Macroeconomic Effects of VAT in Nigeria: A Computable General Equilibrium Analysis

"This study analyses the impact of value added tax on key sectoral and macroeconomic aggregates, using a CGE model considered suitable for Nigeria. A survey of VATable Nigerian manufacturers, distributors, importers and suppliers of goods and services, organizations was conducted to gain insights into the way VAT is treated by these organizations. The survey shows that a majority of the VATable organizations treat VAT in a price cascading manner by regarding it as cost contrary to expectations. Evidence from the way VAT revenue is being shared among the three levels of government in Nigeria suggests that this revenue is being re-injected into the economy. The simulation results shows that if VATable organizations treat the VAT in the expected non-cascading manner and the VAT revenue is re-injected via increases in sectoral government consumption expenditure, the general price level will increase by 5%, total private consumption expenditures will fall by over 128, total consumption expenditure inclusive of government component will fall by only 6.7%, total gross output and GDP will fall by about 3% and 5% respectively, but the share of wages in total factor income will increase lightly."