Modeling the Economic Impact of Value Added Tax Reforms in Nigeria

Abstract

The purpose of this study is to verify the response of economic services to changes in value-added tax legislation. This research looked at all economic activities, including agriculture, transportation, communication, entertainment, construction, manufacturing, and financial services, among others. Nonetheless, the VAT policy amendment is intended to improve economic activity and provide funds for the government to carry out social obligations. However, it is critical to provide the government with empirical data to help guide these amendments as needed. The study employs ARDL and ECM to investigate both the long- and short-term effects of VAT reform on economic productivity enhancement. The data used in this study ranges from 1994, when VAT was fully implemented in Nigeria, to 2022. The use of these data allows for a thorough examination of the economic impact of VAT reform. The findings indicate that in the long run, VAT has a positive and significant impact on economic services, but in the short run, the findings show that VAT has an intangible impact on economic activities. The implication is that the economic service response to VAT reformation can only be tangible and positive in the long run when businesses are able to adjust to policy changes. The study also reveals that inflation is harmful to the economy in both the long and short run. As a result, the study suggests that policymakers keep an eye on inflation before raising or lowering the VAT rate in order to avoid a massive economic collapse.