Has Value Added Tax Exemption Been Effective? A Lesson from the Nigerian Manufacturing Sub-Sector

Abstract

The study investigated the effect of  value added tax exemptions on firm’s performance in the Nigerian manufacturing sector using time series panel data covering from 2014 to 2020 of the ten (10) selected firms exempted from VAT. Among other objectives is to evaluate the effect of value added tax exemption on firm’s performance in the  Nigerian manufacturing sector.The study employ pooled Ordinary Least Square (OLS) regression model and LLC, ADF, PP panel unit root test, which confirmed that all series were stationary at I(1). The panel cointegration test and panel ECM test revealed that total profit (TOP), value added tax (VAT), return on assets (ROA) and return on equity (ROE) exhibited a long run relationship and about 67 percent of speed of adjustment in case of disequilibrium in the short run respectively. Overall, both VAT exemptions and return on equity were found to exhibit positive effect on the firms’ total profits while return on asset was found to be negative though significant. This implies that there is a positive and significant effect of VAT exemptions on firm’s performance in the Nigerian manufacturing sector. Based on this findings, the study recommends inter alia, that  Federal Government in collaboration with the Federal Inland Revenue Service (FIRS) should sustain the VAT exemption policy to firms in oder to boost their productivity in Nigeria.