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THE EFFECT OF VALUE
ADDED TAX (VAT) IN THE ECONOMIC DEVELOPMENT OF NIGERIA
ABSTRACT
Value added tax (VAT) have tremendous roles to play in the
academic development of the studies have shown that an increase in the number
and variety of value added tax plus rise in the proportion of their activities
in the course of generating money and other financial asset in the goods and
services produced are essential feature of economic development. The
development of value added tax scheme is a recent phenomenon in the history of
taxation in Nigeria who creation was given in 1940 by the federal government
through central bank of Nigeria (CBN). The interesting nature of value added
tax has attracted a lot of attention in intellectual disused at seminar,
workshop books and research. From a primitive beginning of the industry has
grown to a compel level by which it has assume a significant position in the
management of taxation of Nigeria in 1940, taxation function has being more and
more defined. However, the efficiency and effectiveness of value added tax is
as well as the operation in every community as compulsory levy. It is in the
realization of this unique place which accounting information has in the
management decision making of FIRS at Abuja. The aim of this project was to
determine the extent of demand financial asset in the goods and services. To
realize the aim of this study, both primary and secondary data were collected,
presented and analysed. This test involved the use and the development of
Nigeria economic in the percentage from the analyses the study established the
identification of medium and long – term goal based on the value added tax.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
A tax is a compulsory levy imposed by the government on
individual and business firm such levies are for example made on income
(consisting of salaries, capital transfer, business profit) etc.
Taxation in Nigeria has been in existence even before the
coming of the British colonial masters, but they were informing of tributes to
or labour for community work.
Lugard established the European form of taxation in 1904;
this was followed by nature revenue ordinance of 1914, while the first tax
legislation on adult was enacted in 1939, which began in 1940.
Value added tax is a tax on consumption which is borne by the
final consumer because it include in the price paid of goods and services
presently, it has a rate of five percent (5%) of Consumption and thus the
federal inland Revenue service in vested with this power to collect it.
The new Webster’s dictionary of the English language
international edition defined tax as “a charge on a person’s income or
property”, direct tax or on the price of good sold, indirect tax made by a
government to collect revenue. From the above, tax could be seen as a
compulsory levy imposed by the government through its agents on citizen,
consumption capital expenditures and income for the purpose of generating
revenue for governmental use.
Taxation is the concept and science of imposing tax on
citizens consumption etc. value added tax is a tax imposed by the government on
citizens on the consumption of goods and services by the citizens.
Value added tax was introduced in Nigeria in 1993 by decree
number 102 of 24thAugust 1993, but by administrative arrangement invoicing for
the tax purpose did not commence until 1st January 1994. The decision to
introduce vat in Nigeria has been made easy for the government by the pallid
state of our economy which was caused by Nigeria overdependence on oil revenue
which does not make for economy stability, since it makes her fortunes depends
almost exclusively on the international price of oil which is not under
control. According to Okpe (2001). Value Added Tax is one of the means of
raising additional non – oil revenue locally, and to replace the existing
sales. Tax Degree No. 7 of 1986 which was a poor internal revenue generating
tool for the states, the introduction of Bay was suggested to the federal government.
This idea of VAT started with the acceptance of the recommendation of Dr.
Sylvester Ugoh led study group on indirect taxation in November 1991. The
decision to accept the recommendation was made public in 1992, budget speech.
Okpe also added that, to further the tax reforms, the federal government set up
two tax study groups in 1991; one was set up by the federal ministry of finance
and economic development to study and make recommendation on the reforms needed
in the direct taxes in Nigeria. The other study group on indirect taxation was
set up by the federal ministry of budget and planning. This study group he said
was inaugurated on the 26th of April, 1991, by the honourable minister of
budget and planning. Okpe (2001) also observed that the working objectives of
the group are among other things to:
Shift taxation on consumption rather saving direct
Reduce dependence on oil (petroleum) revenue
Provide incentives for export production
Improve the administration of indirect taxes
Maintain a fairly and even tax incidence across various
lines, stages and element of production including non – productive element of
taxation on imported goods. It was this committee that gave the general
guideline for the establishment of a value added tax in Nigeria and its
administration was given a Federal Inland Revenue Service which was already
charged with the responsibility of administering most other taxes in Nigeria.
1.2 STATEMENT OF
THE PROBLEMS
Whenever there is a new policy, it is bound to face the
problem of acceptance by the public as well as the problem of it
implementation. There is a problem of what is VAT by the general public,
business organization and the final consumers.
1.3 OBJECTIVE OF THE STUDY
The objective
of the study include:-
Improving operational efficiency of value added tax (VAT
administration.
Identifying effect of value added tax (VAT) to the Nigeria
economy
Finding out the extent to which operation of (VAT) comply
with the (VAT) laws.
Finding out the problem facing tax administration with
particular reference to value added tax (VAT).
Evaluating the performance of value added tax (VAT) in
relation to the Nigeria economy
Finally the research will make suggestion and recommendation
based on the findings.
1.4 RESEARCH QUESTIONS
How do you improve the operational efficiency of value added
tax (VAT) administration
What are the effects of value added tax (VAT) to the Nigeria
economy?
Does the operation of VAT comply with the Value added Tax law
in Nigeria?
What are the problems facing tax administration in Nigeria?
What are the impacts of value added tax (VAT) in relation to
the Nigeria economy?
1.5 RESEARCH HYPOTHESIS
Ho: Value Added Tax
(VAT) is not improving the Nigerian economy.
Hi: Value Added Tax (VAT) is improving the
Nigerian economy.
1.6 SIGNIFICANCE OF
THE STUDY
Today our economy growth rate has slowed down considerably
and jobs for university and polytechnic graduate are no longer available due to
the world economic crises.
The Nigeria government have realized the importance of
diversifying her source of revenue generation from the sole dependence on crude
oil to several other means of generating revenue for its expenses. Therefore
Value Added Tax (VAT) becomes a viable alternative for revenue generation to
the country.
Therefore this work will be of great importance to the
government of Nigeria as it will discuss in details the effect of value added
tax (VAT) in the economic development of Nigeria. It will enables law maker to
enact laws that will favour the enforcement and collection of value added tax
(VAT) and tax in general from the appropriate individuals and organizations.
This research work will also be of benefits to the Federal
Inland Revenue Service (FIRS) Abuja as it will discuss issues that affects the
administration of Value Added Tax in Nigeria, this will helps overcome
unfavourable factors that affects the administration of VAT.
Finally, the research will be of great significance to
researchers and students who will want to research and improve the knowledge on
the effects of value added tax as it will serves as reference material.
1.7 SCOPE OF THE
STUDY
The scope of this study is to examine the effect of Value
Added Tax (VA) in economic development of Nigeria. However, due to time and
financial constraint, the scope of this research will only be limited to
Federal Inland Revenue Service (FIRS) Abuja.
1.8 DEFINITION OF
TERMS
TAX LIABILITY: – This is the total value added tax payable by
the taxpayer after deducting tax credit, withholding tax.
SELF ASSESSMENT: – Assessment is the basis of taxable income
in respect to self-employed persons and partnership; it is based on estimation
and return filled by tax payer.
P.A.Y.E:- Payee means pay as you earn. It is a scheme where
income taxes and wages and salaries in a relevant tax year are deducted at
source by employers who pay same to revenue service.
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