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VALUE ADDED TAX VAT AND PRICE STABILITY IN NIGERIA

ABSTRACT

Value Added Tax (VAT) is a consumption tax on the value added to a product in the process of production. Like all other indirect taxes, it is a tax that targets the final consumer of goods and services. The main purpose of VAT in Nigeria is to increase government (state and Local) revenue from the non-oil sector thereby reducing the government’s dependence on oil sales and the budget deficits. In this research work my aim is to determine the stabilizing roles of VAT in the Nigerian economy. The study employed multiple regression analysis as a method of study using the ordinary least square (OLS) regression technique in estimation. Result of the analysis revealed that price level is not stimulated by VAT in Nigeria

CHAPTER ONE

1.1 BACKGROUND OF THE STUDY

The introduction of value added tax(VAT) in Nigeria came from the report of the study group set up by the federal government in 1991 to review the entire tax system in the set up to carry out feasibility studies on its possible implementation. In January 1993, the federal government agreed to introduce VAT by the middle of the year. But due to some logistic reasons for the relevant legislation to be made and proper ground work done. It was shifted to January

1.2 STATEMENT OF THE PROBLEM

In terms of contributions the total federal collection revenue, VAT revenue at the time of inception in 1994 was anticipated to be much larger, indicating that Nigeria then may soon join the growing list of developing countries here VAT contributes at least 20% of total government revenue . While the performance of VAT as a source of revenue in sub-Sahara Africa and Nigeria in particular is clearly encouraging, it remains difficult to find attempts to systematically asses the impact of VAT on these economies (Ajakaiye, 1999). Nevertheless, include (1989) opines policy makers considering the adoption of VAT should be interested in the macroeconomic impact, especially on price, output, income and consumption. Economically,


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