Valued added taxation and industrial sector productivity: a granger causality approach

Abstract

The study examines the extent to which value added tax (VAT) receipts could cause industrial sector performance. Several studies on the influence of VAT on economic expansion have been conducted without specific focus on industry output. This study uses secondary data from 2010 to 2021 to evaluate the causation effect of VAT proceeds on industry productivity in Nigeria. The dependent variable employed is the manufacturing output while the independent factors include: import VAT, domestic VAT and the aggregate VAT receipts. The study applies Pairwise Granger Causality Tests which show that the local VAT returns and the aggregate VAT collection exhibit positive and strong causation effects on manufacturing output. We also test for relationship among the study elements, the results also show the existence of strong connection among the study variables. We conclude that VAT is indeed a growth factor to the industry performance in the country. Among all the proposals made in this study, there is need for the government to technologically improve the supply chain in order to boost VAT revenue collection and enhance infrastructural provision that will benefit the industrial sector for a more efficient productivity. It is very crucial for the government to checkmate unofficial industries that prevent the flow of VAT revenue into the government treasury.