Impact Of Indirect Tax On The Nigerian Economic Growth

Abstract

This study investigates the impact of indirect taxes, Value Added Tax (VAT), Customs and Excise Duties (CED), and Petroleum Profit Tax (PPT) on Nigeria’s economic growth over the period 1994 to 2024. Employing secondary time-series data and the Autoregressive Distributed Lag (ARDL) modeling approach, the study examines both short-run and long-run dynamics, as well as causal relationships between these taxes and real GDP. The findings reveal that VAT has a significant positive effect on economic growth, both in the short and long run, highlighting its role as a growth enhancing fiscal instrument. In contrast, CED exhibits mixed effects, with short-run significance but an insignificant long-run impact, while PPT shows a small but significant negative effect on long-run growth. Granger causality tests indicate unidirectional influence from VAT to GDP and reverse causality from GDP to CED, whereas PPT demonstrates no predictive causality. Despite limitations related to data constraints, exclusion of other tax instruments, and the linear modeling assumption, the study contributes to knowledge by providing robust empirical evidence on the differential effects of indirect taxes and offering insights for policy formulation aimed at enhancing sustainable economic growth in Nigeria. The study recommends strengthening Value Added Tax administration through improved compliance, digital monitoring, and base broadening to sustain its growth-enhancing role, reforming Petroleum Profit Tax to reduce distortive effects on investment in the oil sector, and improving the efficiency of Customs and Excise Duties. These measures would enhance revenue mobilization, improve fiscal sustainability, and support inclusive and long-term economic growth in Nigeria.