Value Added Tax and Economic Growth in Nigeria: A Time Series Analysis (1986-2023)

Taxation plays a central role in modern economic development, primarily due to its position as the most substantial source of government revenue. Among the various forms of taxation, indirect taxes such as the Value Added Tax (VAT) stand out as key instruments for revenue generation. The Finance Act of 2020 brought a significant policy shift in Nigeria by raising the VAT rate from 5% to 7.5%, effective from February 1, 2020. This study, therefore, investigates the impact of VAT and inflation on Nigeria’s economic growth over the period 1986 to 2023. Secondary time series data were collected from the statistical bulletins of the Central Bank of Nigeria (CBN), National Bureau of Statistics (NBS), and the Federal Inland Revenue Service (FIRS). The Autoregressive Distributed Lag (ARDL) approach was employed to analyse the dataset. Findings of the study shows that VAT has a positive and statistically significant effect on GDP in both the short and long run, whereas inflation (INF) has a significant negative impact on economic growth across the same periods. Additionally, the error correction mechanism (ECM) suggests that any short-run disequilibrium in the model is gradually corrected in the long run, confirming the existence of a stable long-term relationship. In light of these findings, it is recommended that policymakers adopt a VAT strategy that enhances revenue generation while limiting inflationary pressures on consumer prices.