "Empirical Analysis of Value Added Tax on Economic Growth in Nigeria (1994-2018)," SBS Journal of Applied Business Research (SBS-JABR), SBS Swiss Business School, vol. 9, pages 4-16.
    • Handle: RePEc:bfv:journl:030
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    File URL: https://jabr.sbs.edu/vol9/SBS_JABR_Vol9_Art01.pdf
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    References listed on IDEAS

    as
    1. Gareth Myles, 2000. "Taxation and economic growth," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 141-168, March.
    2. Rasaki O. KAREEM & Rukayat A. ARIJE & Yusuf H. Avovome, 2020. "Value Added Tax and Economic Growth in Nigeria (1994 – 2017)," Business & Management Compass, University of Economics Varna, issue 2, pages 137-152.
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