Relationship between VAT and GDP in the Nigerian Economy
Journal of Management and Corporate Governance © 2010 Cenresin Publications www.cenresin.org
Volume 2, December 2010
INVESTIGATING THE RELATIONSHIP BETWEEN VAT AND GDP IN NIGERIAN ECONOMY
Denis Basila
Department of Accounting Adamawa State University, Mubi, Nigeria denis.basila@yahoo.com
ABSTRACT This study is an empirical investigation into the relationship between Value Added Tax (VAT) and Gross Domestic Product (GDP) in Nigeria. This research is significant for planning and policy formulation as regards revenue generation. A data based on VAT revenue figure and GDP figure from 1994 to 2008 obtained from Central Bank of Nigeria’s statistical bulletin, 2008 was collected and used. GDP and VAT figures for the period of study are tested for correlation. The test revealed a strong Pearson’s Product Moment Correlation (PPMC) at about 96 per cent strength. Further, a test of significance confirmed that VAT revenue is significantly different at 99 percent confidence level in relation to GDP. This implies that VAT is not effective as revenue earner, in the sense that significant parts of GDP which represent aggregate national income as well as aggregate national expenditure are not collected as tax. Therefore, the recommendation by this study includes maintenance of the status quo as it could suggest support to the economy and convenience principles of taxation. Key words: Investigating, VAT, GDP, Nigeria. INTRODUCTION It is important to look into how Value Added Tax (VAT) generates revenue for the Nigerian economy fifteen years after introduction (1994 - 2008) as Nigerian state is in dare need of revenue base diversification. Keen and Lockwood (2006) confirmed that VAT is a money machine, particularly in OECD member nations on which the study was based. Money machine suggests that VAT effectively generates revenue. Relationships that were considered in the study referred to included VAT and GDP, so also was Lin (2004), on evaluating the VAT in china suggested a
Volume 2, December 2010
INVESTIGATING THE RELATIONSHIP BETWEEN VAT AND GDP IN NIGERIAN ECONOMY
Denis Basila
Department of Accounting Adamawa State University, Mubi, Nigeria denis.basila@yahoo.com
ABSTRACT This study is an empirical investigation into the relationship between Value Added Tax (VAT) and Gross Domestic Product (GDP) in Nigeria. This research is significant for planning and policy formulation as regards revenue generation. A data based on VAT revenue figure and GDP figure from 1994 to 2008 obtained from Central Bank of Nigeria’s statistical bulletin, 2008 was collected and used. GDP and VAT figures for the period of study are tested for correlation. The test revealed a strong Pearson’s Product Moment Correlation (PPMC) at about 96 per cent strength. Further, a test of significance confirmed that VAT revenue is significantly different at 99 percent confidence level in relation to GDP. This implies that VAT is not effective as revenue earner, in the sense that significant parts of GDP which represent aggregate national income as well as aggregate national expenditure are not collected as tax. Therefore, the recommendation by this study includes maintenance of the status quo as it could suggest support to the economy and convenience principles of taxation. Key words: Investigating, VAT, GDP, Nigeria. INTRODUCTION It is important to look into how Value Added Tax (VAT) generates revenue for the Nigerian economy fifteen years after introduction (1994 - 2008) as Nigerian state is in dare need of revenue base diversification. Keen and Lockwood (2006) confirmed that VAT is a money machine, particularly in OECD member nations on which the study was based. Money machine suggests that VAT effectively generates revenue. Relationships that were considered in the study referred to included VAT and GDP, so also was Lin (2004), on evaluating the VAT in china suggested a
References: Anyanwuocha, R. A. I. (2004). Fundamentals of Economics, Enugu; Africana First Publisher Ltd Atojoko, S. (2010). A Romance with Bankruptcy, Tell Magazine, No. 44, November, 8th Source: GDP values were determined from CBN Statistical Bulletin, 2008 VAT figures are taken directly.