EFFECT OF VALUE ADDED TAX ON REVENUE GENERATION IN NIGERIA
Mohammed Hassanat , Muhammad Akaro Mainoma , Salihu Liman Mairafi and Musa Sadiq Abdul-Khadir
Volume 13 Issue 2
Abstract
This study examines the effect of Value Added Tax on revenue generation in Nigeria using annual data spanning 2010–2024. Specifically, the study investigates the effect of Value Added Tax on government revenue generation while controlling for inflation. The study adopts an ex post facto research design, while the Autoregressive Distributed Lag (ARDL) framework is employed to analyse both the short-run and long-run dynamics among the variables. The ARDL Bounds Test confirms the existence of a stable long-run equilibrium relationship between Value Added Tax and revenue generation in Nigeria. The long-run estimation results reveal that Value Added Tax exerts a positive and statistically significant effect on revenue generation in Nigeria, while inflation exerts a negative influence on government revenue performance. Similarly, the short-run Error Correction Model (ECM) results indicate that Value Added Tax positively influences revenue generation in the short run, while the error correction mechanism confirms a relatively high speed of adjustment from short-run disequilibrium toward long-run equilibrium. The findings suggest that increased VAT collections strengthen domestic revenue mobilisation, improve government fiscal capacity, and enhance the sustainability of non-oil revenue generation within the Nigerian economy. The study therefore recommends improved VAT administration, enhanced tax compliance, expansion of the non-oil tax base, digitalisation of tax collection systems, and implementation of macroeconomic policies aimed at controlling inflation and improving fiscal sustainability in Nigeria. Keywords: Value Added Tax, Revenue Generation, Inflation, ARDL Model
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