ANALYSIS OF THE IMPACT OF VALUE ADDED TAX (VAT) ON NIGERIA ECONOMY. (A STUDY OF FEDERAL INLAND REVENUE SERVICE)
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ANALYSIS OF THE IMPACT
OF VALUE ADDED TAX (VAT) ON NIGERIA ECONOMY. (A STUDY OF FEDERAL INLAND REVENUE
SERVICE)
ABSTRACT
The objective of this research work is to analyze the impact
of value added Tax (VAT) using Federal Inland Revenue Service as a study. The
objective of this study include the following: to determine whether there is
significant relationship between valued added tax and the Federal generated
revenue; to determine the impact of value added tax on prices of goods and
services. The research methodology involves survey method of sample size of 52
and use of questionnaire with chi-square to test the hypothesis which led to
the following findings; that VAT as non-oil revenue increases the government
revenue on total revenue with better percentage and this reduces the dependence
of government on oil revenue. Based on these findings, we recommended that the
statutory provisions and amend all faces or areas of laws that could be subject
to multiple interpretations. The staff should be with remunerated with up to
date incentives and working benefit to avoid the act of conniving with VAT
payers.
TABLE OF CONTENTS
Chapter One:
Introduction
1.1 .... Background of the Study
1.2 .... Statement of the Problem
1.3 .... Objectives of the Research Study
1.4 .... Research Questions
1.5 .... Research Hypothesis
1.6 .... Significance of the Study
1.7 Scope and
limitations of the study
1.8 .... HistoricalBackground of Federal Board Inland Revenue
1.9 .... Definition of Terms
Chapter Two:
Literature Review
2.1 Introduction
2.2 Genesis of
value added Tax in Nigeria Economy
2.3 The objectives
and advantages of value added Tax
2.4 types of value
added Tax in Nigeria Economy
2.5 An overview
taxable goods and services in Nigeria Economy
2.6 Value added
Tax exemption in Nigeria Economy
2.7 Determination
of values of taxable goods and services
2.8 The
assessments of the value added tax (VAT) in Nigeria Economy
Chapter Three:
Research Methodology and Design
3.1 ..... Introduction
3.2 ..... Research Design
3.3 ..... Population of the study
3.4 ..... Sample and sampling method
3.5 ..... Sampling Technique
3.6 ..... Restatement of research questions
3.7 ..... Data collection method
3.8 ..... Questionnaire design
3.9 ..... Method of data analysis
Chapter Four: Data Presentation and Analysis
4.1 Introduction
4.2 Data analysis and questionnaire
4.3 Test of hypothesis
Chapter
Five:
Summary of
Finding, Conclusion and Recommendation
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendation
Bibliography
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The essence of value Added Tax (VAT) In Nigeria in 1994 was
to boost the revenue base of the government, re-activate the economy and as
possible- reduce the poverty level by appropriately reallocating resources
from personal and private sections to promote growth and development. The
adoption of this form of consumption tax was also necessitated by the decline
in the oil revenue due to fluctuations in the price of oil in the international
market, which makes the oil revenue insufficient to run the affairs of the
government similarly the present non-oil revenue Sources mainly taxes are not
enough to meet public needs, as expenditure continue to rise. Custom duties,
which used to be an important source of government revenue in the 80's have
dwindled significantly.
However, custom duties provided 75 percent of Federal receipt
in 1994 but decrease to 19 percent in 2003. Company income tax, which accrued
to 32 percent of federally collected revenue in 1994 fell to 5 percent in
Nigerians pay tax 50 increasingly. The bull: of the self-employed traders,
farmers and businessmen evade taxes and would only pay flat rate levies when
compelled
More so, this gives personal income tax a narrow base that
cannot be elongated to yield higher revenue; more so, company income tax cannot
also be increased, because of the need to encourage industries.
In 1993 government reduced corporate tax from 40 percent to
35 percent. Till this year, increasing the corporate tax will have a
devastating effect on production level and the national output. This there is
need for a tax increase and broad based consumption tax rather than an income
tax.
Value Added Tax is a consumption tax which is broad based and
can start from a low rate, with exemptions for essential goods to reduce its
burden on the poor, it was believed that that propensity to consume is higher
that the propensity to same. Value Added Tax is therefore meant to influence
the consumption habit of the people and it is directed at high-income earners.
Value added Tax has provided a visible achievement in terms of its proceeds
since its inception in the Nigerian economy with a 5 percent rate on the "Vatable"
goods and services. The non -oil revenue has therefore increased tremendously.
The proceed from this source (i.e. Value Added tax) in 1994 amounted to
N8.2billion. It increased to N21 billion in 1995 and was N29 billion in 1996.
The yield has been witnessing substantial annual Increase.
However, the sharing formula adopted for Value Added Tax proceeds in Nigeria
has been criticized by economic analysts. They believed it is providing revenue
for reckless spending in the three tiers of government. The sharing formula as
at 2000 budget is 15%, 50% and 35% to federal, State and Local Government
respectively.
1.2 STATEMENT OF
PROBLEM
Indeed, Value Added Tax (VAT) is in principle of a good
fiscal measure that is intended to broaden the revenue base of the government.
The revenue is also to be channeled towards improving the social services being
provided to the people. So, Value Added Tax as a fiscal policy cannot be
faulted. However, it is pertinent to state on clear term the problem that led
to this study. They are;
· Apart
from passing on tax and compliance cost to consumers, business organizations
and enterprises have seized the opportunity to increase profit margin on their
goods whether 'Vatable' or not.
