Effect of Increase of 7.5% Value Added Tax on Revenue Generation in Nigeria

Dwindling revenue has affected governance at the state and local government levels in Nigeria in the last decade. The government has the mandate to impose taxes via its various regulations. An efficient and effective tax system can ensure the country’s necessities and services. An increase in VAT became a vital instrument that can improve the revenue base of most States in Nigeria. The assumption was that with the increase in VAT, states and Local Governments would have more money to be able to pay the salaries of their workers and to implement the 30,000 minimum wage. The increase in the VAT did not receive resistance unlike in the past where various attempts to increase the VAT were met with stiff resistance by the business environment and labor unions. To what extent can the increase in VAT lead to an increase in revenue generation? This study intended to find out the effect of the increase in the value-added tax on the economy with respect to revenue generation in Nigeria. Data were collected from secondary sources from 2007 to 2022. The study revealed that an increase in VAT has led to an increase in revenue generation but the target of the Federal Government generating 7.5 trillion Naira from VAT annually has not been achieved. There is a need to explore other sources of revenue for the State and Local Governments to enable them to discharge their financial responsibilities effectively. Also, there is a need to consider the plight of those who are directly affected by the increase in VAT and who are not collecting any salary.