Value Added Tax is a consumption tax imposed at a flat rate of 5% of invoice value of certain goods and services. It is a tax that is imposed on the value that is added to goods and services as they pass through the various stages in the business chain by registered person in the course of their taxable activities up to the final consumer.

The net effect is of VAT is that final consumers pays it while the registered person’s role is to collect tax on behalf of the Federal Board of Inland Revenue (FBIR).  


Value Added Tax is one of the major source of revenue to the Nigerian economy and thus, the need to evaluate its impact in the said economy, in order to no were and how to improve on it.


In conclusion, this research questionnaires were administered to all vatable organizations and persons and hypothesis was formulated to confirm the results of the study. This sturdy exposed some problems in the VAT system in Nigeria, such as the high rate of tax evasion in the country, whether government can increase the experience of tax managers etc and recommendations were made on how such problems could be reduced, such as through public enlightenment, staff training, setting of targets to management and so on.





Title Page

Declaration                                                                                                                              ii

Certification                                                                                                                             iii

Dedication                                                                                                                                iv

Acknowledgement                                                                                                                  v

Abstract                                                                                                                                     vi

Table of Contents                                                                                                                   vii


Chapter One

1.0         INTRODUCTION                                                                                                        1

1.1       Background of the study                                                                                           2

1.2       Statement of the problem.                                                                                         2

1.3       Objective of the study.                                                                                                3

1.4       Significance of the study                                                                                          3

1.5       Delimitation and limitation of the study.                                                                 4

1.6       Research questions                                                                                                   4

1.7       Formulation of hypothesis.                                                                                       4

1.8       Definition of Terms.                                                                                                    5


Chapter Two

2.0       LITERATURE REVIEW                                                                                            6

2.1       The nature and historical background                                                                    6

2.2       VAT administration and policy.                                                                                8

2.3       Highlights of the Nigerian VAT.                                                                               15

2.4       Returns and remittance.                                                                                            22

2.5       Success of VAT in Nigeria.                                                                                       23

2.6       VAT and economy growth.                                                                                        26

2.7       Effects of VAT on employees and employers.                                                       27

2.8.1     Problems and prospect of VAT system in Nigeria economy.                              29


Chapter Three


3.1       Research design.                                                                                                       34

3.2       The area of the study.                                                                                                34

3.3       Population                                                                                                                   34

3.4       Limitation                                                                                                                      34

3.5       Instrument                                                                                                                    34

3.6       Validity and reliability of the instrument.                                                                35

3.7       Method of data collection and analysis.                                                                 35

3.8       Sources of data.                                                                                                          36


Chapter Four


4.1       Introduction.                                                                                                                 37

4.2       Evaluation of data collected.                                                                                    37

4.3       Statistical Analysis.                                                                                                    56


Chapter Five


5.1       Summary                                                                                                                      63

5.2       Conclusion                                                                                                                  63

5.3       Recommendation                                                                                                       64

Bibliography                                                                                                                66

            Research project questionnaire









Value Added Tax (VAT) is a consumption tax that has been embraced by many countries worldwide and it is relatively easy to administer and difficult to evade. It is imposed on certain goods and industrial raw materials and other inputs imported into or produced in Nigeria at a single rate of 5%. It is a tax borne by final consumer of vatable goods and services because it is included in the price paid.


Value Added Tax was introduced into the Nigerian tax system through Act (the decree) No. 102 of 1993 with the effective date of 1st December 1993. The Act repealed the sales Tax Act 1986. The Act is now known as Value Added Tax Act, Cap V1 LFN 2004. The tax was introduced sequel to the report of 1991 study group on the review of indirect taxes in Nigeria.


Sales Tax originated in Nigeria in 1982 when Lagos state Government introduced sales tax on number of goods and services, this was successful in terms of revenue generated, because of this, many other states now introduced it. Due to this a series of laws and tax rates were enacted which makes their calculation difficult in many cases.   In 1986 the federal government promulgated the sales decree to curtail the confusion which may result from different tax and rates. The decree stipulated the methods of collections to be used for the sales tax, the rates, the goods and services which it applies and other factors to be taken into consideration.


The Value Added Tax is an improvement on the sales tax. Unlike the sales tax, VAT is a multi-stage levy collected on sales at all stages of sales and distribution. In the operation of VAT, each seller issues an invoice given the amount of VAT paid, which becomes a credit for further set-off if the item is used as input in the chain of production and distribution. The credit methods distinguish VAT from sales tax and actually eliminate the cascading effect of the latter tax.

The basic underlying principle is that the tax is collected on behalf of the government by business and organization which has been registered with Federal Inland Revenue service which serves as VAT directorate.

Thus, in Nigeria the administration oversight of the value added tax is vested in the Federal Inland Revenue Service.



