EFFECTS OF TAXATION POLICIES ON INFLATION IN NIGERIA

This study examines the relationship between taxation policies—Value Added Tax (VAT) and Corporate Income Tax (CIT)—and inflation indicators in Nigeria, specifically the Producer Price Index (PPI) and Consumer Price Index (CPI), over the study period. Employing regression analysis and hypothesis testing, the results reveal distinct impacts of these taxation policies on inflation metrics. Findings indicate that changes in VAT rates significantly affect both PPI and CPI. VAT explains 35.7% of variations in PPI and 81.9% of variations in CPI, with statistical tests confirming a positive and significant relationship between VAT and inflation measures. These results suggest that VAT policy adjustments play a pivotal role in shaping inflationary dynamics in Nigeria. Conversely, CIT shows minimal influence on both PPI and CPI, explaining only 1.2% of variations in these indicators. Regression and ANOVA results for CIT were statistically insignificant, indicating no meaningful relationship between changes in CIT rates and inflation metrics. This suggests that CIT, as a direct tax, has limited direct impact on inflation in Nigeria compared to VAT. The study underscores the importance of VAT as a critical determinant of inflationary trends, emphasizing the need for policymakers to carefully assess the inflationary implications of VAT rate adjustments. In contrast, CIT policies appear less influential on price stability. These findings contribute to a nuanced understanding of taxation-inflation dynamics in developing economies like Nigeria, offering valuable insights for fiscal policy formulation.