Effect of Value Added Tax and Economic Development in Nigeria

Abstract

The study seeks to examine the effect of value added tax on economic development in Nigeria. Both the exploratory and ex-post facto designs were adopted in this study. The study population consist of 22 years period given the number of years the data was collected. Using a consensus sampling method, the 22 years are used as sample size. The study used the ordinary least square regression technique, specifically the Vector Autoregressive model for testing the hypotheses stated. The first findings revealed that, value added tax has a positive significant effect on human development index of Nigeria While, the second hypotheses tested revealed that, value added tax has a positive significant effect on per capital income of Nigeria. Lastly, the third hypothesis tested revealed that, value added tax has a negative significant effect on real gross domestic product of Nigeria. As a result, it is recommended that, government should make policy that encourage low value added tax on capital goods. This will encourage investment drives that will create employment opportunities for citizens. With increased employment comes increase per capital income. While government seeks to increase revenue generation through increased in VAT rates, there should be social safety nets put in place by the government to ensure that; the cost burden of accessing the basic necessities to live is affordable. This will further improve the HDI whilst government pursue her policy of increase revenue generation. Similarly, low and affordable input VAT and low VAT on capital goods will encourage and drive investment and boost production. This will further increase the real gross domestic product of Nigeria and provide more income to the government.

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