VALUE ADDED TAX (VAT) REVENUE, REGULATORY QUALITY, AND ECONOMIC DEVELOPMENT IN NIGERIA

Abstract

The research centers around the philosophy that value added tax (VAT) revenue is highly instrumental to economic development. However, low regulatory quality reduce this positive effect. It is this regards that, the study evaluated the effect of VAT revenue on economic development in Nigeria, with emphasis on regulatory quality (REQ). Secondary data were obtained from the Central Bank of Nigeria statistical bulletin and the Federal Inland Revenue Service official website.  Economic development was measured using two variables human capital development and gross domestic product. Thus, the dependent variables were human capital development and gross domestic product while the independent variable is value added tax. The study anchored on the endogenous growth theory. Data obtained was evaluated via descriptive and inferential statistical tools. In addition, tests such as unit root, co-integration, error correction model (ECM), and granger causality were done. Findings indicated that value added tax has non-significant effect on the level of human development index and gross domestic product. Based on the findings, the study concludes that though VAT has a minimal effect on economic development, high REQ served as critical determinant of economic development in Nigeria, specifically through its influence on human capital development and aggregate output. Hence, the study recommends that government and tax authorities should look critically at VAT-consumption based models in ensuring revenue stability. This is important because since VAT did not show significant impact on gross domestic product but had significant effect for human development index.