the effects of value added tax

8/23/2019 The Effects of Value Added Tax

1/13

Journal of Economics and Sustainab

ISSN 2222-1700 (Paper) ISSN 2222

Vol.4, No.6, 2013

The Effects of Value

Qualification: B.Sc Economics, M

Rank: Senior Lecturer in Banki

ABSTRACT

The study sets out to investigate the

revenue in Nigeria. VAT was intro

GDP and total Revenue. In pursuit

have significant effect on GDP. Sec

Simple Linear Regression method

for period 1994 2010 and compu

show that VAT has significant eff

Hypotheses (Ho) are accepted. The

rate so as to enlarge its annual reven

Keywords: Value Added Tax, Gro

Transitional Economies, Cascading

SECTION 1

1.0 INTRODUCTION/BACKGR

Value Added Tax (VAT) is a ta

manufacture or distribution and the

and services bear the tax burden or

goods and services. On the other ha

goods and services are like inter

services that will be sold to other b

levied at each stage on value added

rate is 5%. An attempt to raise to 1

VAT collection is most often borne

Wilhelm Von Siemens (1918)

Laure (1954) who introduced VA

because according to them sales ta

1.01 VALUE ADDED TAX IN NI

Nigeria operates a federal sy

principle. This has serious implicati

administered in the country. The go

and local government each which h

The tax and revenue system isshare of all taxes and other revenue

le Development

-2855 (Online)

190

Added Tax (V.A.T) on the Econ

of Nigeria.

Umeora Chinweobo Emmanuel

.B.A (Banking and Finance), A.C.I.S (London), PhD

State University

g and Finance Department, Anambra State Universit

effects of Value Added Tax (VAT) on economic gro

uced in the country in 1994 and one wants to esti

of this, two hypotheses were proposed namely First

ndly we have H0 VAT does not have significant effec

as used to analyze time series data relating to VAT,

tation done with the assistance of SPSS. The results

ect on GDP and also on Total Tax Revenue. That

overnment is encouraged to sensitize the people to e

ue for economic development.

ss Domestic Product, Total Revenue, Maxims of Ta

reatment

UND OF STUDY

x on estimated market value added to a product or ser

additions are ultimately added to the final consumer.

the incidence because they cannot recover the tax p

d businesses can recover VAT they pay on goods and

ediate goods and services. They use them to prod

siness in the supply chain or directly to final consu

in the economic chain of supply and it is a constant r

0% met stiff resistance from Nigerian Labour Congr

y the business organizations and individuals rather th

was the first person to advocate for Value Added Ta

in France. They argued that Value Added Tax is

es and tariffs encourage cheating and smuggling.

ERIA

stem of government hence the fiscal operations al

ons on the same principle. This has serious implicatio

vernments fiscal power is based on the three tier st

s different tax jurisdictions.

lopsided and dominated by oil revenue. The Federal. According to Odusola (2006) and Philips (1997) as

www.iiste.org

omic Growth

andidate at Anambra

, Igbariam Campus

th (GDP) and total tax

ate its contributions to

: H0 that VAT does not

on Total Tax Revenue.

DP and Total Revenue

of regression analysis

means that both Null

able it increase the tax

ation, Developing and

vice at each stage of its

. End users of products

aid on consumption of

services because those

uce further goods and

ers. Value added tax is

ate. In Nigeria the VAT

ess (NLC). The cost of

an the state.

x followed by Maurice

better than sales taxes

so adhere to the same

ns on the tax system as

ucture of federal, state

Government takes lionat 1995 the breakdown


2/13



Vol.4, No.6, 2013

of total tax and levy collection of th

local governments.

Over the years since the Oil B

source. Instead of transforming or

one primary product to another. Thi

international oil market (Odusola 20

The need to address this probl

the yearly amendments given in a

system. The need for tax reforms in

(i) There is compellingagainst volatility of go

(ii) Nigeria operates a caanchored on revenue p

(iii) The tax system is codominance of the info

act as pressure groups

(iv) There has been and co(v) The Study Group in

recommended the esta

Value Added Tax (VAT) beca

introduced by Decree 102 of 1993.

for eligible goods and services. Th

these Exemptions.

