The Purpose of  this  study is  to investigate  the impact of  Indirect Taxation on consumable goods in  the Nigeria economy as it relates to how it can improve government revenue and  throws  more light in its  contribution to the economic growth and development of Nigeria. In addition to the oral interview and questionnaires  distributed, was a review of study of literature relating to the impact, administration and collection of indirect taxation in Nigeria.

Simple percentages, bar chart, pie chart, and chi-square

X2 = (O-E)2


Were used for data analysis on which purposive sampling technique was adopted. The findings shows that :

  1. Indirect Taxation (VAT) has  economic impact in consumption pattern in Nigeria
  2.  Indirect taxation has positive impact on the economy of Nigeria.
  3.  The payment of  Indirect Taxation (VAT) has improved the prospects of businesses, organizations and industries in Nigeria and the study strongly recommends that:
  4. There should be functional Indirect Taxation (VAT)  offices in every  council area to coordinate a vigorous campaign to educate people and seek their cooperation.
  5. The above will no doubt erode the negative attitude that some of the taxpayers have developed towards  Indirect Taxation(VAT) .
  6. Government should make adequate provision, for retrieving the Indirect Taxation (VAT) proceeds from companies and other collection agents.



  1. Background of the Study

Taxation is the central part of modern economic development. Its significance arises not only from the fact that it is by far the most important of all revenues sources but also because of the gravity of the problems created by the present day heavy tax burden (Greene, 2011). The main objective of taxation is raising revenue. A high level of taxation is necessary in a welfare state to fulfil its obligations.

According to Musgrave (2008), taxation is used as an instrument of attaining certain social objectives i.e. as a means of redistribution of wealth and thereby reducing inequalities.

Taxation in a modern Government is thus needed not merely to raise the revenue required to meet its ever-growing expenditure on administration and social services but also to reduce the inequalities of income and wealth. Taxation is also needed to draw away money that would otherwise go into consumption and cause inflation to rise Olaoye (2009).

The pre-occupation of most countries in the world is to strive to achieve rapid overall development through optimum tax collection and expanded revenue base. An effective tax system is essential for any country, the benefit of which can never be overemphasized.

However, due to the changing tendencies in the global market environment, income tax bases are continually thinning as government’s ability to tax capital flows deteriorate. It is therefore imperative that tax strategies and policies are designed appropriately and monitored continuously in other for revenue authorities to optimize revenue collection and ultimately support their strategies, Gcabo (2007).

In order to see that this very objective is accomplished, many countries in the world, especially developing countries, selectively introduced new forms of taxes to boost their revenue capacity with the aim of improving the socio-economic conditions of their citizens and achieving rapid economic development of the countries (Iorun, 2012).

One of such forms of taxation is the Value Added Tax (Indirect Taxation), this impressive performance of Indirect Taxation, virtually in all countries where it has been introduced, according to Ajakaiye (2000) clearly influenced the decision to introduce Indirect Taxation,  in Nigeria in 1st September, 1993 although actual operation did not begin until 1st January 1994.

Indirect Taxation, is a consumption tax that is relatively easy to administer and difficult to evade and it has been embraced by many countries of the world, (FIRS circular, 1999). Evidence so far support the view that Indirect Taxation, revenue is already a significant source of revenue in Nigeria and that the yield from Indirect Taxation, is a fairly accurate measurement of growth of an economy, since purchasing power which determine yield increases with the economy development Olaoye (2009).

The idea of introducing Indirect Taxation, in Nigeria came from the Report of the study group set up by the Federal Government in 1991 to review the entire tax system.  Indirect Taxation, was proposed and a committee was set up to carry out feasibility studies on the implementation.

In January 1993, government agreed to introduce Indirect Taxation, by the middle of the year.  It was later shifted to 1st September 1993 by which time the relevant legislation would have been made and proper groundwork done.

Indirect Taxation,  is a replacement of the existing sales tax, which has been in operation under Federal Government Legislated Decree N0. 7 of 1986 but is operated on the basis of residence.

The rationale behind replacing sales Tax with the Value Added Tax is informed by a number of factors and considerations, notable.  The base of the sales tax in Nigeria as operated under Decree N0.7 of 1986 is narrow. It covers only nine categories of goods plus sales and services in registered hotels, motels, and similar establishments.  The narrow base of the tax negates the fundamental principle of consumption tax, which by nature is expected to cut across all consumable goods and services. Indirect Taxation, base however is broader since it does not only cut across consumable goods but other professional services as well. It is this aspect of the Value added tax that poses a lot of problem to the ordinary consumer today since it impacted directly on their livelihood. It has been asserted by (Iorun, 2012) that the burden of Indirect Taxation, rate on the consumption of goods and services has significant unfavourable influence on the payers of such goods and services causing high purchase prices of such products on the final consumer. It against this background that this study seeks to investigate the impact of value added tax on consumable goods and services on the payers in Nigeria.