THE IMPACT OF REVENUE ELASTICITY OF VALUE ADDED TAX IN NIGERIA

Abstract

The Objectives of this work is to find out the extent to which value added tax (VAT) has succeeded over sale tax in bolstering government revenue and also the revenue elasticity of VAT This was achieved by determining the nature of relationship between the VAT and government revenue, and the amount of revenue collected through VAT over the years under study. Regression analysis was used and it was found out that elasticity of VAT is greater than unity. Meaning that 1 percent increase in value added increases total revenue by 1.264 percent. The t-test and F-test also proved that VAT has a positive and significant contribution to total revenue. It was observed that company profit tax and customs and exercise duties have negative coefficients which show that their contribution to government revenue has been on the decrease. It was also observed that the negative coefficient psychologically affect the consumption expenditure of individuals and household. This lead to the recommendation that government should review the policies on trade in order to ensure positive contribution to total tax revenue.