Goods: Medical and pharmaceutical

Basic food educational mate

Baby products

Agricultural equipments and

Agricultural fertilizers

Goods for export

EXEMPTED SERVICES: medical s

Services by community now Microf

Peoples Bank now defunct and mort

Plays and performance conducts by

Exported services

All these are found in the Federal In

The Decree states that no individu

and service may be altered by the

vatable goods and services however

total revenue collected under VA

governments (Odusola 2006). Fed

collecting VAT on behalf of all three

To ensure Value Added Tax

existing tax structure. The amendme(a) Reduction of Personal Inc

le Development

-2855 (Online)

191

e three tiers was 96.4% for federal Government, 3.2%

om of the early 1970s, revenue from oil has dominat

iversifying the revenue base, fiscal management ha

s over dependence on oil makes the economy susce

06).

em of near mono economy led to tax policy reforms.

nual budget were geared towards addressing the f

the country has been justified on some of these reaso

eed to diversify the revenue based for the country

vernment revenue.

sh expenditure budget system where proposal for

rojections.

ncentrated on petroleum taxes and less on indirec

rmal sector. Even the formal sector has limits becau

to deter any appreciable tax increments.

tinues to recur government annual fiscal deficits ove

1991 high lighted the need to increase tax reve

lishment of Value Added Tax (VAT).

e a landmark source of revenue as a part of tax

The VAT implementation started in January, 1994. T

eoretically VAT was imposed generally on all good

products

rials

veterinary medicines

ervices

inance Bank.

gage Institutions.

educational institutions as part of learning Religious s

land Revenue Service (FIRS) Review Paper No 9901

al, organization or government Agency is exempted

government periodically. The importance of this i

highly or lowly placed cannot be exempted from pay

is shared in the ratio of 15:50:35 among the F

ral Inland Revenue Service (FIRS) is saddled wit

tiers of government.

chieve some level of effectiveness, certain amendm

nts were:me Tax burden through increased tax allowances and

www.iiste.org

for states and 0.4% for

ed government revenue

s merely changed from

tible to vagaries of the

The reforms as well as

ailures of effective tax

s:

in order to safeguard

xpenditure are always

taxes because of the

e there are unions that

the decades.

nue base. The Group

reform agenda. It was

e rate was fixed at 5%

and services but with

ervice.

dated 1st

January 1999.

from VAT. Only goods

that any consumer of

ing VAT. At the present

ederal, state and local

h the responsibility of

ents were made to the

reduced tax rate;


3/13



Vol.4, No.6, 2013

(b) Monetization and taxation(c) Deduction of Research an(d) Extension of tax free st

infrastructure available in

(e) Reduction of company tax(f) Payment of petroleum ProAlthough VAT is consumption

invoices for collections from custo

VAT is imposed at 5% regardless of

Odusola (2006) observes th

exclusive list of federal jurisdictio

VATs collection has been administ

Customs Service to collect VAT o

where vatable goods and services a

lodgers and customers and pay sam

but we are aware that most operato

by the informal sector know for poo

1.02 STATEMENT OF PROBLE

Over the years Value A

From there it spread rapidly to oth

International Monetary Fund (IMF)

economies. Since VAT worked in d

form of taxation that has turned ou

102 of 1993 and started functionin

source of revenue in many Sub-Sah

flows into the government treasury t

is regressive. The reason is that po

carry VAT. More over in Nigeria th

while not a lot of research has been

of the economy. This paper is theref

1.03 OBJECTIVE OF STUDY

The main objective is

the study will find out VAT contrib

via the GDP.

1.04 SIGNIFICANCE OF STUD

Extensive studies have been do

but not much appear to have been d

to GDP. This study is thus undertak

help increase awareness of what the

also be a form of update on the exist

le Development

-2855 (Online)

192

of foreign benefit;

Development (R&D) expenditure from the gross ear

tus to companies in rural areas and grating of in

the areas;

rate from 40% to 35% and subsequently to 30% and

fits tax in US Dollar.

tax, a 5% rate is levied on suppliers who are expecte

ers and for remittance to VAT authorities by way of r

the stage of production or distribution.

t although VAT is enforced by federal legislation, i

by the 1999 constitution. This is unusual because

rated by the Federal Inland revenue Service (FIRS).

imports at the ports. Companies, organizations an

re bought serve as collection agents. For example, H

e, to FIRS. Proper keeping of records is crucial for p

s in the informal sector keep little or no records. The

r record keeping.

