Another Approach to Evaluating the Productivity of Value Added Tax in Nigeria

Abstract

This paper reviewed and assessed the productivity of value added tax [VAT] on total consumption expenditure [TCE] and on gross domestic product [GDP] which determines the level of economic growth in Nigeria. Productivity was expressed as effectiveness/efficiency. While effectiveness is the ability to be actively functional in producing expected results, efficiency is the ability to use available resources optimally, assuring that the cost of resources is controlled to the lowest possible level. Therefore the effectiveness and efficiency of VAT were calculated on GDP and adjusted GDP. The non vatable components were net off from GDP resulting in the adjusted GDP. Also VAT effectiveness and efficiency were calculated on TCE and adjusted TCE. The adjusted TCE represents the private consumption expenditure.  Findings revealed that VAT was not effective on GDP but effective on adjusted GDP.  VAT was neither efficient on TCE nor on adjusted TCE.  VAT was not productive at the cross-elasticity of TCE/GDP but was productive at the cross-elasticity of Adjusted TCE/Adjusted GDP.  Part of the recommendations was that government should review VAT threshold and the reduction of exemptions because exemptions are fundamentally inconsistent with the revenue generation objectives of VAT. This logic is preferred to increasing the present five percent VAT-rate

Keywords: Productivity, Value Added Tax, Gross Domestic Product,   Total Consumption Expenditure, Effectiveness, Efficiency.