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An evaluation of Value Added Tax by VAT Decree 102 of 1993 as a source of revenue to the federal government is important to both the government and the Nigerian public. It has been the general belief that taxation is used by government to raise funds and also as a major fiscal tool for economic development. Taxation is aimed at redistributing income among the citizenry. Government introduced various tax policies for the enhancement of the standard of living of its citizens and economic development. This project revealed that the revenue from the Value Added Tax (VAT) has been very encouraging. The VAT tax now appears to be second position i.e. after petroleum profits tax in the revenue accruing from tax. If most of the problems highlighted in the study are taken care of one should not be surprised if Value Added Tax (VAT) takes the first position especially with the uncertainties about the price of crude oil in the international market. So it is therefore recommended that Federal Inland Revenue Service should pay attention to the informal sector of the economy by creating Value Added Tax offices at the Local communities so as to generate more revenue and to fully achieve the objectives of wealth creation through Value Added Tax.


Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Abstract vi
Table of Contents vii
List of tables ix

1.0 Introduction 1
1.1 Background to the study 2
1.2 Statement of the problem 4
1.3 Objectives of the study 5
1.4 Research questions 5
1.5 Statement of the hypotheses 5
1.6 Significance of the study 6
1.7 Scope of the study 6
1.8 Justification of the study 6
1.9 Definitions of terms 7

2.0 Introduction 9
2.1 Conceptual frame work 9
2.2 Theoretical frame work 12
2.3 Literature on subject matter 14

3.0 Introduction 41
3.1 Area of study 41
3.2 Research design and sources of data 41
3.3 Instrumentation 42
3.4 Model specification 42
3.5 Limitations of the study 44
4.0 Introduction 45
4.1 Data presentation 45
4.2 Data Analysis and Interpretation 46
4.3 Findings of the study 47

5.0 Summary 52
5.1 Conclusion 54
5.2 Recommendations 55
References 57
Appendix 63

4.1.1 GDP, TREV and VAT figures for 2007 -2017 45
4.2.1 Descriptive Statistics 46 GDP and VAT Regression Result 47 TREV and VAT Regression Result 49 VAT and GDP Regression Result 50


1.0 Introduction
The administration of tax systems and the enthronement of a tax payment culture nationwide continue to challenge successive government in Nigeria. One of the attempts to expand the tax net with minimum resistance and also to reduce tax evasion so that most of the tax income revenue would get to the government of Nigeria was the introduction of value added tax (VAT) in 1993. This tax reform actually came into operation in January 1994 to replace the old sales tax which was narrow in scope in terms tax revenue from goods and services. In other words, VAT is a broader tax system structured to raise revenue for government (federal, state and local governments). This is why Odusola (2006) stated that in Nigeria, the government fiscal power is divided into three tiered tax structure: federal, state and local governments, each with their different tax jurisdiction. Nzotta (2007) also put forth a similar argument when he stated that taxes constitute the key sources of revenue to the federation account shared by the three tiers of government. Azubike (2009) opined that a tax system such as VAT should be able to mobilize a nation’s internal resource in order to create an environment conducive to promote economic growth.
Many developing countries adopted the value added Tax system because of the perceived advantage inherent in the collection process. Thus, in Sub-Sahara Africa and parts of West Africa such as Benin Republic, Cote d’ivore, Guinea, Kenya, Madagascar, Mauritius, Niger Republic, Senegal and Togo VAT became a major contributor to total government Tax revenues (Ajakaiye, 2005). In fact Schalizi and Squire (2008) found out from their studies that VAT accounted for about 30% of total revenue of Cote d’ivore, Kenya and Senegal in 1982. Similarly, Tait (2009) also observed that in Latin America that VAT account for 12.35% and 19.71% of total revenue in Ecuador and Mexico respectively as at 1983. The impressive performance of VAT in other countries as well as the intention of the Nigerian government to increase her non-oil revenue base principally accounted for the introduction of the VAT tax system. The value added tax system is consumption tax levied on the supply of goods and services which will be difficult to evade both by the rich and the poor, small or large companies. It is an indirect tax system designed in the form of a final tax liability on the final consumer of goods and services. The issue here is that to what extent has the revenue collected from value added tax system affected the growth of the Nigeria economy.
This is because the tax revenue is supposed to be used to grow or develop an economy. Dwivedi (2004) defines economic growth as a sustained increased per capita national output or net national product (NNP) over a long period of time. This implies that the rate of increase in total output must be greater than the rate of population growth. In other words, contributory revenue from VAT should be enough to positively affect the population and economic growth of Nigeria as country.