ded Tax (VAT) as a form of indirect tax was introd

r developed countries except to US where it has no

was at the vanguard of spreading the concept to dev

eveloped countries IMF gave consistent support and

to be goldmine. As stated earlier it was introduced

in January 1994. Ajakaiye (1999) observed that V

aran African countries including Nigeria. Despite the

here are critics who argues that the incidence of VAT

r people spend a large portion of their income on p

e revenue from VAT is routinely shared out accordin

done to determine the effects(s) of this new revenue

ore to investigate VAT contribution especially to total

to find our how VAT has fared in Nigeria since ince

tion to total tax revenue of the nation and contributi

ne on various aspects of the operations of Value Add

one in study VAT contribution to total tax revenue (n

n to add to whatever scarce studies already exist in th

government can do to improve operations and utility

ing studies.

www.iiste.org

ning of companies;

centives based on the

d to add this amount to

egular monthly reforms.

was omitted from the

rom inception in 1994

FIRS appoints Nigeria

d individuals at points

otels collect VAT from

roper operation of VAT

economy is dominated

ced in France in 1954.

t been adopted to date.

loping and transitional

advocacy to this novel

into Nigeria by Decree

T has become a major

enormous revenue that

like other indirect taxes

rchases some of which

to agreed percentages

source on some aspects

revenue and GDP.

ption more specifically

ng to economic growth

d Tax (VAT) in Nigeria

n-oil) and contribution

is aspect of VAT. It will

of VAT. The study will


4/13



Vol.4, No.6, 2013

1.05 SCOPE OF STUDY

The study limits itself to the

period of 16 years covered by the st

1.06 STATEMENT OF HYPOTH

Two hypotheses are proposed

I. H0 (Null) Value Added Tax (VAT)

II. H0 (Null) Value Added Tax (VA

Nigeria.

1.08 PLAN OF STUDY

The study is arranged in five

theoretical foundation and review o

methodology of study and model es

concludes and makes recommendati

SECTION 2

2.0REVIEW OF LITERATURE

2.01 REVIEW OF LITERATURE

Since Value Added Tax (VAT)

the world. In developing and tra

Casanegra de Jantscher (1986) co

during the 1970s and 1980s during

added taxes (VATs) as part of their

major innovation in their tax syste

issues are more important in develo

Bird (2005) over the last few dec

adoption of VAT has been attribut

France in 1954). The other reason

message of VAT to developing natio

form of taxation by the Internation

America and then around the world

developed economic and administra

The then Chairman/Chief Exe

(1999) and Numbered 9901 publish

VAT to all and sundry in a summary

(a) VAT is a tax on spending whic

VAT paid is included in the price pai

(b) The tax is presently at a flat rate

(c) VAT is collected on behalf o

registered with FIRS offices.

(d) All businesses, organizations an

(FIRS) nearest to their offices o

independently and when such organ(e) A registered person will pay 5%

le Development

-2855 (Online)

193

period of 1994 (inception) to 2010. Time series dat

dy.

SIS

or the study

has not made any significant impact to total revenue i

) has not made significant impact to the Gross Dom

ections. Section 1 deals with all the points discussed

f literature including empirical studies. Section 3 deal

imation. Section 4 is on data presentation, analysis a

on.

ND THEORETICAL FOUNDATIONS

was introduced in France in 1954, it has been adopt

sitional countries it has been introduced within t

menting on the importance of VAT said that it has

which time many developing and transitional count

Fiscal Structures. During this period, he added, VA

s. The emphasis is buttressed by Bird (2005) when

ing and transitional countries (DTE) than the value

des VAT has swept the world. The main reason fo

d to the early adoption by European Union (follo

is the key role of International Monetary Fund (I

ns. In the words of Bird (2005) the consistent suppo

al Monetary Fund (IMF) and others in a variety of

encouraged and facilitated the adoption of VAT by c

ive structures than those in the original E.U member

utive Officer of Federal Inland Revenue Service (FI

d the following highlight about VAT. The aim was to

form:

is bourne by the final consumer of goods and servi

d but if the invoice should indicate the VAT element o

5%.

the government by businesses, organizations and

d individuals connected with VAT collection must re

operating bases. Branch offices of such organi

zation registers it is called registered person.on goods and services purchased but can claim credit

www.iiste.org

a are available for this

n Nigeria.

stic Products (GDP) in

so far. Section 2 is on

s with Data Collection,

d discussion. Section 5

ed in most countries of

he last three decades.

ssumed added impetus

ies have enacted value

system has formed a

he said that few Fiscal

dded tax. According to

r the rapid world wide

ing its introduction by

F) in propagating the

rt and advocacy of this

countries, first in Latin

untries with much less

tate.

