Value Added Tax and Economic Development Empirical Evidence From Nigeria

Tax is one of the veritable tools used by government to generate revenue in order to deliver its responsibilities to the teeming population. This paper examines the contributions of Value Added Tax (VAT) to economic development with empirical evidence from Nigeria. The effects of other relevant variables Foreign Direct Investment (FDI) and Total Debt (TD) were examined alongside VAT on economic development; proxy by RGDP. The study period was 1994 to 2013 and time series data were collected from Central Bank of Nigeria (CBN) statistical bulletin. The variables RGDP, FDI, TD and VAT are incorporated into the model in their natural logs because the changes in the log series display a more stable variance than the changes in the original series. The models were evaluated using step-wise multiple regression technique. It was revealed that VAT alone accounted for approximately 94.40% variation in RGDP as indicated by adjusted R2 of 0.9440. It is worthy to note that VAT is significantly related to economic development in Nigeria. It was discovered that the explanatory variables FDI, VAT are positively related to economic development in Nigeria while TD is negatively related to economic development in line with the a priori expectation. FDI increases the wealth of shareholders, thus contributing positively to economic development. This paper recommended that government should formulate policies that will encourage FDI. There should be compensating advantages such as diversification to reduce earnings volatility and encourage economies of scale. Furthermore, total debt stock of the country should be properly managed as total debt negatively impact on economic development and there should be adequate publicity of the list of VATable goods and services in order to give credibility to the payment and collection of VAT and the enforcement of penalties for VAT related offences should be promptly implemented.