The Regressive Strain of Value Added Tax on Household Welfare in Nigeria

This study examined the effect of Value Added Tax (VAT) regressive strain on household welfare in Nigeria, proxied by Final Consumption Expenditure of Households (FCEH). Ex-post facto research design was adopted in the study. Using annual data from 1994 to 2023 collected from Central Bank of Nigeria statistical bulletin, the analysis employed Least Square estimation under the Cauchy weighting scheme to account for outliers and data irregularities. The results revealed that VAT has a significant and negative effect on household consumption, with a coefficient of -109.34 (p = 0.000), indicating that increases in VAT reduce household welfare. Conversely, the control variables (government recurrent expenditure and inflation) have significant positive impacts on FCEH, suggesting some compensatory role through fiscal spending and price effects. The model explained approximately 73% of the variation in household consumption. In conclusion, increase in VAT directly suppress household consumption, and this reflects the regressive incidence of consumption taxation on welfare as VAT reduces the real disposable income. The adverse effect of VAT can be offset by well-targeted social safety nets such as conditional cash transfers, food vouchers, or energy subsidies for vulnerable populations. Such programs directly compensate households for increased tax-induced costs, thus preserving welfare and stimulating inclusive consumption growth. The study therefore recommended that the adverse effects of VAT can be offset by well-targeted social safety nets such as conditional cash transfers, food vouchers, or energy subsidies for vulnerable populations. Such programs directly compensate households for increased tax-induced costs, thus preserving welfare and stimulating inclusive consumption growth