AN EVALUATION OF THE EFFECT OF INDIRECT TAXATION ON CONSUMPTION IN NIGERIA
The mono-product status of the Nigerian economy has received series of criticisms in recent times. According to Okonjo-Iweala (2012), without the diversification of Nigerian revenue from oil, the economy will soon collapse. Recently, Nigeria’s dependence on crude export for revenue based on the projected price and assumed production is 80%. However, oil revenue has accounted for over 76% of government revenue. (Ebosele & Adekoya, 2012). The implication of this overly dependence on oil revenue is the boom-and burst nature of the economy (Akpokodge, 2000).
Against the backdrop of the need to diversify the economy of Nigeria, taxation has come extremely handy. Taxation is made up of two broad components and several subcomponents and basically we have indirect and direct taxation. For purposes of this study, emphasis is on indirect tax considering its effect consumption in Nigeria.
However, an indirect tax (such as sales tax, per unit tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer), this is the major reason why it has great influence on consumption. The intermediary later files a tax return and forwards the tax proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax, which is collected directly by government from the persons (legal or natural) on whom it is imposed (Wikipedia, 2015).
An indirect tax may increase the price of a good to raise the price of the products for the consumers. Examples would be fuel, liquor, and cigarette taxes. An excise duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately, the manufacturer transfers the burden of this duty to the buyer of the car in the form of a higher price (Lim, 2008). Thus, an indirect tax is one that can be shifted or passed on. This is a function of the relative elasticity of the supply and demand of the goods or services being taxed. Under this definition, even income taxes may be indirect.