Tax has been one of the major revenue sources in Nigeria. The taxes paid come back to the taxpayers in the form of social amenities. However experience has shown that most Nigerians (both individual and corporate citizens) avoid or evade tax obligation for reason that it negatively affects their consumption. The study was carried out to critically assess the effect of indirect tax on consumption of goods and services in Nigeria. Sample survey design was adopted and instrument used for data collection was structured questionnaire. The population of the study consists of 200 staff of FIRS.



  • Background of the study

Taxation is a major instrument for the conduct of both developed and developing countries. Taxation is known to accomplish a number of objectives such as revenue generation for government, economic stabilization and income re-distribution. Taxation as an instrument of public policy is essentially concerned with the manipulation of financial operations of both the government and private sectors with a view to furthering certain economic objectives. In Nigeria, these economic objectives include the attainment of appreciable level of full employment, avoidance of excessive inflation, achievement of satisfactory balance of payment position, appreciable increase in the national income and a reduction of extreme inequality among the citizens, provisions of essential necessities of life like water, school, building of bridges, roads and others. In every country, there are certain services which the government must provide to the citizens because of their essential nature. The services are so indispensable in life that individuals or corporate bodies are not allowed to provide them or where they are allowed, they are not allowed to monopolize the supplies or the production. Government does this to ensure that the supply of such goods and services are evenly distributed in any given society so that the rich and the poor alike may benefit. The provision of such essential goods and services involve huge expenditure. One may ask; how does government get such huge amounts to finance the supply of such essential goods and services to her citizens? It is true that government mints money but there are other important economic factors that should be considered so that excessive money is not in circulation in an economy. For an economic balance to be maintained in an economy, government must find ways of financing her activities. One source of such finance is the contribution made by the private sector to government coffers in form of fees, levies or taxes. Question now arises, how does the funding of these activities come about? The primary source of government revenue is tax. Taxes which loyal citizens pay account for more than seventy percent of government revenue in Nigeria. The private sector is not left out in the fund generation because their own fund comes in form of borrowing and private savings etc. The absence of well-organized and locally controlled money market for borrowing has faced private sectors in most developing countries especially Nigeria to rely primarily on fiscal measures to mobilize domestic monetary resources for revenue generation. For instance, if profit on taxation and the marginal efficiency of investment is not well declined, these will consequently bring a fall on investment and as well affect the economy especially where there is decrease in tax rate. (i.e. number of tax payers)  However, Dukeman (2003) said that for an effective tax system that government should encourage investors or individuals to pay tax to some extent for that will adhere to high rates of income thereby enabling government to carry out its function. So therefore, as long as this is significantly quantitative and psychologically substantial, the suggestion may not augur well for investment activities especially where retained profit and savings from the bank of capital formation exaggerated. Realizing the importance of tax to finance as the transfix of economic growth the government should initiate financial policies through annual budgets extension services for these business enterprises and also through several government financial enterprises. We are now convinced that with all these sources of revenue by government they should contribute the largest proportion. With the consideration above, attention has been focused on the fiscal policy best suited to the economic development of the country. As part of the search for desirable fiscal policies high consideration is placed on the value of goods and services payable by the final consumers. Nevertheless, the implementation of various governments is measured by the effects at most times, at variance with the objective of government. Some of the revenue collection agencies are either ill equipped to carry out their functions effectively or equipped with person of dubious character who trust laudable objectives of the government. Mostly, some tax payers don’t pay willingly, some take laws into their hands to either evade or avoid tax while others collide with some tax officials as well as employ the services of tax experts to explore the tax loophole. As a result of such ill activities towards taxation there is always a short fall in the government projected revenue. In view of the importance to taxation as a principal source of government revenue as well as a powerful instrument in the conduct of public policies, all this fraudulent acts should be resolved.


Tax constitutes the greatest percentage of the internally generated revenue in Enugu State and as well the major source of revenue for the government in financing its activities. Tax however has its fundamental problems in the area of administration. There is some problem in planning, control and adequate information flow of tax collection generally. Since the government financial policy and objectives are to ensure adequate revenue and conducive environment for the people’s satisfaction through progressive taxation and other fiscal measures designed to aid the rapid growth and development of the society for the benefit of the citizenry. It is therefore necessary that these avenues of fund are solidified. But on the other way round the implementation of the government taxation policy and the realization of the taxation goal most a times run at variances with the policy outlined in the annual as well as the tax laws provision. Many individuals as well as organizations see taxation policy as being harsh and unfavorable. They argue that while few enterprises especially large company continues to benefit from the government support through grants, subsidiaries and other tax incentives, others find the policies unbearable and as a result any little opportunity by such people to evade or avoid tax is highly utilized. The results of all these tax evasion and avoidance are that less revenue than envisaged is collected through tax by the government and thereby less social amenities than proposed are carried out. It is in this regard that this study seeks to assess the effects of indirect taxation on consumption in Nigeria.


The objectives of the study are;

  1. To ascertain the effect of indirect taxation on consumption in Nigeria
  2. To ascertain the effect of indirect taxation on Nigeria economy
  3. To ascertain the relationship between indirect taxation and consumption

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H0:   there is no effect of indirect taxation on consumption in Nigeria

H1: there is effect of indirect taxation on consumption in Nigeria

H02: there is no effect of indirect taxation on Nigeria economy

H2: there is effect of indirect taxation on Nigeria economy


This study will give a clear insight on the effect of indirect taxation on consumption in Nigeria. The study will be beneficial to students and the government of Nigeria. The study will also serves as a reference to other researchers that will embark on this topic.


The scope of the study covers the effect of indirect taxation on consumption in Nigeria. The researcher encounters some constrain which limited the scope of the study;

  1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
  2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
  3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities


INDIRECT TAXATION: An indirect tax is a tax collected by an intermediary from the person who bears the ultimate economic burden of the tax. The intermediary later files a tax return and forwards the tax proceeds to government with the return

CONSUMPTION: Consumption is a major concept in economics and is also studied in many other social sciences. Economists are particularly interested in the relationship between consumption and income, as modeled with the consumption function. Different schools of economists define production and consumption differently.

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