ABSTRACT
This research examined the impact
of value added tax (VAT) on economic growth of Nigeria. The aim of this study
is to examine the contributions of the VAT in the economic growth of Nigeria.
Data used in this study was mainly from secondary source principally the
Central Bank of Nigeria and the Bureau of Statistics. The study employed a time
series date for a twenty year period 1995 – 2014. The data was analyzed using
the regression statistical model. The model assisted in testing the statistical
significance of the variables under study. At the end of the analysis, we found
that VAT has positive and significant impact on economic growth in Nigeria. We
also found that value added tax has a Positive impact on federally collected
revenue. We thus conclude that the value added tax has influences the pattern
of federal collected revenue and the economic growth of Nigeria. Based on these
findings, we recommend that there is the need for policy impact assessment
before tax policy is carried out in Nigeria.
Key Words: Value Added tax, Economic Growth, Gross
Domestic Product, Economic Development, Tax Planning, Tax Exemption.
TABLE OF CONTENTS
CHAPTER ONE
1.1 Background of the study 1
1.2 Statement of the problem 3
1.3 Objectives of the
study 4
1.4 Statement of Hypotheses 4
1.5 Significance of the study 5
1.6 Scope of the study 5
1.7 Limitations of the study 5
1.8 Organization of the study 6
CHAPTER TWO
LITERATURE REVIEW
2.1 Conceptual Frame work 7
2.1.1 What is VAT 7
2.1.2 Evolution of Value Added
Tax in Nigeria 8
2.1.3 Objectives of Value Added
Tax 9
2.1.4 Services Exempted 10
2.1.5 Features of the Value
Added Tax in Nigeria 11
2.1.6 Advantages and
Disadvantages of VAT 12
2.1.7 Types of Value Added
Taxes 14
2.2 Economic Effects of
Taxation 15
2.3. Problems of Tax Planning,
Administration and
Collection in Nigeria 25
2.3.1 Value Added tax as a Tool
for Poverty Reduction 44
2.4 Key Issues in Fiscal
Federalism 45
2.4.1 Justification of Fiscal
Federalism 50
2.5 Vertical and Horizontal
Fiscal Imbalance 53
2.6 Evolution of Fiscal
Federation in Nigeria 54
2.7 Assignment of Revenue
Taxing Powers in Nigeria 57
2.8 Revenue Allocation in
Nigeria 57
2.9 Revenue Allocation Formula
and Principles 62
2.10 Sharing of Vat
Revenue 63
2.11 Economic Development 63
2.12 Preconditions for
Development 64
2.13 Theoretical Frame
Work 65
2.14 Harrod-Domar Model 66
2.15 Structural Change
Theory 66
2.16 Empirical Studies 80
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Research Design 82
3.2 Data Collection 82
3.3 Data Analysis 82
3.3.1 Regression Analysis
82
3.3.2. Correlation
Analysis 84
3.3.3 Coefficient of
Determination 84
3.4 Model
Specification 85 CHAPTER FOUR
DATA PRESENTATION
ANALYSIS AND DISCUSSION
4.1 Data Presentation 86
4.2 The Results of the
Analysis 88
4.3 Test of Hypotheses 90
4.3.1 Test of Hypotheses One 90
4.3.2 Test of Hypotheses Two 92
4.3.3 Test of Hypotheses Three 93
4.4 Discussion of Findings 93
CHAPTER FIVE
SUMMARY OF
FINDINGS/CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings 97
5.2 Conclusion 97
5.3 Recommendation 98
References
Appendices
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In any country, well articulated economic
policies influences a whole range of economic activities embarked upon in such
country. Such policies includes fiscal policy, which refers to the raising of
revenue through taxation and deciding on the level and pattern of expenditure
of a country for the purpose of influencing economic activities or attaining
some desirable macroeconomic goals. Such fiscal policy goal s can be used for
allocation, stabilization and distribution effect of a country.
In Nigeria, the Federal Ministry of
Finance has the responsibility of formulating and executing fiscal policy based
on the state of the economy. In this regard, the fiscal policy goals are the
gross national product (GNP), prices, employment, incomes, the exchange rate stability,
the inflationary rates.
The role of fiscal
policy in ensuring the securing stability and growth of an economy is of
fundamental importance. Perhaps the impact of fiscal policy upon capacity
output is through its effects on savings and capital stock. Capital formation
raises productivity. The larger the share of incomes saved and invested, the
higher the level of output. By influencing this aggregate share, fiscal policy
has an important impact upon economic growth. However economic growth has its
cost. When the share of incomes, which is currently used for capital formation,
is increased, consumption will be reduced. The policy problem is therefore one
of choosing between present and future consumption. The terms on which this
choice can be made have been the subject of much controversy analysis during
the past decade. Here our concern is with the immediate question of how savings
and investment in the private sector are affected by fiscal measures. The
effects of tax policy upon savings in the private sector matter a lot because
they effect bear on the division of resources and the consumption output.
The effects of taxation refer to all the
changes in the economy as a result of the tax imposition. The presence of tax
distorts the pattern of production, consumption, investment, employment in the
macro-economy. These distortions are collectively viewed as the effects of
taxation. Here, the effects are examined on the macro-aggregate level (the
economy as a whole).
