An Evaluation Of Tax Payers Perception On The Value Added Tax In Nigeria
Value Added Tax (VAT) is a consumption tax that is being charged and embraced by many developed and developing countries, which is relatively easy to administer and very difficult to evade. The economic development and growth of any nation depends on government ability to generate adequate revenue in order to effectively provide various infrastructural facilities to satisfy the needs of the population and takes its position among the nations in the global village. The global oil glut has adversely affected the revenue position of Nigeria. This study assesses the level of tax payers perception on the value added tax in Nigeria.
1.1 Background of Study
Taxation has long been practice in Nigeria. Initially, only men were expected to pay taxes but now all people working and anybody found in the capacity of paying tax are obligated to pay tax.
Tax in a mandatory levy on income charged for the purpose of carrying out government activities losses incurred by government in recent times through tax evasion are increasing rapidly despite the pathetic financial and economic state of the country. There are daily report on newspaper and magazines that government losses billions of naira yearly due to tax evasion and the fraudulent practices of the tax officials. This has attributed to many factors. Most people attribute this to the fact that the country’s tax system in highly income base and since income is taxed only at one point or stage, a lot of evasion results.
In Nigeria, many different goods are consumed. For this reason, tax experts see consumption as the actual habit and as such, the need to shift tax base from income tax to consumption tax. This necessitated the introduction of sales tax in Nigeria through degree N0. 7 of 1986.
However, it was discovered that sales tax is narrow because it does not cover a lot of goods and services. This prompted the introduction of Value Added Tax (VAT) in Nigeria.
The idea of introducing VAT in Nigeria came from the report of the study group set up by the Federal Government in 1991 to review the entire tax system, VAT was proposed and a committee was set up to carryout feasibility studies on its implementation. In January 1993, government agreed to introduce VAT through instrumentality of the VAT Degree 102 of 1993. This was meant to be effective from January 1 1994. It came on stream as a replacement to its antecedent, the sales tax, which was characterized by a lot of lapses inadequacies and restrictive coverage. VAT is a consumption tax imported on all manufactured goods, industrial raw material and other imported into or product in Nigeria a single rate of five percent. Potentially, its draguel cover virtually everybody, since one thing or the other except in the cases of specific items that are exempted.
Several benefits which the government expected to derive from value added tax (VAT) were enumerated. During several others they are
- Increase in revenue generation
- Facilitation of administrative enforcement
- Reduction in revenue losses through tax evasion
- Enhancement of documentation of transaction
- Encouragement of rapid industrial growth by allowing credit for input taxes for capital goods.
- Maintenance of neutrality in tax payment since it is broad based and has a single rate.
The government has conveyed these benefits to the public and has also organized workshops and seminars to educate the producers, suppliers, consumers, tax officials and the general public on VAT system in Nigeria. However, the perception of taxpayers is necessary at this stage and this is what this research is to find out.
1.2 Statement of the Problem
The Federal Government has made prantic efforts to convince the public of the need for VAT system in Nigeria. It has informed the public of the benefits which have been derived from VAT, for example, a reduction of tax evasion, increase in government revenue and so on. This implies that the government sees VAT as a good tax system. But the tax payer may not have the same view as the government, they may they will most definitely be reluctant to pay.
The problem or the question therefore, is what is the perception of the taxpayers or the public on tax systems? Do they see it as being important as the government does? It is in view of the above questions that the researcher has decided to find out and evaluate the perception of the public or tax payers on the valued added tax in Nigeria.
1.3 Purpose of the Study
It was the purpose of the study to evaluate the views of the tax payers on Value Added Tax (VAT). On the basis of this, the researcher will be able to say if VAT has done more harm than good on the part of the tax payers. The finding will also enable me make recommendations that will bring about modification if necessary, that will strengthen the machinery for the administration of VAT and also to its acceptance by the public.
1.4 Significance of the Study
Every research work has to be significant. It must either create some form of new knowledge, or add to an already existing body of knowledge. To this end, this study will serve as information to the government to known the perception of the tax payers on VAT. It will also reveal areas in the VAT system that require correction in order to achieve a more effective and efficient tax system
1.5 Organisation of the Study
For the information presented in a research work to be clearly understood and appreciated, a systematic and chronological presentation of the work is of greater importance. In keeping with this, this research has been organized and presented in five chapters;
Chapter One; This is the introduction chapter and it informs the reader on what the entire study is about. According to Ochei C.A. (1994:5) the chapter specifies the problems that prompted the study, the assumptions of the study and the operational definition of terms.
Chapter Two; This contains the review of all related literature, or previously existing materials or the subject. This chapter establishes clearly the nature of the already existing body of knowledge, thoughts, ideas, concepts on the subject thereby highlighting the new knowledge to be generated by the research.