S) in his First Review

bring the knowledge of

ces. This is so because

f the price.

individuals who have

gister with VAT offices

ations are to register

for the tax (called input


5/13



Vol.4, No.6, 2013

tax) when sold. The 5% VAT (call

registered persons.

(f) The registered person must ma

directorate), the difference of the in

To claim a credit for input tax, a reg

(g) VAT returns (and payment) are n

(h) Records and Accounts have to b

(i) No individual, business organi

services as stipulated from time to ti

(j) FIRS (VAT Directorate) provides

The Review of 9901 (1999) ga

(a) The tax base of sales tax as oper

of items of goods and services in re

Tax negates the fundamental princip

than Sales Tax and includes most pr

sectors.

(b) Only locally manufactured good

(c) Since VAT is based on general

minimum cost of collection and wit

The review listed the offenses

claims, obstructing VAT officials an

Ajakaiye (1999) studied the m

His study showed evidence that VA

he stated that in 1994 (the year of in

billion. In 1995 actual VAT revenue

used three scenarios to approximat

pursed an active fiscal policy inv

combination with a presumed no

considered as active fiscal policy

combined with a non-cascading tre

cascading treatment of VAT with a

was also the one that most closely a

Adereti et. al (2001) empiricall

1994-2008. They used time series

analysis and descriptive statistical

12.4% which they considered low

VAT Revenue to GDP averaged 1.

between VAT revenue and GDP. T

VAT revenue. The report conclud

administrative loopholes for VAT R

Owolabi and Okwu (2001)

development of Lagos State econo

effect of the contribution of VATindicators are infrastructural devel

le Development

-2855 (Online)

194

d output tax) is included in the price of all goods a

e regular VAT returns and either pays to or receiv

ut and output taxes.

stered person must hold a Tax Invoice.

ormally made month following that in which the supp

kept on all business transactions.

ation or government agency is exempted from th

me are exempted.

free information and advisory service to help anybod

e further reasons for replacing Sales Tax with VAT.

ated under Decree No 7 of 1986 was narrow. It cover

gistered hotels, motels and similar establishments. T

le of consumption across all consumable goods and s

ofessional services and banking transactions which ar

s were targeted by Sales Tax while VAT applied to mo

consumption, the expected high yield will boost go

out resistance from payers.

as failure to register, failure to furnish required inf

failure to submit requisite returns.

acroeconomic effects in Nigeria: a computable gener

revenue is already a significant source of revenue i

ception) actual VAT revenue was N8.19 billion as ag

was N21 billion as against a projection of N12 billio

e the presumed Nigerian situation. First, he assum

olving the reinjection of the VAT via increased g

-cascading treatment of VAT. Then he assumed

combined with a cascading treatment of VAT and

atment. The result of the study, as it turned out, was

tive fiscal policy not only had the most harmful eff

proximated to the Nigerian situation.

y investigated the contribution of Value Added Tax (

data of GDP and VAT revenue for the period and

ethod. Their findings show that VAT revenue to Total

compared to 30% on Ivory Cost, Kenya and Seneg

%. Their study also shows that a positive and signi

e study also observes that there is no causality exis

s by recommending that the government should p

venue to contribute more significantly to Nigerias ec

ade empirical study of contribution of Value Ad

y. They employed the tools of simple Regression

revenue to the economic growth of Lagos Statepment, environmental management, education sect

www.iiste.org

d services supplied by

e from the FIRS (VAT

ly was made.

tax. Only goods and

comply with VAT.

he main reasons are:

ed only nine categories

e narrow base of Sales

ervices. VAT is broader

e high profit generating

st imports.

ernment revenue with

ormation, making false

al equilibrium analysis.

n Nigeria. For example

inst a projection of N 6

. In the study Ajakaiye

d that the government

vernment spending in

two other simulations

a passive fiscal policy

that the scenarios of a

cts on the economy; it

AT) to GDP in Nigeria

did simple Regression

Tax Revenue averaged

l and 19.71% Mexico.

ficant correlation exist

ting between GDP and

lug up all identifiable

onomic growth.