The introduction of the value added tax as
a fiscal tool in Nigeria came from the report of the study group set up by the
federal government in 1991 to review the entire tax system. VAT was proposed
and a committee was set up to carry out feasibility studies on its
implementation. It however became operational in January 1994. VAT is a
consumption tax imposed on certain categories of goods and service. Since is a
consumption tax, it is relatively easy to administer and difficult to evade.
VAT has become a major source of government revenue. VAT is believed to
encourage economic growth through its positive impact on savings and investment
while at the same time discourages excess consumption.
Indeed,
the central problem of tax policy in developing countries is how to obtain
necessary revenue while at the same time provide the basis for correcting the
inequality in the distribution of income, but without interfering unduly with
private savings and investment.
Economic growth has been simply defined as
the increase in the economy’s output overtime. The best measure is the gross
national product (GNP). While development is generally thought of as involving
more than a command of income, it also includes an accumulation of physical and
human capital.
Nigeria operates a federal system of
government, with a Federal Government, State and Local governments. In such a
multilevel system, fiscal responsibilities are rested in both the central and
lower level government – Federal, state and Local. This gives rise to Fiscal
Federation. Okigbo (1965) refers to fiscal federalism as the existence in one
country of more than one level of government, each with different expenditure
responsibilities and taxing powers. In essence, the study inquired at a macro
level, the effect of value added tax (VAT) on economic development in Nigeria.
1.2 STATEMENT OF THE
PROBLEM
The central problem of tax policy in
developing countries centre around how to obtain necessary revenue to finance
growth while at the same time providing some correction for a of inequality in
the distribution of income, but without interfering unduly with private savings
and investment.
At the structural level, it has argued
that the tax provisions do not adequately reflect the peculiar socio-economic
character, goals and problems of the nation. On the other hand, at the
administrative level, it is argued that the machinery and procedures followed
in implementing the tax system are inadequate, and hence account for the
consistent low yield of some taxes and inner group inequities. Any change in
tax law is usually designed in adhoc manner and is based on expediency rather
than on long-term studies. Since small taxpayers are numerous in developing countries
and administrative facilities so limited, the treatment of small taxpayers
required special attention.
The difficulty of imposition of taxes has
led most developing countries to omit all but a few services from taxes.
Administrative constraints are the main reasons why VAT that prevails in
developing countries is usually very different from the broad-based and neutral
tax.
The informal
structure of the economy in many developing countries and the financial
limitation, creates difficulty in generating reliable statistics. The lack of
data prevents policy makers from assessing the potential impact of the tax
system.
From the
discussions above, this study seeks to provide answers to the following
questions.
•
Is there any relationship between values Added
Tax and Gross Domestic Product.
•
Is there any relationship between Value Added
Tax and Federally Collected Revenue.
•
Is there any relationship between a Value Added
Tax, Federally Collected Revenue and Inflation in Nigeria.
1.3 OBJECTIVES OF THE
STUDY
The
major objective of this study is to examine empirically the relationship
between Value Added Tax and economic growth in Nigeria.
The objectives pursued in the study include:
•
Investigation of the relationship between Valued
Added Tax and Federally collected
Revenue in Nigeria.
•
Investigation of the relationship between Gross
Domestic Product and Value Added Tax, Federally Collected Revenue and Inflation
in Nigeria.
1.4 STATEMENT OF THE HYPOTHESES
The following hypotheses shall form the major focus of this
study.
HO1 There
is no relationship between Value Added Tax, Federally collected Revenue,
Inflation and Gross Domestic Product
HO2 There
is no relationship between Value Added Tax and Economic Growth of Nigeria.
HO3 There
is no relationship between Value Added Tax and Federally Collected Revenue.
1.5 SIGNIFICANCE OF THE STUDY
The gains of VAT to the economy need not
be overemphasized. It is certain that one of the objectives of VAT is to reduce
consumption so as to increase savings and investment, which leads to economic
growth. The study sought to examine the effects of VAT on economic growth in
Nigeria and to provide a basis for suggesting ways of minimizing the adverse effects,
while consolidating on the beneficial aspect. It is hoped that the insights to
be gained from this research will consequently serve as aid to future policy
formulations in order to arrive at a well-articulated and optimally beneficial
policy to the economy.
This research is intended not only to fill
the gap of academic research in this subject, but also to serve as a basis for
further research on VAT.
1.6 SCOPE OF THE STUDY
The study was not restricted to any state
in Nigeria in particular because of the national perspectives of the study. For
effective analysis, this research covers the period 1995 – 2014. This duration
captured the major periods of fiscal reforms in Nigeria and the changes in the
fiscal relations in the country
1.7 LIMITATIONS OF THE STUDY
In carrying out this
study, the researcher anticipated a number of difficulties, which actually
manifested. They include finance, inadequate information, time and the uncooperative
attitude of relevant authorities and institutions these issued placed limit on
the coverage of this study but did not hindered or hampered the successful
completion of this work. The effective strategies we put in place ensured that
these limitations were resolved in a way that we achieved our objectives.
1.8 ORGANIZATION OF THE STUDY
This study is organized into five
chapters. We presented the background of the study, the statement of the
problem, the objectives of the study, the hypotheses, the scope and limitation
in the first chapter of the study.
Chapter two is the
literature review, while chapter three contains the methodology used in the
study. In chapter four, we presented the data for the analysis,the analysis and
the discussion of findings. Chapter five contain the summary of finding the conclusion
and the recommendations of the study.
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