Correlation between Value Added Tax (VAT) and National Revenue in Nigeria: An ECM model

Abstract

The main objective of taxation is to raise government revenue. Taxation is a lumpy setup. When disaggregated it has four components. For example in Nigeria we have VAT, Company Income Tax, Personal Income Tax and Petroleum Profit Tax. This paper therefore examines the extent to which VAT has been contributing to Nigeria total federally collected revenue and subsequently it’s position among the other three components. Hence the study employed an Error Correction Model (ECM) for the analysis. Data spanning 1994 -2012 sourced from Central Bank of Nigeria annual report & CBN Statistical Bulletin were used for the analysis. Result from the study revealed that VAT in the second long term source of the total federally collected revenue. The study recommends that all identified loopholes should be plugged for VAT revenue to contribute more to total Federally collected revenue.

Keywords: Value Added Tax, Federally Collected Revenue, Taxation.