Value Added Tax Gap and Capital Expenditure over Economic Services in Nigeria

Abstract

The inability of governments to provide basic amenities has continued to attract academic research. Extent literature has established availability of infrastructure and social amenities as indicators of development, however, developing countries like Nigeria have consistently failed to achieve the desired level of infrastructural development. Value Added Tax is an indirect tax that is charged on goods and service and studies have shown that revenue generate for VAT can be used to finance infrastructural development, however there remain an insufficient information on the tax gap on VAT in Nigeria. This has thus necessitated this research. This study examined the effect of value added tax gap on capital expenditure over economic services in Nigeria. The study adopted ex post facto research design. The population of the study was Value Added Tax in Nigeria for the period of 25 years (1994 – 2018). Data were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin and the Federal Inland Revenue Service Reports (FIRS).  Data used were validated by the regulatory agencies and certified as reliable by the office of the Auditor -General of the Federation in line with government regulation. Data were analysed using descriptive and inferential statistics employing the Auto Regressive Distributed Lag (ARDL) approach. The study found that there are significant positive impact of tax gap of Value Added Tax (LVATG) on It was revealed that LVATG have positive significant relation with capital expenditure on economic services(β₁ = 0.273, t(25)= 4.580, Ï<0.05). The study concluded that Value added tax gap can lead to a decrease in on capital expenditure over economic services in Nigeria. The study recommends that government should put in place policies that support economic activities that can lead to increase in value added tax collected, and VAT revenue should be used to finance infrastructural development like paved road and urban housing.