The idea of introducing value Added Tax in Nigeria was mooted in 1991 in the context of a review of the country’s entire tax system. A committee was set up to conduct feasibility study on the implementation of such tax, but the committees mandate did not extend to accessing the possible impact of the tax. Consequently the decision was made public in the 1992 budget speech, this resulted in the setting up of the modified Value added Tax (MVAT) Committee on 1st June 1992 as recommended by the study group. Government on its own wisdom as informed by the various considerations decided that VAT should be administered by federal Inland Revenue Service which already is charged with the serious responsibility of administering most other taxes including Petroleum Profit Tax (PPT).


VAT is a tax imposed on the value that is added to goods and services as they pass through various stages in the business chain by registered person in the course of the taxable activities up to the final consumer. The net effect is that final consumer paid value added tax while the registered person’s roles in the process, is to collect tax for the federal Board of Inland Revenue (FBIR).



Various problems cause the introduction of value Added Tax because of its poor administration and implementation. This often raises doubt about the efficiency and effectiveness of Value Added Tax. Other problems include:-

1.            Is there any deficiency in Tax system in Nigeria?

2.            How can the administration of VAT be managed?

3.            How realistic is the cost of training and developing the administration of VAT?

4.            How is Tax management involved in the administration of VAT?

5.            Where is provision for establishing and administering VAT inconsistent?

6.            Why is government policy not consistent?

7.            Why are tax payers not willing to pay their tax?

8.            What are causes of delay on the part of government agencies in carrying out government legislation?

9.            Is there any adverse effect of VAT on operating cost and prices of production?

10.         How can discipline, corruption and mismanagement of government funds be minimized?



This research project is carried out to evaluate the impact of Value Added Tax in Nigerian economy. Government and the people will want to know the problem hampering the effective operation of Value Added Tax as a leading source of income to the Nigerian economy which could be deduced into the underlisted:-

1.            To examine the method of calculating VAT returns.

2.            To find out and state the causes of deficiency in VAT.

3.            To analyse the basic purpose of VAT.

4.            To find out an existing state of affairs in administration of tax.

5.            To make a careful consideration of the implementation of VAT.

6.            To investigate the ways to minimize tax evasion and avoidance.

7.            To explain how administrations of VAT can be managed.

8.            To substantiate the introduction of value Added Tax.

9.            To examine the causes of delay on the part of government agencies in carrying out government legislation.



The significance of the study cannot be over-emphasized. The contribution to knowledge is enormous since it will provide an insight on the explanation and reasons for the introduction of VAT.

The study will also identified deficiency in the administration and implementation and also offers suggestion on the problem faced by VAT.



The information and result of this study will be limited by the data and other information gathered from interviews, finance and inadequate time to thoroughly carry out the study as envisaged.



Questions that will serve as a guide in the quest for answers to the problems investigated include the following:-

1.            What is your opinion about the impact of the 5% VAT on prices in Nigeria?

2.            Can government do anything to minimize the cost of administration and implementation of VAT?

3.            Can Government increase the experience of the management?

4.            Do you have adequate legal passion for VAT and authority to compel Tax defaulters to pay?

5.            Is there any person(s) behind the unwillingness of tax payers towards their tax responsibilities?

6.            Is there any possible solution to put in place to gear up the ego of the tax payers?



            H0 = Null Hypothesis

            H1 = Alternative Hypothesis


H0:      Value Added Tax has no impact on prices of production in Nigeria.

H1:      Value Added Tax has impact on prices of production in Nigeria.


H0:      The cost of administration and implementation of Value Added Tax cannot be minimized by the government.

H1:      The cost of administration and implementation of Value Added Tax can be minimized by the government.


H0:      Government cannot increase the experience of the management.

H1:      Government can increase the experience of the management.


H0:      we do not have adequate passion for VAT and the authority to compel tax defaulters to pay.

H1:      we have adequate passion for VAT and the authority to compel tax defaulters to pay.


H0:      There is nobody behind the unwillingness of tax payers towards their tax responsibility.

H1:      There are person(s) behind the unwillingness of tax payers towards their tax responsibility.


H0:      There are no solutions to put in place to gear up the ego of tax payers.

H1:      There are possible solutions to put in place to gear up the ego of tax payers.



FINAL CONSUMER – These are last buyers of goods and services.

VATABLE GOODS AND SERVICES – these are certain goods and services supplied      for money or money-worth consideration.

INDIRECT TAX – These are taxes on goods or services. The burden of this tax can be shifted partly or wholly to another person depending on the elasticity point facing the item.

REVENUE – this refers to another name for income generated from sources.

ORGANISATION – A group of person with special act or goal such as club or business.

BUSINESS – Includes any trade, commerce or manufacturing or any concern in the nature of trade, commerce or manufacturing.

VAT DIRECTORATE – Body vested with the right to collect Value Added Tax.

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