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Product Category: Projects

Product Code: 00001157

No of Pages: 49

No of Chapters: 5

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This study examined the impact of VAT on economic growth in Nigeria. Specifically, the study examined the perception of the VAT payers on Value Added Tax since inception of VAT in Nigeria, assesses the impact of adequate accounting procedures on VAT efficiency and also investigated if VAT, Petroleum Tax, Excide Duties, and Company Tax jointly has significant impact on GDP. 

Data was collected with the aid of a structured questionnaire administered to two hundred and fifty eight (258) respondents randomly selected from different sector of economic. While secondary data was obtained from FIRS, CBN bulletined, and other relevant document. From the analysis of data performed using multiple regression analysis and Pearson Product Moment Correlation Coefficient, the relationship that VAT, Petroleum Tax, Excide Duties, and Company Tax had with economic growth was established. 

Study discovered that since inception of VAT in Nigeria there has been considerably high rate of acceptance and payment. It was also shown that adequate accounting procedure spurs VAT efficiency in the country. The study also revealed that VAT, Petroleum Tax, Company Income Tax and Excise Duty were jointly and independently has significant impact on Gross Domestic Product.  it was concluded that the level of VAT in Nigeria has influence on social welfare of the populace. The study recommended that government should ensure to embrace strategies that will help to maintain adequacy of accounting procedure in the tax system in order to spur VAT efficiency and also to increase the number of VAT agencies in the country to boost VAT productivity.





Title page                                                                                                                      

Certification                                                                                                                 II

Dedication                                                                                                                   III

Acknowledgement                                                                                                      IV

Abstract                                                                                                                       V

Chapter One

1.1        Background  to the Study                                                                               2-3

1.2       Problem Statement                                                                                         4

1.3       Research Question                                                                                          5

1.4       Objective of The Study                                                                                    5

1.5       Research Hypothesis                                                                                       6

1.6        Significance  of the Study                                                                               6

1.7        Scope  of the Study                                                                                         6

1.8       Definition of Terms                

Chapter Two

Literature Review                                                                                           8

2.1       Theoretical Frame Work                                                                                8

2.2       Theory of Taxation                                                                                          8

2.2.1    Ability -To- Pay- Principle                                                                               8

2.2.2     Ownership of Property                                                                                   9

2.2.3    Tax On The Basis of Expenditure                                                                    9

2.2.4    Income as the Basis                                                                                        10

2.3       Benefits Theory                                                                                               10

2.4       The Cost of Service Theory                                                                             11

2.5       The Theory of Optional Taxation                                                                    11-14

2.6        Concept of Value Added Tax                                                                          14-16

2.7       Value Added Tax in Nigeria                                                                            17-19

2.8       Resent Tax Trend in Nigeria                                                                           20-25

2.9       Individual Tax                                                                                                  25-30

2.10     Tax Moral                                                                                                        30-31

2.11     Tax Payer and Government                                                                            32-34

2.12     Empirical Studies of the Relationship between VAT and GDP                       34-38

2.13     Creative Compliance 38-39                                                                            38-39

2.14      Complexity                                                                                                      40-41

Chapter Three


3.1       Research Design                                                                                              42

3.2        Population of the Study                                                                                  42

3.3       Sampling Techniques and Sample Size                                                           42

3.4       Sources of Data                                                                                               42

3.5        Method of Data Analysis                                                                                43

3.6       Model Specification                                                                                        43 


Chapter Four 

Result and Discussion 

4.1       Demographic Analysis                                                                                    44

4.2       Analysis of VAT Payer’s Perception since Its Inception                                  45-46

4.3        Degree of Efficiency as a Result of Adequate Accounting Procedure           47

4.4       Correlation Result                                                                                           48

4.5       Linear Regression Result                                                                                49

4.6       Model Summary                                                                                              49

4.7       ANOVA                                                                                                             50

4.8       Coefficients                                                                                                     50

4.9        Discussion of Findings                                                                                     51


Chapter Five 

Summary, Conclusion And Recommendation 

5.1       Summary                                                                                                         52

5.2        Conclusion                                                                                                      53

5.3        Recommendation                                                                                            53

References                                                                                                                   54-58

Appendix I                                                                                                                   59-61  

 Appendix II                                                                  62






1.1       Background to the Study

The subject of taxation has received considerable intellectual and theoretical attention in the literature.  The major aim of most governments in developing countries is to stimulate and guide economic and social development governments continue to strive towards developmental advancement. Importance of tax lies in its ability to generate revenue for the government, influence the consumption pattern of the people and also regulate the economy through its influence on vital aggregate economic variables such as income, employment, prices of goods and services and host of others. Tax refers to a “compulsory levy by a public authority for which nothing is received directly in return” (James and Nobes, 1992). According to Nightingale (2001), “a tax is compulsory contribution, imposed by government, and while taxpayers may receive nothing identifiable in return for their contribution, they nevertheless have the benefit of living in a relatively educated, healthy and safe society”. She further explains that taxation is part of the price to be paid for an organized society and identified six reasons for taxation: provision of public goods, redistribution of income and wealth, promotion of social and economic welfare, economic stability and harmonization and regulation.  The Nigerian tax system has not been able to perform the expected role of revenue generation and regulation of income redistribution. This stemmed from the structural and administrative defects of the tax system. The machinery and procedures for implementing tax systems are inadequate resulting into tax evasion and avoidance by most individuals and institutions. On the other hand, the need for more sources of revenue for the government cannot be over emphasized. Revenue continues to fluctuate due to price fluctuations in the world market. Moreover, revenue from the non-oil sector has been grossly insufficient to meet public needs due to the rise in pressing social and economic needs. It was against the above background that the Edozien – led committee was inaugurated in 1991 to review the Nigerian tax system.     

