CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY

Value added tax (VAT) is a consumption tax, levied at each stage of the consumption chain and borne by the final consumer of the product or service. The administration of VAT is relatively easy, unselective and difficult to evade. Countries all over the world, look for ways to boost their revenue, this facilitated many nations to introduce value added tax on goods and services. For instance, in Africa, VAT has been introduced in Benin Republic, Cote d’Ivore, Guinea, Kenya, Madagascar, Mauritius, Senegal, Togo, Nigeria. Evidence suggests that in these countries VAT has  become  an  important  contributor  to  government  revenue  (Ajakaiye,  2000;  Shalizi  and Square, 1988; Adereti, Adesina and Sanni, 2011). Nigeria introduced VAT in 1993; however, its full implementation began on 1st January, 1994. This has attracted the attention of researchers and academia on its benefit in the economic growth of Nigeria. Economic growth as measured the increase in the national income or total volume of production of goods and services of a country accompanied by improvements in the total standard of living of the people (Chinwuba and Amos, 2011 as cited in Ihendinihu and Onwuchekwa, 2012). Related works on this topic focused on the impact of VAT on economic growth, measured with GDP. Our object here is to investigate the growth pattern of VAT on GDP, the effect of the changes in VAT target and VA Tactual on the economy, and also the impact of VAT revenue on Tax revenue.

Accordingly, the study is organized thus: following our introduction section two looks at the findings of related literatures while section three discusses the data, the model and the variables employed in our study, Section four provides the result of our empirical analysis and section five is on conclusion.

1.2 STATEMENT OF PROBLEMS

Despite the contributions and huge revenue generated through VAT, the federal, state and local governments complain of insufficient fund to embark on projects and the citizens have always lamented of poor infrastructural facilities, unemployment, low capita income etc which have resulted to poor standard of living, crime rate and other social ills has been on the increase. Nigeria is still listed and regarded as a third world country. A situation of this nature entails asking what is the relationship between VAT and Gross domestic product and total consolidated revenue of the government.

1.3 PURPOSE OF THE STUDY

The general purpose of the study is to investigate the impact of Value Added tax on the Economic Growth of Nigeria. However the specific objectives are as follows:

1. To observe the growth pattern of VAT revenue and GDP
2. To investigate the relationship between the changes of VAT revenue on the economic growth of Nigeria.

iii. To examine VAT revenue on Tax revenue.

1.4 RESEARCH QUESTION

1. What is the relationship between the growth pattern of VAT revenue and GDP?
2. Is there any relationship between the changes of VAT revenue on the economic growth of Nigeria?

iii. What effect has VAT revenue on Tax revenue?

1.5 RESEARCH HYPOTHESIS

HO: There is no significant relationship between the changes in VAT revenue and the economic growth of Nigeria.

HA: VAT revenue has a significant impact on Tax revenue in Nigeria.

1.6 SIGNIFICANCE OF THE STUDY

The outcome of this study will be of immense benefit to a wide range of people. First, to the government and public policy makers, this study will help them appreciate the strategic importance of Value Added Tax on the Nigerian Economy. The study will also add to literature on the subject matter for future researchers.

1.7 SCOPE OF THE STUDY

The study examines the relationship between VAT and Economic Growth in Nigeria.

1.8 LIMITATION OF THE STUDY

Normally a research work of this nature encountered some challenges though the study was completed.

Time: There was no enough time for this work but with the limited time available, the researcher was able to complete the work.

Accessibility: One of the major problem encountered was access to information concerning the area of study, however the work was done effectively.

Finance: Usually, a study of this nature involved some level of expenditure therefore, finance was also a limiting factor.

1.9 DEFINITION OF TERMS

Development: This is a gradual growth of something so that it comes more advances, stronger. It is also process of producing or creating something new.

Economy: This is the study of the production and consumption of goods and transfer of wealth to product.

Growth: This is defined as an increase in the Gross Domestics Product or per capital income of a country.

VAT: Value Added Tax.