ded Tax (VAT) to the

Models to evaluate the

conomy. Developmentr development, Youth


6/13



Vol.4, No.6, 2013

and social development, Agricultur

development. The state economy w

models were specified to enhance

contributed positively to the devel

statistically significant only in Agri

to benefit significantly from the stat

Olaoye (2009) studied the a

improving government revenue gen

recommended on the need for gover

Feldstein and Krugman (1990)

al 2001). Their research was base

rebated on exports, act as a combi

countries with VAT an advantage o

study used simple Regression mode

measure because the assumed pro

export tax, which in turn is actuall

study further stated that VAT woul

which would constitute a bias again

and International Trade in effort to

effect of VATs on international t

encourages exports which are exe

adjustment prevents destination ba

undoes the effect of introducing V

international trade most on low inco

posits that VATs impede internation

the economy. Also governments o

simulation study advocating VAT r

countries the tax system wants to sh

a rate that will not affect aggregate

increasing the countrys revenue bas

On the issue of VAT exemptio

ability to handle the large volume o

are exempted. Such exemptions al

services, books and newspapers, tra

2.02 THEORETICAL FOUNDAT

Taxation forms the most impo

imposed by various tiers of govern

taxation are that taxation is compul

Since it is compulsory, any person

Also there is no quid pro quo bet

the governments need not to explain

Adam Smith the father of Eco

(1776). The canons or maxims are:-(a) The subjects of every state ough

le Development

-2855 (Online)

195

al sector development, health sector development a

as disaggregated into seven strategic economy sector

isolated analysis of each sector. The analysis sho

pment of the respective sectors. However, the posi

ultural sector development. The study concludes that

e governments expenditure of VAT Revenue.

ministration of VAT in Nigeria with the objectiv

ration base in order to improve the economy. The stu

nment to increase awareness of people on the existen

were the pioneers on research about international tra

on the wide spread belief that VAT, because it is

ation of protection and export subsidy, giving the t

er the corresponding sectors of countries that rely on

l and showed that belief is almost entirely wrong. V

ompetitive device of export rebates is necessary if

a protectionist measure that would reduce both imp

d almost surely fall more heavily on traded rather

st both exports and imports. Desai and Hines (2002)

advance the work of Feldstein and Krugman and oth

ade. They assumed the usual popular view that

pt from Vat is paid on imports. They also assu

ed VATs from affecting exports and imports since

T. Their study states that there are negative effects

me countries using Vat to control imports and encou

al trade because they tend to be imposed most heav

ften fail to actually provide rebated for exports.

te from present 5% to 15%. He justified the study

ift emphasis from direct to indirect taxation by grad

onsumption. He further argued that increasing the ra

e.

ns, Thisen (2003) noted that many African countries

returns and refunds for zero-rated transactions. Beca

lowed by international best practices cover items

sportation.

IONS

rtant sources of revenue to the government. Tax is

ent on individuals and corporate organizations. The

sory and, imposed by authority of government on p

ho is within the jurisdiction must pay or be given so

een tax payer and how the government spends the t

to a payer how his own particular payment will be ut

nomics gave it as four canons of taxation in his boo

to contribute towards the support of the government,

www.iiste.org

d transportation sector

s and simple regression

ed that VAT revenue

ive contributions were

various sectors are yet

e of seeking ways of

dy among other things,

e VATS

e and VAT (Adereti et.

levied on imports and

raded goods sectors of

income taxation. Their

T is not a protectionist

AT is not to act as an

orts and exports. Their

hen non-traded goods,

also studied about VAT

ers. They examined the

destination-based VAT

ed that exchange rate

ppreciation completely

of introducing VAT on

age exports. The study

ly on traded sectors of

Ekeocha (2010) did a

y noting that for most

ally increasing VAT to

te will upward effect of

lack the administrative

se of this, lots of items

s water and sewerage

a compulsory payment

ost basic things about

ople within a territory.

e form of punishment.

x paid. In other words,

lized.

the Wealth of Nations

as nearly as possible in


7/13



Vol.4, No.6, 2013

proportion of his ability.

(b) The tax payable must be certain

(c) Tax should be levied at the time i

(d) There must be efficiency in tax

Lambert (1992) amplified Ada

(i) Simplicity is essential.(ii) Certainty of what to p(iii) Neutrality to payers s(iv) Low cost of collection.(v) Net beneficiaries acco

is not clear.

(vi) Double taxation shoul(vii) PAYE should be at sou(viii) There should be the ab(ix) Tax paid should not be(x) Tax should be based o(xi) Basis of Taxation shou(xii) Convenience of the pa(xiii) Tax payer should get a(xiv) No discretion of tax ex(xv) Tax is a compulsory l(xvi) Tax is compulsory and

from government.