1.1 Background of the Study
It is worthy of note that in Nigeria, taxation is one of the oldest means by which the cost of providing essential services for the generality of persons living in a given geographical area is funded by government which is also saddled with the responsibility of providing some basic infrastructures for their citizens (Oladipupo and Ibadin, 2015). The researchers emphasized that tax under any jurisdiction is discriminatory, in that it is assessed on persons or property based on profits/income or gain, the benefit conferred on the citizens is without reference to the contributions of individual tax payers. Government also gets involved in activities geared towards stabilization of the economy, redistribution of income, maintenance of law and order, defence against external aggression, regulation of trade and business to ensure social and economic maintenance, provision of services in the form of public goods (Abiola & Asiweh, 2012). However, the serious decline in the prices of oil in recent times has led to a decrease in the funds available for distribution in the federation account to the federal, state and local governments (Afuberoh & Okoye, 2014). In the arena of taxes on commodities and services, the global trend has been towards simplification and rationalization in the structure of taxes; that led to enlargement of the tax base resulting in value added tax (VAT) replacing the other cascade type commodity taxes (Purohit & Purohit, 2010). VAT started to be implemented internationally in the 1960s, and since then, its use has grown rapidly around the world such that by April 2001, some 123 countries had implemented VAT systems (Glenday & Hollinrake, 2005). The researchers further reiterated that because VAT is fairly demanding in terms of high standards of accounting and book keeping, it places a significant compliance burden on the private sector taxpayer and any new tax system also demands the development of adequate tax administration capacity to make it efficient and effective.
The fiscal system in Nigeria is undergoing revolutionary changes, especially in the field of taxation and most of other developing countries have reformed their tax systems by reducing the number of rates as well as exemptions (Purohit & Purohit, 2010). These reforms may involve the adoption of a Value Added Tax (VAT) in place of sales tax as done in Nigeria in 1993, the expansion of the VAT, the elimination of stamp and other minor duties as done in Kenya, the simplification and broadening of personal or corporate income or asset taxes, or the revision of the tax code to enact comprehensive administration and criminal penalties for evasion.
Value Added Tax (VAT), which is currently 5% of invoice value of goods and services except items specifically stated as exempt or zero-rated, is a tax on the supply of goods and services which is eventually borne by the final consumer but collected at each stage of the production and distribution chain by the Federal Inland Revenue Service (FIRS). It is eventually borne by the finalconsumer, (however sometimes multiple layers do bear part of the burden). Economic growth has been defined as the sustained increase in a country’s productive capacity (as measured by comparing the gross national product in a year with that of the previous year), increase in per capita national output or net national product over a long period of time which occurs when a nation’s production possibility frontier shifts outward (Salami, Apelogun, Omidiya & Ojoye, 2015). Customs duty is the tax charged most times on the value of goods or upon the weight, dimensions, or some other criteria that will be determined by the government on imports by the customs service of Nigeria to raise revenue for the country and also to save domestic and infant industries from cut-throat competition. Customs and excise duties are the oldest forms of modern taxation and are otherwise known as import duties which are charged either as a percentage of the value of import or a fixed amount on specific quantity (Fasoranti, 2013).

1.2 Statement of Problem
While the performance of Value Added Tax as a source of revenue in Nigeria is encouraging, it remains difficult to find ways to systematically assess and ascertain the true impact of VAT on the economy. Recent research works on the impact of taxation on the Nigeria economy lumped up all the various taxes together without isolating VAT (Adereti et al, 2011). In other words, most researchers have not bothered to enquire into the extent to which Value Added Tax support or contribute to economic growth in Nigeria.
Another problem perceived by enterprises or businesses in Nigeria is that of increase in the cost of raw materials, Semi-finished goods (WIP) as well as finished goods and services caused by VAT. This has also affected the consumption of goods and services resulting from increase in their prices. Poor relationship between tax payers and tax authorities is also a source of serious concern. The issue of not remitting VAT collection promptly is equally worrisome since it needs to be done within 30 days of collection by business ventures.

