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This study evaluates the impact of indirect tax on the economic growth of Nigeria. The study employs value added tax revenue and customs and excise duty revenue as independent variables, with real gross domestic product serving as a proxy for economic growth.

For the empirical analysis, the paper employs secondary data acquired from the Central Bank of Nigeria's statistical bulletin for the period 2000 to 2020 utilizing convenient sampling approaches. The research design is a time series, and the data were examined by descriptive , correlation, the unit root test, the co-integration test, and error correction regression.

The outcome demonstrated that the value-added tax had a negative and significant effect on real gross domestic product. Similarly, prior customs and excise duties had a negative and marginally significant effect on the real gross domestic product.

The coefficient of the Error Correction Model (ECM (-1)) was correctly negative and statistically significant. This demonstrates that short-term deviations can be addressed fast. The positive Durbin-Watson value shows that the model lacks autocorrelation.

The study therefore advised that tax administrative loopholes be closed in order for tax revenue to significantly contribute to the expansion of the , given that in the past value-added tax and customs and excise duty had a substantial impact on economic growth.




1.1 Context of the study

Taxation is a means of generating revenue for the government's daily operations. Government acts include obtaining funds and utilizing them to provide citizens with security, social amenities, infrastructure, and other services.

Consequently, it is essential to understand that the objective of taxation is consistent with the functions of government (Akhor, 2014). Throughout time, it has been observed that the Nigerian tax system contains inherent structural faults.

According to Odusola (2006), the Nigerian tax system prioritizes the Petroleum Profit Tax (PPT) and the Company Income Tax (CIT) while ignoring broad-based indirect taxes like VAT and Customs and Excise Duty (CEXD).

Consequently, the tax structure lacks the flexibility to diversify the country's revenue portfolio in order to hedge against the volatility of crude oil prices and improve fiscal sustainability and economic viability at lower levels of government (Azaiki & Shagari, 2007).

In Nigeria, revenues have been allocated according to a formula recommended by Ad-hoc Fiscal Commissions or a government-established policy. Since 1946, thirteen income allocation commissions have been constituted, according to Taiwo (2008).

Each Commission proposed a revenue-sharing formula based on the economic conditions and objectives the government wished the formula to serve. Specifically, taxation is the primary source of revenue used to pay government spending and influence other economic activity.

Moreover, tax revenue mobilization as a means of supporting developmental projects in developing nations has proven challenging due to various forms of resistance, such as tax evasion, tax avoidance, and other corrupt practices that are easily perpetuated within the direct tax bracket.

These actions are usually cited as reasons for the country's underdevelopment and are considered as economic sabotage. The government collects taxes in order to provide efficient and steadily expanding non-revenue-generating services such as infrastructure, education, health, communications, employment opportunities, and essential public services such as law and order enforcement, regardless of the nation's prevailing ideology or political system.

Taxation itself has tremendously positive effects on improving and strengthening government (Tax Justice Network [TJN], 2008). (2012).

According to Akhor (2014), the economic consequences of taxes include both micro and macro effects on output, employment, price, and growth. Due to the declining level of income creation, the use of tax as a tool to achieve economic growth in the majority of emerging nations is unreliable.

In order to impact or achieve macroeconomic stability, tax rates have been altered or fine-tuned. Canada, the United States, the Netherlands, and the United Kingdom are examples of governments whose tax revenue has influenced their economic development.

They have used their profits from VAT and import levies to expand their firm (Oluba, 2008). Natural resource taxes account for a significant share of the rise in tax collections in Africa. Included were income from production sharing, royalties, and corporate income tax for oil and mining companies (Pfister, 2009).

Nigeria is a developing nation whose principal export is crude oil. Natural resources include natural gas, tin, iron ore, coal, limestone, lead, zinc, and fertile land (Economy Watch, ). Most economists, particularly development and international economists, contend that relying too heavily on direct tax revenue (e.g. PPT; due to oil price fluctuations; and CIT; due to sharp practices such as evasion, avoidance, and others that can be easily perpetrated) is detrimental to a country's economic growth and development (Okafor,2012).

Description of the problem

People in Nigeria, particularly the wealthy and elites, purposefully avoid their civic duty of paying taxes and occasionally engage tax specialists to help them pay the government less tax. There is also the question of misrepresenting one's age and the number of children and dependents in order to reduce the tax burden.

As a result of these factors, subnational governments (state and local governments) believe that their current tax bases are insufficient, and hence their accrued revenues are insufficient to meet their spending goals. In addition, the statutory allocation from the federation account has been grossly inadequate due to the decline in GDP. This necessarily lowers their total performance, given their expenditure patterns.

According to Taiwo (2008), the government income distribution in Nigeria is skewed in favor of one tax basis or the other (e.g., oil revenue). Nonetheless, the overwhelming evidence of the positive influence of oil income on Nigeria's economic development cannot be emphasized (Odusola, 2006).

However, the initial question is whether or not alternative taxing methods should be investigated. As a result of the foregoing, the following questions arise: what is the connection between Nigeria's tax revenue and its economic growth? How much do other tax bases contribute to a country's total tax revenue?

The purpose of the study

The purpose of this study is to determine the economic impact of indirect tax on Nigeria's development. The particular aims are;

Determine the influence of value-added tax on Nigeria's economic growth
To assess the influence of customs and excise levies on Nigeria's economic growth.
Research question

The subsequent research question was developed:

How does value-added tax affect economic growth in Nigeria?
What effect do customs and excise tariffs have on Nigeria's economic growth?
Theoretical theories

Following research hypotheses have been developed:

There is no substantial correlation between Nigeria's value-added tax and economic growth.

There is a considerable association between Nigeria's value-added tax and economic growth.

There is no significant correlation between Nigerian customs and excise taxes and economic development.

There is no significant correlation between Nigerian customs and excise taxes and economic development.

Importance of the research

Students, professors, and the government of Nigeria will find this research to be of great use. The study will provide a thorough understanding of the economic impact of indirect tax on Nigeria's growth. The outcome of the study would be of great use to the government since it will shed light on the connection between custom and excise duties and economic growth in Nigeria, as well as the contribution of additional tax to the Nigerian economy. The paper will also serve as a resource for future researchers who investigate relevant topics.

The range of the study

The subject of the study is the economic development effects of indirect taxes in Nigeria. This study utilized Real Gross Domestic Product, VAT revenue, Customs and Excise Duties Revenue, and inflation data from 2000 to 2020. (20 years). Publications of the Central Bank of Nigeria, the Nigerian Investment Promotion Commission (NIPC), and the Securities and Exchange Commission are the primary sources of these statistics (SEC).

A glossary of terms

Indirect tax is a tax that can be transferred to another person or organization. Generally, indirect taxes are levied on suppliers or manufacturers, who then pass them on to the final customer. Indirect taxes include excise taxes, customs duties, and the Value-Added Tax (VAT).

Nigeria's economy is a middle-income, mixed economy and emerging market with growing manufacturing, finance, and communications sectors.

VAT is a consumption tax paid on all and services provided or imported into Nigeria. Individuals, businesses, and government entities are required to pay the current rate of 7.5% for value-added tax.

In Nigeria, imports are the only ones subject to customs duties. The prevalent Harmonized Commodity and Coding System is used to determine rates, which normally range from 5% to 35% based on the type of good (HS code)




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