ABSTRACT

This study examines the effect of indirect taxation on consumption in Nigeria. Indirect taxes, unlike direct taxes on income or wealth, are imposed on goods and services. These taxes are ultimately borne by consumers, as they pay higher prices for goods and services This research explores the impact of changes in the VAT rate on household consumption, effect of excise duties on the consumption of specific goods, such as alcohol, tobacco, and petroleum products and the relationship between total government revenue from indirect taxes and consumption patterns in the Nigerian economy.

A quantitative research design was employed to analyze the relationship between indirect taxes and household consumption in Nigeria, with data collected the National Bureau of Statistics (NBS), the Central Bank of Nigeria (CBN), the Federal Inland Revenue Service (FIRS) and other tax-related metrics operating in Edo State, Nigeria. The findings revealed that Value Added Tax (VAT) rate does not have a statistically significant effect on household consumption in Nigeria. The results also highlight that Excise duties, which are imposed on specific goods such as alcohol, tobacco, and petroleum products, exhibit a relatively strong effect on household consumption. Overall, the findings suggest that while VAT and import tariffs do not significantly impact household consumption, excise duties appear to have some measurable effect.

The study underscores the need for policymakers to consider these results when designing tax policies aimed at influencing consumer behavior. Specifically, excise duties on specific goods may be an effective tool for regulating the consumption of harmful products, whereas adjustments in VAT and import tariffs may not lead to substantial changes in overall household spending.