Value added tax rate variation, import demand and sectoral output in Nigeria

This study employs computable general equilibrium (CGE) model to estimate the effect of increase in value added tax (VAT), from 5 per cent to 7.5 per cent, on import demand and sectoral output in Nigeria. The study uses 2020 as the base year for the data analysis. The results show that increase in VAT affects import de- mand negatively, based on import penetration ratios, with mixed effect across six sectors. The implication of the result is that the VAT policy discourage consumption of foreign products, and constitute excess burden to consumers of such products in Nigeria. The results further reveal that the VAT policy enhances outputs from the agricultural, manufacturing and solid mineral sectors, however, outputs from services, construction as well as oil and gas decline. The result implies that increase in VAT is not detrimental to output in all economic sectors. The study, therefore, concludes that increase in VAT has adverse effect on import demand, and counter-productive in some sectors. It recommends that government should widen the VAT base and increase investment in critical sectors to boost revenue rather than increasing VAT since the policy has undesirable effect on aggregate sectoral output in Nigeria.