Impact of Indirect Taxation on Economic Growth in Nigeria

Abstract

The mono-product nature of the Nigerian economy has hindered it from achieving its economic growth objectives. This inadequacy is further worsened by the fact that its revenue from its mono-product source is facing dwindling fortune. Over the years, it has been observed that revenue generated from indirect taxation has been substantial and constantly on the increase. This study therefore explored the impact of indirect taxation and economic growth as a possible means of diversifying the Nigerian revenue. Time series data were applied in carrying out this research work. Ordinary Least square (OLS) method of analysis was adopted after determining the stationary of the variable using Augmented Dickey fuller technique and finding ample long run and short run relationship among variables using the Johansen cointegration and Vector Error Correction Mechanisms respectively.. The result showed that of the two indirect tax sources, Value Added Tax and Customs and excise duties, Value Added Tax that had a positive significant relationship with economic growth. Customs and excise duties on the other hand had a negative relationship but was tested and found to be insignificant. But overall the relationship between the indirect tax sources and economic growth was found to be significant. Against the above result, we recommended among others that the number of goods on the VAT list should be increased and the burden of custom duties should be lessened on infant industries, all aimed at boosting indirect tax revenue accruing to the country and ultimately stimulating economic growth.