1.3 Objectives of the Study
i. To determine the direction at which VAT has been affecting the Nigerian economy as proxy by Gross Domestic Product (GDP)
ii. To discover how VAT affect total revenue in Nigeria
iii. To know the causality between VAT and GDP
iv. To determine the relationship between Tax payers and Tax authorities

1.4 Research Questions
This research work shall be guided by the following research questions.
1. How and in what direction has VAT been affecting the Nigerian economy as proxy by Gross Domestic Product (GDP)?
2. How does VAT affect total revenue in Nigeria?
3. Is there any causality between VAT and GDP?
4. What is the relationship between Tax payers and Tax authorities?

1.5 Statement of the Hypotheses
For the purpose this research work, research question number 1, question number 2 and question number 3 will be used for formulating the research question.
Hypotheses One
H0: Value Added Tax (VAT) has not made any significant impact on the Economic growth as proxy by GDP in Nigeria.
H1: Value Added Tax (VAT) has made significant impact on Economic growth as proxy by GDP in Nigeria.
Hypotheses Two
H0: Value added Tax (VAT) has not made significant impact on total revenue in Nigeria.
H1: Value added tax (VAT) has made significant impact on total revenue in Nigeria.
Hypotheses Three
H0: There is no significance relationship between VAT and GDP.
H1: There is significance relationship between VAT and GDP.

1.6 Significance of the Study
This study is significant because of dearth of work in this tax system since it was introduced about two decades ago. This is because extensive studies have been done on various aspect of tax generally and VAT in particular but not much has been done on the contribution of value added tax system and its contribution to government total revenue and gross domestic product. This study therefore intends to focus and address the level of impact VAT has on government total revenue and economic growth as proxy by GDP.

1.7 Scope of the Study
The scope of this study covers the period from inception, which is from 2007 to 2017. This period is considered long enough to provide useful result to ascertain the level of impact value added tax has on total revenue and gross domestic products (GDP)

1.8 Justification of the Study
The research work has been divided into five (5) different parts. The first chapter gives a background to the study. This states the problems that will be solved in the course of the research, the objective of the study, significance of the study. It also stated the research questions, the research hypothesis, scope of the study organization of the study and definition of relevant concepts. Chapter two, gives other peoples finding in relation to the problem being researched,
that is, literature review. Chapter three, if the research methodology. It includes the introduction, areas of study, research design and sources of data, instrumentation, model specification and limitations of the study. It also includes problems associated with data collected, data treatment techniques and the administration of the analysis. Moreover, chapter four contains introduction, data presentation and discussion, data analysis, test of hypothesis and discussion of findings. Finally, chapter five is the concluding chapter which consists of the following, summary of finding recommendations and conclusion which will be relevant to accounting students, financial analyst, and laymen in the field.

1.9 Definition of Terms
 VAT: Value Added Tax
 Vatable Goods: Those goods that are vat able
 Vatable Person: Any registered person or organization with the FIRS authorized to collect vat and remit same.
 Tax Evasion: A deliberate attempt made with the aim of not paying tax at all.
 Tax Avoidance: An attempt to reduce the amount of VAT RATE
 Vat Rate: The rate chargeable on a vatable goods or services.
 Tax: This is a compulsory levy imposed by government on the income of corporate organizations as well as on income of individuals.
 Capital allowance: This is the relief granted on capital assets used in production. It is a relief granted in lieu of depreciation as an allowable deduction in arriving at the chargeable income.  GDP: GDP is the total value of everything produced by all the people and companies in the country. It doesn’t matter if they are citizens or foreign-owned companies. If they are located within the country’s boundaries, the government counts their production as GDP.
 Revenue: Revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers.
 Internally Generated Revenue (IGR): This is described as the revenue generated by the government through her personal effort from various sources within her jurisdiction or territory.
 FIRS: Federal Inland Revenue Service



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