Lambert (1992) concludes that his

which is simple, just and lasting, for

Other theories are cost of Ser

states that the cost of running g

collectively met by the people who

paid on consumption of vatable goo

is where the incidence (tax burde

proportion of their income on consu

SECTION 3

3.00 METHODOLOGY OF STU

The study deals extensively o

series data from inception of 1994 t

Reports and Statement of Accounts,

proxy by Gross Domestic Product (

Inland Revenue Service (FIRS) whi

Simple regression techniques are us

3.01 MODEL SPECIFICATION

In order to analyze the contributio

Revenue, we use linear regressionLog GDPt = a + . Log VAT t +

le Development

-2855 (Online)

196

and devoid of arbitrariness or capriciousness.

t is convenient for the payer to pay.

dministration.

Smiths four canons into sixteen modern principles

y must be there.

vings and spending must be maintained.

.

ding to him are exempt from tax- although the mean

be avoided.

rce as it is the practice.

ility to pay.

affected by varying circumstances.

economic power not legal form.

ld be realistic.

er is paramount.

dequate advice.

emption is allowed.

evy not fine or penalty.

there is no quid pro quo between when the payer p

odern principles of taxation constitute the bedrock

it should command the support of everyone, all parti

ice theory, the Benefit theory, Ability to pay theory.

vernment and provision of social services and in

are the ultimate receivers of the services. It is an indi

ds. However, as indirect tax is criticized as being re

n) falls relatively more on the low income earner

mption.

Y

n review of previous works relating to Value Adde

o 2010 are collated from Central Bank Statistical Bu

various issues. The data are shown in Appendix 1.

DP). Value Added Tax (VAT) is represented by VAT

le federal government collected tax revenue is proxy

d to analyze the data.

ns of Value Added Tax (VAT) to economic growth

ethod for the analysis. Two equations are used:ei (1)

www.iiste.org

of taxation. They are:-

ing of net beneficiaries

ys and benefits he gets

of a system of taxation

s and all nations.

Cost of service theory

frastructure should be

rect tax which must be

ressive. Regressive tax

s. They spend a large

Tax in Nigeria. Time

lletin and CBN Annual

he economic growth is

as collected by Federal

for Total Tax Revenue.

(GDP) and Total Tax


8/13



Vol.4, No.6, 2013

Log TTRt = a + . Log VAT t

Where a in the equations stand for t

stands for the regression coe

ei and i stand for the error ter

t is tth of the observation of th

Here in equation (1), GDP is used

Total revenue is the dependent varia

SECTION 4

4.0 DATA PRESENTATION, INT

4.01 CONTRIBUTION OF VAT T

The Regression Results are pre

The Regression equation is log

R2

Sq 83.6%

R2

Sq (Adjusted) = 82.5%

T stat = 8.75 (P. value = 0.00

Durbin-Watson Statistic = 1.04

Standard Error of the Estimate

The above statistics measure t

Federal Government collected VA

equation that explains the nature of

suggests coefficient of VAT (1.47).

relationship between VAT and GD

growth is explained by VAT revenu

explained by VAT. That means that

will have very significant increase o

The t-statistic tests that the hy

t-value is statistically significant at

the alternative hypothesis and concl

4.02 CONTRIBUTION OF VAT T

Again refer to Appendix 2 for the R

The regression equation is log

R2

Sq = 92.9%

R2

Sq (Adj.) 92.5%

T-stat = 14.06 (P. value = 0.00

Durbin-Watson Statistic = 1.08

Standard error of the estimate

The contribution of Vat to To

stated statistic. The regression equat

that there is positive relationship

equation explains variations in Tot

Determination (Adj. r2

). The value ochanges in VAT. In other words, inc

le Development

-2855 (Online)

197

i (2)

e intercepts of relationship in the models

ficients for the models.

s

e time series data. Log is the natural log.

s the dependent variable with VAT as independent v

bles while as in remains the independent variable.

ERPRETATION AND ANALYSIS

O GDP

sented on Appendix 2.

GDP = -1.56 + 1.47 log VAT

0)

s = 0.8139

he contribution of VAT to economic growth in Nige

Revenue between 1994 to 2010. Simple regressi

relationship between VAT and GDP over the years.

The coefficient of determination r2

is used to expl

. The r2

statistic is used to show the extent to whic

. The value of Adj. r2

is 82.5% suggesting that 82.5

AT has a significant effect on GDP. This also implies

n economic growth.

pothesis that VAT does not have significant contribu

alue below 0.05 significance level, we reject the Nul

de, that VAT has significant effect to GDP

O TOTAL TAX REVENUE

gression Results.