Chapter Three; information on the method employed in the collection of data and their analysis can be found in this chapter. Also in this chapter, justification is provided for the adoption of the methods and analytical techniques employed.
Chapter Four; This involves the presentation and analyses of data findings from the testing of hypothesis are also presented here.
Chapter Five; This is the final chapter and it contains the summary of the entire work done, the conclusions down, and the recommendations made by the researcher based on the findings of the research work.
Appendices; It is usual practice that in the final pages of research work, reproductions of some document such as questionnaire relevant tables, statute, letters and so on attached for a better appreciation of the research work by the reader. This can also serve as a means of verification work done.
1.6 Research Questions
The questions below are to be answered in the course of this work. If at the end of this research, appropriate answers are provided to these questions, the aim of this research shall have been realized. The questions are: –
- To what extent has VAT curbed tax evasion?
- To what extent has the government been able to generate excepted revenue?
- Is the administration of VAT in Nigeria preceded to be efficient?
- To what extent is VAT a good replacement of sales tax?
- Is VAT a fair and equitable tax?
- What impact does VAT have on the revenue generation of the government?
- Has the institution and implementation VAT affects con consumption habits of consumer.
- H0: Value Added Tax is not expected tax evasion
H1: Value Added Tax is expected tax evasion
- H02: Tax payers are not perceived to be favoredwith VAT system
H2: Tax payers are perceived to be favoredwith VAT system
- H03: Tax payers do not believe the merits of VAT affect their response to payments.
H3: Tax payers do believe the merits of VAT affect their response to payments.
1.9 Definition of Terms
This is a consumption Tax which is charged 5% on goods and services, which are not exampled by the VAT degree of 1993.
b. Vatable goods:
Summary, Conclusion and Recommendation
It is important to ascertain that the objective of this study was on an evaluation of tax payer perception on the value added tax in Nigeria
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the tax payers perception on value added tax
This paper empirically investigated the contribution of Value Added Tax (VAT) and total revenue to the GDP from the time of its inception to 2010. This was done against the background that it was introduced by the Federal Government of Nigeria in 1993 to replace Sales Tax. The aim was to increase the revenue base of government and make funds available for developmental purposes that will accelerate economic growth. Time series data on both the GDP and VAT Revenue from 1995 to 2010, sourced from Annual Reports and Accounts of the Central Bank of Nigeria (CBN) were analyzed, using COBB DOUGLAS Regression model. Findings showed that VAT Revenue and total revenue account for 92 percent of variations in the GDP. This high explanatory power shows that the model is a good fit, and that these components of VAT revenue and total revenue are important determinants of economic growth in Nigeria. VAT Revenue is making a unique significant contribution to the economic development of Nigeria and composition of the GDP. Based on the findings it is therefore recommended that government should intensify efforts to ensure that all identified administrative loopholes should be plugged for VAT Revenue to continue to contribute more significantly to economic growth of the country.
The relevant literature reviewed adequately covered the importance of VAT to any economy,but this study went ahead to study and confirm the imperativeness of VAT reform in Nigeria economy in view of the glut in oil income which has been the major source of Nigeria national income. The study has made adequate contribution to knowledge through the discovery of optimal tax theory as a basis for charging VAT relatively on the characteristics of income and taxing of final goods uniformly, which will retrospectively make consumers to pay government bills.
In the light of the above mentioned and analyzed, the following recommendations become imperative for implementation: 1. General reform of Value Added Tax and increase in VAT rate from 5% which was introduced in 1994,and exactly twenty two(22) years old. Government should consider the increase of VAT rate from 5% to a minimum of 10%.In facing reality of income objective, VAT should be given priority because from table 1,countries of the world rely on income from VAT to part- develop their economies. The optimal tax theory adopted in this paper support the agenda of reform to increase the social and economic welfare of the nation.
Steinmo (1993) stated that “Governments need money,modern government needs lots of money.How they get this money and whom they take it from are two of the most difficult political issues faced in any modern political economy”.This statement is applicable to Nigeria today.
To achieve this,government should focus on the following areas: Integrated Tax Offices should be strengthened for efficiency and effectiveness through capacity building in tax administration and information technology leverage.
Federal Inland Revenue Service should address the challenge of tax evasion, which results into narrow tax payer base and reduction in willingness to pay. The implication is reduction in revenue collected against budgeted income.
Government should account for money collected through VAT by the provision of infrastructural facilities to encourage people’s willingness to pay tax. Bickersteth(2016) stated that one of the greatest incentives to paying tax is for the government to use tax revenue judiciously so taxpayer can see the value created by their tax.
Government should enhance efforts to increase the VAT base, as many businesses are not registered for payment of VAT. The Integrated Tax Offices should reorganize their audit system to visit many entrepreneurs and businesses
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