RELATIONSHIP BETWEEN VALUE ADDED TAX (VAT) AND REVENUE PROFILE OF OYO STATE, NIGERIA

Abstract

This study examined the relationship between Value Added Tax (VAT) and the revenue profile of Oyo State, Nigeria. The study employed secondary data and utilized correlation matrix analysis to establish the strength of association between VAT and the state’s revenue performance. The variables considered include Revenue Generation (RVG), Value Added Tax Revenue (VATR), Compliance of Remittance (COR), VAT Base (VATB), and VAT Collection Efficiency (VATCE). The correlation results show that VATR (r = 0.708) and VATCE (r = 0.636) are strongly and positively correlated with revenue generation, indicating that higher VAT remittances and effective VAT collection improve the revenue profile of the state. Similarly, VAT compliance (r = 0.642) demonstrated a significant positive relationship with revenue, suggesting that proper adherence to tax laws enhances government income. The VAT base also showed a moderate positive relationship with revenue (r = 0.496), highlighting the importance of expanding taxable economic activities. The findings concluded that VAT plays a significant role in enhancing the revenue profile of Oyo State. The study concludes that effective VAT administration, improved compliance, expansion of the tax base, and efficient collection mechanisms are critical to strengthening the state’s fiscal capacity.