TR = 3.88 + 0.922 log VAT

)

= 0.3186

tal Tax Revenue (TTR) of revenue of Nigeria is me

ion shows that the coefficient of the equation is 0.922

etween Total Tax Revenue and VAT in Nigeria. T

l Tax Revenue are determined by VAT is given by

f adj. r2

is 92.5% which suggests that a variation is Teasing VAT rate will have very large contribution to

www.iiste.org

riable. In equation (2),

ria using the GDP and

on results produce an

he equation (1) above

ain the strength of the

variation in economic

of variation in GDP is

that increasing the rate

tion to GDP. Since the

l hypothesis and accept

asured from the above

log VAT. This suggests

e extent to which the

djusted Coefficient of

R can be explained byotal Revenue.


9/13



Vol.4, No.6, 2013

The test of hypothesis 2 of the

is done with the help of t-test. The t

of the t-value is below 5% level of

and conclude that VAT have signific

SECTION 5 CONCLUSION A

This paper arrives at the view

Total Tax Revenue. One would exp

rate introduced in 1994 and inceptio

Lobour Congress (NLC). Naturall

Omoigui-Okauru (2008) adduced re

with our neighbouring West African

The lowest other countries have is

increasing the rate from 5% to 15%.

Harmon (2007) writing on the

empower the government by incre

from a social viewpoint, bearing i

morally unjust to tax the unemploy

are taxed more since they spend mo

By way of recommendation,

sensation the populace about long

government can not easily raise that

may be grudgingly accepted by the

conceivable that people will accept

have much higher rates may not be

Moreover the there is need

not easy to pin point actually ben

generally tax averse and the gover

perhaps resistance to VAT rate incr

from Ghana where the VAT is 17.5

REFERENCES

Adam Smith (1776) The Wealth o

Cambridge University Press, Cambr

Adereti S.A., Sanni M.R. and Adesi

Journal of Humanities and Social S

Ajakaiye D.O. (2000) Macroecono

African Economic Research Consor

Bird Richard M. (2005) ITP Paper

and Questions: International Tax Pr

Caengra de Jantscher M. (1986) aut

Desai Mihir A. and Hines James R.

Harvard University, and UniversitEkeocha P.C (2010) Modelling the

le Development

-2855 (Online)

198

study that VAT does not have significant contributio

-stat is shown as 14.06 with a probability value 0.000

significance, we reject the Null hypothesis and accep

ant contribution to Tax Revenue Nigeria.

D RECOMMENDATION

of other research works that VAT contribute signifi

ct that an increase in VAT should have been effected

n to raise that rate to 10% in 2007 was met by stiff op

people are tax averse and are prepared to resis

asons for an increase. According to her the increase

Countries. According to her Nigeria has the lowest

15%. Moreover, the simulation work of Ekeocha (2

aborted increase of VAT rate from 5% to 10% argue

asing the revenue available to the government. He

mind the absence of an institutional welfare system

d indigent masses. The increase is considered as reg

e of their income on purchases of goods and services.

one can say that FIRS can carry out some enlig

overdue increase in VAT rate. Perhaps it would

VAT from 5% to 15% as canvassed by FIRS; increas

impoverished populace after some serious sensitizati

an increase from 5% to 15%. The argument that ot

onvincing.

to try to isolate the projects specifically tried to VAT

fits accruing to the people as a result of the intro

ment if people should try to isolate the gains to the

ease will reduce. Perhaps, the government of Nigeri

out of which 2.5% is used to finance free medical ca

f Nations quoted by Blaug Mark (1999) Economic

idge

a J.A. (2011) Value Added Tax and Economic Grow

ience 10(1) special issue

ic Effects of VAT in Nigeria: A Computable Genera

ium (AERC) Paper No 92

505 Value Added Taxes in Developing and Transitio

gram Paper for J. Rotman School of Management , U

orized for distribution by Vito Tanzi, IMF Working P

r. (2002) Value Added Taxes and International T

of Michigan and NBERotential Economic Effects of VAT Reform: Simul

www.iiste.org

to Total Tax Revenue

0. Since the probability

t alternative hypothesis

antly to GDP and also

a long time ago. The 5%

position led by Nigeria

t any increase. Ifueko

is to be in compliance

VAT rate in ECOWAS.

