An Evaluation Of Role Of Value Added Tax As Source Of Income In Nigeria

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An Evaluation Of Role Of Value Added Tax As Source Of Income In Nigeria


Abstract


This study was intended to evaluation of role of value added tax as a source of income in Nigeria. This study was guided by the following objectives; To evaluate the role of value added tax as a source of income in Nigeria.To examine the level of proper utilization of VAT income generated by Nigeria government. To examine the effect of income generated from value added tax on economic development in Nigeria.

The study employed the descriptive and explanatory design; questionnaires in addition to library research were applied in order to collect data. Primary and secondary data sources were used and data was analyzed using the chi square statistical tool at 5% level of significance which was presented in frequency tables and percentage. The respondents under the study were 200 staff of federal inland revenue service, Lagos. The study findings revealed that the impact of VAT on government income is high; Based on the findings from the study, efforts should be made by the Nigerian government and stakeholders in creating an enabling environment for micro finance banks to thrive.


Chapter One


Introduction

1.1 Background to the Study

Taxation is the primary source of income to the government. It is a compulsory levy on economic agents of aneconomy by the government (Gbosi, 2006). Though tax has been defined differently by various authorsbut the primary aim of any tax system is to raise funds in the public sector for use in promoting governmentprogrammes. In some instances, however, a tax may exit primarily, or at least very importantly, for regulatorypurposes.Traditionally, taxes are classified into direct and indirect taxes.

Direct taxes are those type of taxes in which itsliability is determined with direct reference to the tax paying ability of the taxpayer like, “personal income tax,company income tax, petroleum profit tax, capital transfer tax, capital gains tax, inheritance tax, wealth tax”, etc;while in the case of indirect taxes such an ability to pay is assessed indirectly (Bhatia, 2004). Examples of indirect taxes in Nigeriainclude entertainment tax, and the subject of this study, the Value Added Tax (VAT).

Value Added Tax (VAT) is an indirect tax levied on goods and/or services as a percentage of their value added. Theconsumer pays VAT on purchases in addition to the normal prices; the seller then pays the government the value ofthe VAT collected on sales less VAT they have paid on purchases inputs (Ahabi&Ijewere, 1998).VAT is levied in many countries. It was introduced in the United Kingdom in 1973. It is a kind of tax on the supplyof goods and services, and it is borne by the final consumer but collected at each stage of the production anddistribution chain.

Originated from the treaty of Rome signed by the European Union countries in the late 1960’s.VAT is today practiced in more than sixty other countries cutting across Europe, Latin America, Asia, and Africaincluding Nigeria. Most of these countries just like Nigeria switched from sales tax to VAT as a major form ofcollecting revenue (tax) on consumption.Interestingly, it was first introduced in Nigeria on the 1st of January 1994 under Decree 102 of 1993 within the daysof General SaniAbacha as the Military Head of State. VAT is a replacement of the then existing sales tax which had been in operation under the Federal Government Legislated Decree No 7 of 1986; but in operation on the basis of residence (Anyafo, 1998).

Since VAT is based on the general consumption behavior of the people, the expected high yield from it will boost the fortunes of the government with minimum resistance from the payers of the tax. This has invariably serve has a source of huge income for the government of Nigeria. As a result of the importance attached to VAT by the government since inception, it will therefore be necessary if a clear study is carried out in order to evaluate the role of VAT as a source of income in Nigeria so as to avoid a sweeping conclusion, hence the aims of this study which are to empirically evaluate the role of value added tax as a source of income in Nigeria.


1.2 Statement of the Problem

Imposition of taxes affects the income of the various agentsbut the problem with income generation in Nigeria is the inability of the Federal, State and Local Government to judiciously apply the income generated from VAT. If this income from VAT is properly utilized, physical and social infrastructures will be welled developed that the citizen standard of living will be affected positively.

This has raised doubts among VAT payers on the proper evaluation and utilization of income from VAT.As a result of these, the public does not have confidence in the ability of the government to honestly utilize VAT money to improve the living standard of its citizens. This constitutes a serious stumbling block in the administration, assessment, implementation of VAT in Nigeria and in terms of affecting the disposal income of the citizens negatively.

Also, persistent economic stagnating evidenced by worsening macro-economic indices such as rising inflation, growing unemployment and continued individual under-capacity utilization is not helping matter too. However, this study is evaluating the role of value added tax as a source of income in Nigeria.


1.3 Objectives of the Study

The following are the objectives of this study:

  1. To evaluate therole of value added tax as a source of income in Nigeria.
  2. To examine the level of proper utilization of VAT income generated by Nigeria government.
  3. To examine the effect of income generated from value added tax on economic development in Nigeria.

1.4 Research Questions

  1. What is the role of value added tax as a source of income in Nigeria?
  2. What is the level of proper utilization of VAT income generated by Nigeria government?
  3. What is the effect of income generated from value added tax on economic development in Nigeria?

1.6 Significance of the Study

The following are the significance of this study:

Outcome of this study will provide information for stakeholders in financial sector and the general public about the role of value added tax as a source of income in Nigeria. It will also educate on the effect of VAT on economic development in Nigeria.

This research will be a contribution to the body of literature in the area of the effect of personality trait on student’s academic performance, thereby constituting the empirical literature for future research in the subject area.


1.7 Scope / Limitations of the Study

This study will cover the role of value added tax as a source of income to the government of Nigeria.

Limitation of Study
Financial constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint-

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.


Chapter Five


Conclusion and Recommendation

The result of the study revealed that value added tax is beneficial to the Nigeria economy. This can be understood from the behaviour of the variables in this research, which shows that value added tax is statistically significant to revenue generation in Nigeria. From the findings, for Nigeria to attain its economic growth and development, she must be able to generate enough revenue in order to meet up with the challenges of her expenditures in term of provision of social amenities and the running costs of the Government. The result of this study indicates that if more goods and services are taxed, the revenue base of the country will increase. We still recommend that the value added tax bases be widened to bring the informal sector into the value added tax net so as to stem possible evasion even by the so faithfully complying under the old rate.

The researcher recommends as follows:

  1. That the federal, state and local governments should harness their potentials in terms of legislation, machineries and procedure for collection of Value Added Tax.
  2. Customs and Excise Duties leak away at the borders, wharfs, airports and seaports through the activities of Customs Officials and other security agents at such places.
  3. Government should intensify effort in organizing seminars and workshops to educate viable organizations and individuals on the need for prompt payment of Value Added Tax.
  4. Adequate provisions should be made by the government for instant retrieving of Value Added Tax proceeds from both companies and government agents involved in Value Added Tax collection. There should be provision for enforcing penalties and additional assessment on erring viable persons.
  5. It is recommended that Federal Inland Revenue Service should pay attention to the informal sector of the economy by creating Value Added Tax offices at the Local communities so as to generate more revenue and to fully achieve the objectives of wealth creation through Value Added Tax.
  6. Government should intensify effort in organizing seminars and workshops to educate viable organisations and individuals on the need for prompt payment of VAT.
  7. Adequate provisions should made by the government for instant retrieving of VAT proceeds from both companies and government agents involved in VAT collection.
  8. There should be provision for enforcing penalties and additional assessment on erring viable persons.
  9. There should be efficient enumeration system for business in each local government and state to reduce evasion.
  10. Simply languages should be used to explain VAT laws to viable persons as it will help to enhance compliance and reduce cost.
  11. Government should increase VAT rate as it will help to generate more revenue for the government.

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