VALUE ADDED TAX AND ECONOMIC GROWTH IN NIGERIA: AN EMPIRICAL ANALYSIS

Abstract

This study empirically investigates the impact of Value Added Tax (VAT) on economic growth in Nigeria, using annual time series data covering the period 1994 to 2024. In light of Nigeria's persistent revenue challenges and the need for sustainable economic development, this research evaluates the effectiveness of VAT as a fiscal policy instrument aimed at enhancing Gross Domestic Product (GDP). The study adopts a multiple regression model using the Ordinary Least Squares (OLS) technique to estimate the relationship between VAT and GDP, with inflation (INF) included as a control variable. Augmented Dickey-Fuller (ADF) tests were conducted to check the stationarity of the time series data and ensure the robustness of the regression results. The regression findings reveal that VAT has a positive and statistically significant impact on GDP, indicating that increases in VAT revenue contribute to Nigeria’s economic growth. Conversely, inflation exerts a negative but statistically insignificant influence on GDP. The F-statistic confirms the overall significance of the model, though the low Durbin-Watson statistic suggests the presence of autocorrelation in the residuals. The study also identifies the 2007 VAT Act reform as a structural break period that positively influenced VAT administration and revenue generation. These findings align with previous empirical works. Based on the results, the study recommends that the Nigerian government should strengthen VAT administration through improved technological infrastructure, transparent tax collection, anti-corruption measures, and taxpayer education. Additionally, the government should ensure that VAT revenue is channeled into productive investments such as infrastructure, education, and healthcare, which can have multiplier effects on the economy. Overall, the study concludes that VAT is a significant source of revenue that can stimulate economic growth if effectively managed and adequately reformed. Thus, continuous improvement in tax policy design and implementation is crucial to maximizing the growth-enhancing potential of VAT in Nigeria’s fiscal structure.