10) has tried to justify

d that the increase will

however observed that

in Nigeria, it would be

ression in that the poor

htenment campaign to

be instructive that the

ng of 100% from to 10%

n exercise. It is hardly

er ECOWAS countries

pending. Presently it is

uction of VAT. People

people. If this is done,

a will need to find out

re on a national level.

Theory in Retrospect,

h of Nigeria,European

Equilibrium Analysis,

nal Countries: Lessons

niversity of Toronto

aper 86/15

rade: The Evidence,

ation Analysis using


10/13



Vol.4, No.6, 2013

Computable General Equilibrium A

Federal Inland Revenue Service (FI

Felstein M. and Krugman P. (1

www.nbre.org/papers/w.3163 retrie

Harrington Harimon (2007) VAT I

Ifueko Omoigui-Okauru (2008) Dir

spendingBusiness Day 21st

July p.2

Lambert Ian T.G. (1992) Some Mod

the 3rd

Annual Convention of Politic

Maurice Laure (1954) Direc

http://enwiki.org/wiki/value-added-t

Odusola Ayodele (2006) Tax Policy

Owolabi S.A. and Okwu A.T. (2011

Development of Lagos State Eco

(http://www.eurojournal.com/MEF

Olaoye C.O (2009) A Review of Val

27/4/2012

Phillips A. (1997) Nigerias Fiscal P

(NISER) Monograph series No 17, I

Thisen J.K (2003) Tax Reforms in

Addis Ababa.

Wilheim Von Siemens (1918) http://

le Development

-2855 (Online)

199

alysis, paper submitted for ECOMOD, Istanbul Turk

S) Information Circular No 9901, January 1999

990) International Effects of VAT, Taxation in

ed 27/2/2012

crease and the Day After,Business Day 25th June P.

ector General of FIRS Economics of 15% VAT incr

3

ern Principles of Taxation-Adam Smith Revisited

al Economists, Rio de Janeiro, Brazil, January

tion Generale Des Imports, Director Fre

ax retrieved 22/2/2012

Reforms in Nigeria, UNN-WIDER Research paper 20

Empirical Evaluation of Contribution of Value

omy Middle Eastern Finance and Economics, Eu

.htm retrieved 27/2/2012

ue Added Tax (VAT) Administration in Nigeria medw

olicy, 1998-2000, Nigeria Institute of Social and

badan

Selected African Countries, Ad-Hoc Expert Group

enwikipedia.org/valueadded-taxretrieved 22/2/2012

www.iiste.org

ey, July 7 -10.

the Global Economy,

eases and restriction of

, A Paper delivered at

ch Tax Authority

06/03

dded Tax (VAT) to

o Journals Publishing

eljournal.com retrieved

Economic Research

Meeting, 7-9 october,


11/13



Vol.4, No.6, 2013

le Development

-2855 (Online)

200

www.iiste.org


12/13



Vol.4, No.6, 2013

le Development

-2855 (Online)

201

www.iiste.org


13/13

This academic article was published by The International Institute for Science,

Technology and Education (IISTE). The IISTE is a pioneer in the Open Access

Publishing service based in the U.S. and Europe. The aim of the institute is

Accelerating Global Knowledge Sharing.

More information about the publisher can be found in the IISTEs homepage:http://www.iiste.org

CALL FOR PAPERS

The IISTE is currently hosting more than 30 peer-reviewed academic journals and

collaborating with academic institutions around the world. Theres no deadline for

submission. Prospective authors of IISTE journals can find the submission

instruction on the following page:http://www.iiste.org/Journals/

The IISTE editorial team promises to the review and publish all the qualified

submissions in a fast manner. All the journals articles are available online to the

readers all over the world without financial, legal, or technical barriers other than

those inseparable from gaining access to the internet itself. Printed version of the

journals is also available upon request of readers and authors.

IISTE Knowledge Sharing Partners

EBSCO, Index Copernicus, Ulrich's Periodicals Directory, JournalTOCS, PKP Open

Archives Harvester, Bielefeld Academic Search Engine, Elektronische

Zeitschriftenbibliothek EZB, Open J-Gate, OCLC WorldCat, Universe DigtialLibrary , NewJour, Google Scholar
http://www.iiste.org/http://www.iiste.org/http://www.iiste.org/Journals/http://www.iiste.org/Journals/http://www.iiste.org/Journals/http://www.iiste.org/Journals/http://www.iiste.org/

the effects of value added tax

Documents