The Contribution of Value Added Tax to Federally Collected Revenue in Nigeria: A trend Analysis 1994-2022

Abstract

Nigeria is a country experiencing fast growing population which was 44,928,342 million in 1960 when the country got independence increasing to 218,541,212 million in 2022. Moving along this fast growing population is infrastructural decay and deficits needing huge capital investment which the country may not afford due to volatility of revenue from oil and gas as main source of revenue. Consequently, the country introduced Value Added Tax (VAT) in its tax structure in 1994 to raise more needed revenue for national development. Therefore, the aim of this study is to evaluate the contribution of VAT to total government revenue 1994–2022. To achieve this aim quantitative secondary data on VAT allocations to federal, states and local governments and total government revenue is collected from the annual publication of the Central Bank of Nigeria. The collected data is descriptively analysed using tables, figures, charts and percentages to demonstrate the contributions of VAT to total government revenue 1994–2022. Similarly, test of Analysis of Variance was carried out on collected data to statistically determine contribution of VAT. Triangulation of optimal taxation and Laffer curve theories guided the conduct of the study. Results from the study revealed that VAT is making significant contributions to total government revenue over the period of the study. The policy implication is that VAT has actually proven effective in making more revenue available to Nigerian government. Thus, this tax should be strengthened to standard of global best practices including increasing the rate to generate more revenue to the government for national development.