   The idea of introducing VAT was recommended by a study group that was set up by the federal government in 1991 to review the then exiting tax system as a replacement of sales tax. After extensive deliberation and consultation on the group submission, VAT was introduced as a federal tax and back by Decree 102, made on 24th August, 1993 in Abuja by the then Head of state and Commander in Chief of Nigeria, General Ibrahim Babangida gave the legal backing for its administration. Value Added Tax (VAT) has become a major source of revenue in many developing countries. In sub- Saharan Africa for example, VAT has been introduced in Benin

Republic, Cote d‟Ivore, Guinea, Kenya, Madagascar, Mauritius, Niger Republic, Senegal, Togo and Nigeria. Evidence suggests that in these countries, VAT has become an important contributor to total government tax revenues (Ajakaiye, 2000). 

Value Added Tax (VAT) is “a broad based business tax imposed at each stage of production and distribution process typically designed to tax final household consumption” (Tait, Robert and Tuan, 2005). It is a type of indirect tax that is imposed on goods and services which plays an important role in the economic development of a country by influencing the rate of revenue accruable and consumption (Jayakumar, 2010).The relevance of tax revenues is a core motive for suggesting that emerging economies such as Nigeria must increasingly mobilize their internal resources to enhance economic growth and reduce fiscal deficits through the implementation of an effective tax policy (Wawire, 2006). There is dearth of literature on the revenue performance of state government level VAT in developing countries like Nigeria. The contribution of personal income tax to the government total revenue remained consistently low, hence the need to evaluate alternative taxes such as VAT as done in this study.

1.2 Problem Statement

Evidence so far agreed that VAT has become a major source of revenue in developing countries but its effect is yet to be felt in Nigeria. Taxation as an important instrument of fiscal policy in an economic, has hither- to suffered from some lingering and flummoxing problems in Nigeria, thereby making it difficult to successfully perform the expected the role of revenue generation and regulation of income redistribution, prominent among this problems may be traceable to public attitude towards tax matters in terms of perception, and adherence to tax rules and regulations. Oladipupo and Izedonmi, (2013) affirmed that VAT has failed to in its contribution to revenue generation of the nation. In the same vein, Shop (1989) argued that VAT may cause consumers to reduce their consumption of certain commodities that have direct and indirect effects on labour productivity.   Ebeke and Ehrhart (2010) asserted that tax revenue instability in sub – saharan Africa leads to public investment and government consumption instability, which in turn generates a lower public investment ratio, and is therefore detrimental to long-term economic growth. 

However, Unegbu and Irefin (2011) has contrary opinion, they found that VAT has a significant impact on the economic growth. Due to inconclusive evidence of past studies on the role of VAT on Nigeria economic growth. This study tends to advance knowledge on by examine the impact of VAT on economic growth of Nigeria for period of 2000 -2013.       


1.3 Research Questions

Arising from the statement of the problem, the following research questions were formulated.

i.          What is the relative impact of Value Added Tax on Gross Domestic Product?

ii.        Do VAT, Petroleum Tax, Excide Duties, and Company Tax jointly have significant impact on GDP?   

iii. What is the perception of the VAT payers on Value Added Tax since inception of VAT in Nigeria?

iv.        What is the impact of adequate accounting procedures on VAT efficiency?

1.4  Objective of the study

The general objective of this study is to examine the impact of value added tax on Nigeria economic growth from 1993 - 2013. While the specific objectives are:

i.          to determine the extent to which VAT affect gross domestic product.

ii.        to investigate if VAT, Petroleum Tax, Excide Duties, and Company Tax jointly have significant impact on GDP   

iii. to examine the perception of the VAT payers on Value Added Tax since inception of VAT in Nigeria.

iv.        To assess the impact of adequate accounting procedures on VAT efficiency.

1.5   Research Hypotheses

 For the above objectives to be achieved the following hypotheses are stated in null form:

Ho1: VAT has no significant impact on gross domestic product.

Ho2: VAT, Petroleum Tax, Excide Duties, and Company Tax  do not jointly have impact on 



1.6   Significance of the Study

The study is significant as it will contribute to the existing literature on the VAT structure in Nigeria. It will be used to design growth – oriented programs and implementation of value added tax changes that are growth enhancing. It will equally provide an empirical groundwork on Nigeria‟s VAT revenue structures upon which prudent tax measures could be based. The study will be timely, given the current efforts toward changing the constitution, and some government structures privatizing state enterprises, rationalizing the budget, eradicating poverty and reforming tax structure. 

The study captured the accounting periods of 1993 to 2013 for a number of reasons, this period is long enough to capture the pre and post introduction of VAT in Nigeria. Furthermore, this period had covered twenty one years through which government had the opportunity to devise its own tax policies, regulations and administrations for two decades.  Meanwhile, several changes had taken place within the period of study. For instance, the economy has experienced persistent shocks such as the oil price crises of 2008 and 2009 that had far reaching repercussion on growth and fiscal deficits.  This period therefore will capture the impact on VAT revenue of such events like trade liberalization, privatization, tax modernization programme and the establishment of VAT agencies.     


1.8  Definition of Terms

VAT:- Value added tax is tax on the supply of goods and services which is eventually borne by the final consumers but collected at each stage of the production and distribution chain. Company Income Tax:- This levied on gross profits of companies. The gross profit of the company may include profit from sales, interest and dividend received, rents and royalties and capital gain.

Petroleum Tax:- This levied on the profits of each accounting period of any company engaged in petroleum operations during such accounting period, usually one year.  

Excise Duties:- This levied on the certain goods produced of manufactured locally.

GDP:- Gross Domestic Product is the market value of all product and services produced in one year by labour and property supplied by the residents of a country.

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