·
Despite the huge proceeds accruing from Value Added Tax (VAT), a
remarkable attribute to the source has not been felt on the economic and social
activities in the country.
·
With the nature of Value Added Tax, as self-assessing consumption tax,
it is still witnessing considerate evasion.
·
The Frequent revenue list of Value Added Tax (VAT) exempted goods and
services hinder the performance of the tax. It has adverse effect on the
revenue base as well as the entire economy.
·
There is no significant effect of the amount being generated through
Value added Tax (VAT) on the federally generated revenue.
1.3 OBJECTIVES OF
THE STUDY
Specific: This study is specifically generate toward
achieving the following.
· To
determine whether, there 1S significant relationship between Values Added Tax
and the federal generated revenue.
· To
determine the impact of Value Added Tax on prices of goods and services.
· To
examine the negative impact of Value added Tax on the Nigerian economy since
the introduction.
· To
identify the effect on Value Added Tax on the revenue of the Federal
Government.
1.4 RESEARCH
QUESTIONS
This study is prompted by some pertinent questions that must
be answer to solve the problem of the study. Some of which are;
§ What have the
effects been of value Added Tax (VAT) on the federal Government revenue?
§ How can the
performance of Value Added Tax be improved?
§ Is there any
significant relationship between Value added tax and revenue generated by the
federal government
§ To what extent can
we affirm that the percentage of the Value Added Tax cover in the Total Revenue
generated in Nigeria?
1.5 RESEARCH
HYPOTHESIS
Ho: Value Added Tax
has no significant effect on the Government revenue.
Hi: Value Added Tax
has significant effect on the Government revenue.
Ho: Value Added Tax
has no significant influence on total revenue generated.
Hi: Value Added Tax
has significant influence on total revenue generated.
Ho: Value Added Tax does not increase economy development.
Hi: Value Added Tax increases economy development.
1.6 SIGNIFICANCE OF
THE STUDY
This research work will contribute immensely to the work of
different people willing to explore the area of value Added Tax (VAT). However,
it will help in the following areas;
·
This study will help Government m assessing the effectiveness of the
value Added Tax on the Nigerian economy.
· It
will also be useful to researcher's who are willing to explore this area of
research work.
·
Individual will be conscious of the fact that, for every consumption of
some certain good, there is a percentage of their income they pay to the
Government.
1.7 SCOPE AND
LIMITATIONS OF THE STUDY
This study will focus on Federal Inland revenue services -
the operational arm of the Federal Board of Inland Revenue. Data relating to
Value Added Tax will be used in the course of analysis. Works on related
literature on the field were first reviewed with particular attention to
administration in Nigerian.
The study is limited to VAT among other forms of indirect
taxes in Nigeria and how VAT will improve the revenue of the Federal
Government.
1.8 HISTORICAL
BACKGROUND OF FEDERAL BOARD INLAND REVENUE IN NIGERIA
The federal Board of Inland revenue is constituted under
section 1 of companies income Tax Act (eITA) 1990 to assess and collect tax .-
for the Federal Government. The operational arm of the Federal Board of Inland
Revenue is called the Federal Inland Revenue Service (FIRS) as an operational
arm of the Board in charge of assessing and collecting revenue taxes.
It carries out the decision of the Board. It is organized
into Five Zonal Offices and Thirty area tax offices. Each districts office is
headed by an assistant Director of Taxes the Zonal offices and their
headquarters are Lagos Zonal (Lagos), North West Zone (Kaduna) Western Zone
(Ibadan), Eastern Zone (Enugu) and North Zone (Jos).
The Assistant Director of Taxes is responsible for the
assessment and collection of Taxes in the Zonal and Area Offices.
Each zonal office is made up of the administration department
in charges of staff matters, office maintenance and office routine matters.
The assessment department responsible for raising assessment.
The collection department is responsible for collection of all taxes assessed.
1.9 DEFINITION OF
TERMS
Tax is a compulsory levy imposed by the government on
individuals and business firms and paid by them to the government.
VATABLE PERSON
Any person that trades in any taxable or vatable goods and
services as specified in the decree for a consideration has obligation to
register for VAT payment. Such person is called vatable person and they can be
Sole Proprietor, Professionals, Partnership ofa limited liability company,
Club, Association or charity.
VATABLE GOOD AND SERVICES
Vatable goods and services are those goods and services under
the provision of decree 102 of 1993. They are good which VAT is added to.
EXEMPTED GOOD AND SERVICES
Exempted goods and services are those goods and services are
those goods and services excluded from Value Added Tax (VAT) under the
provision of decrease 102 Of 1993.
ZERO-RATED GOODS
These are goods taxed, but as zero percent (0%) for which
firms producing them can credit input tax.
SINGLE RATED TAX
This obtains where an origin based Value Added Tax system
adopts one tax rate.
DOUBLE RATED TAX
This is where a destination based Value Added Tax system
adopts one tax rate, and all experts will be zero rated, while a rate is fixed
for taxable goods and services.
MULTIPLE RATE TAX
This is where a destination based Value Added Tax (VAT)
system adopts more than one rate, multiple rates are used to distribute tax
burden so as to make it fall more on the rich than the poor.
CONSUMPTION TAX
Referees to tax on the supply of goods and services which IS
eventually borne by the final consumers.
LIABILITY TO VAT
Liability to (VAT) Value Added Tax arises when the output is
more than the input tax.
OUTPUT TAX
This is the tax that is due on vatable supplies. Multiplying
the tax value of aggregate supply by the tax rate derives it.
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