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
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
1.1 .... Background
of the Study
1.2 .... Statement
of the Problem
1.3 .... Objectives
of the Research Study
1.4 .... Research
1.5 .... Research
1.6 .... Significance
of the Study
1.7 Scope and limitations of
1.8 .... Historical
Background of Federal Board Inland Revenue
1.9 .... Definition
2.2 Genesis of value added Tax in Nigeria
2.3 The objectives and advantages of value
2.4 types of value added Tax in Nigeria
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
Methodology and Design
3.1 .... Introduction
3.2 .... Research
3.3 .... Population
of the study
3.4 .... Sample
and sampling method
3.5 .... Sampling
3.6 .... Restatement
of research questions
3.7 .... Data
3.8 .... Questionnaire
3.9 .... Method
of data analysis
Chapter Four: Data
Presentation and Analysis
4.2 Data analysis
4.3 Test of
Summary of Finding, Conclusion and Recommendation
5.1 Summary of
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.
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
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.
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
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
§ 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
1.6 SIGNIFICANCE OF THE STUDY
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
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.
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
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.
department responsible for raising assessment. The collection department is
responsible for collection of all taxes assessed.
Tax is a
compulsory levy imposed by the government on individuals and business firms and
paid by them to the government.
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
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
These are goods
taxed, but as zero percent (0%) for which firms producing them can credit input
SINGLE RATED TAX
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.
Referees to tax
on the supply of goods and services which IS eventually borne by the final consumers.
LIABILITY TO VAT
(VAT) Value Added Tax arises when the output is more than the input 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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