Value Added Tax (VAT) and Economic Performance in Nigeria: A Quantitative Analysis of Three Decades of Evidence, 1993–2025

Okey Okoro Udo; PhD; FCTI; FCCSA; FIIAS; FCCrFA; FCCFI; FFAR; MNIM; CPA; CNA

doi:10.56201/ijefm.v11.no8.2026.pg138.152

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Value Added Tax (VAT) and Economic Performance in Nigeria: A Quantitative Analysis of Three Decades of Evidence, 1993–2025

Okey Okoro Udo, PhD, FCTI, FCCSA, FIIAS, FCCrFA, FCCFI, FFAR, MNIM, CPA, CNA

Abstract

Value Added Tax has travelled further than any other instrument in Nigeria's fiscal history: introduced by Decree No. 102 of 1993 and implemented from January 1994, it grew from N8.19 billion in its first year to approximately N8.61 trillion in 2025, a thousand-fold nominal expansion across three decades. This article examines the relationship between VAT and economic performance in Nigeria over the full life of the tax, 1993-2025, using an ex post facto quantitative design on official data from the Federal Inland Revenue Service (now the Nigeria Revenue Service), the Central Bank of Nigeria Statistical Bulletin, and the National Bureau of Statistics, including the rebased national accounts and the complete 2025 outturn. Four testable hypotheses are formulated and examined with five instruments: log-linear trend regressions over the full period and the modern era; a double-log buoyancy elasticity regression of VAT on nominal GDP estimated on a consistent GDP base; a Chow test for structural break at the 2020 rate change; phase-decomposed compound growth analysis across four policy regimes; and collection- efficiency (C-efficiency) estimation, with Durbin–Watson and Jarque–Bera diagnostics reported throughout. The full-period trend regression yields a compound annual growth rate of 21.3 per cent (R2 = 0.96; t = 18.2), rising to 27.4 per cent in the modern era. The buoyancy elasticity regression yields β = 1.163 (t = 25.98; R2 = 0.985), and the hypothesis that buoyancy equals unity is rejected at the 1 per cent level (t = 3.63): VAT has grown significantly faster than the economy over the long run, lifting revenue effort from 0.43 per cent of GDP in 1994 to 1.95 per cent of rebased GDP in 2025, with point buoyancy of 1.53 in 2025. The Chow test cannot reject parameter stability at the 5 per cent level (F(2,11) = 2.31) despite sub-period point estimates doubling from 20.5 to 43.1 per cent, a low-power result reported transparently. Estimated C-efficiency of roughly one-third locates the binding constraint in base coverage rather than the statutory rate, and real growth accelerated to 3.87 per cent in 2025 amid the sharpest revenue surge on record. The article concludes that three decades of evidence vindicate a base-broadening, administration-led strategy over rate escalation, and situates the Nigeria Tax Act, 2025 as the codification of that lesson.

Keywords

Value Added Tax; economic performance; tax buoyancy; C-efficiency; trend regression; Nigeria Tax Act 2025; fiscal policy; revenue mobilisation JEL Classification: H20; H25; E62; N17; O55

References

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Value Added Tax (VAT) and Economic Performance in Nigeria: A Quantitative Analysis of Three Decades of Evidence, 1993–2025

Abstract

Keywords

References

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