Journal of Economics, Management and Trade

Abstract

The study is aimed at empirically analyzing the effect of value added tax /sales tax on economic growth in Kenya for the period 1973 to 2010 The study adopted econometric exposition based on its ability to determine the strength and direction of relationships between variables. The ordinary least square technique was used to estimate the model. The empirical result indicates that a positive and insignificant relationship exist between value added tax and economic growth in Kenya. A positive and insignificant correlation between VAT Revenue and GDP means there are some problems inhibiting its potency. The study concluded that the effect of value added tax on the economy is not large enough to influence the economic growth. It therefore recommended that the government should reform VAT system to engineer a system that would have a significant impact on economic growth.