Effect of value added tax and capital gains tax on economic growth in Nigeria: traditional versus buoyancy approach
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Date
2016
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Publisher
Faculty of Management Sciences, Al-Hikma University, Ilorin.
Abstract
This paper evaluates the effect of Value Added Tax (VAT) and Capital Gains Tax (CGT) on economic growth in Nigeria using both the traditional method of raw data analysis and a more robust buoyancy method of measuring performance of tax systems. Secondary data used relating to main variables (VAT, CGT) and control variables Company Income Tax (CIT) and Petroleum Profit Tax (PPT) covering 1994-2014 were obtained from reports of Federal Inland Revenue Service (FIRS) and Central Bank of Nigeria (CBN) and these data were analyzed using Ordinary Least Square regression analysis with robust standard error. The result of the study at 5% significant level using traditional method reveals positive significant effect of PPT and CIT on Nigeria’s Economic growth (p-values = 0.0000, 0.0000) while VAT is also significant at 5% (p=0.0002). However, CGT was insignificant (p=0.220). Contrarily, the buoyancy approach reveals mixed and oscillating performance of VAT and CGT on an annual basis but such performance were satisfactory in 13 years out of the 20 years covered (tax buoyancy ≥ 1). The study concludes that the use of buoyancy approach in evaluating the performance of tax systems is preferred to the traditional method for policy direction and is recommended to be used in conjunction with the traditional approach. More so, VAT and CGT should be adequately exploited as alternative revenue sources to support the dwindling oil revenue to sustain economic growth vision of Nigerian government.
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Keywords
capital Gains Tax, Value Added TAX, Econmic Growth, Buoyancy
Citation
Olaniyi, T.A., Bello, N.F. & Yunus, B.A. (2016): Effect of value added tax and capital gains tax on economic growth in Nigeria: traditional versus buoyancy approach. Entrepreneurial Journal of Management Sciences (EJMS). 5 (1); 45-66,