CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND
OF THE STUDY:
Value Added Tax (VAT)
in Nigeria is a Federal Government tax, which is administered using the
existing machinery of the Federal Inland Revenue Services (FIRS). VAT has a
directorate within the frame work of the Federal Inland Revenue Services (FIRS)
with the head office in Abuja. It has a network of zonal and local offices
throughout the federation. The Directorate of the tax is headed by a director
who is assisted by two deputy directors. The Zonal Coordinator of the Federal
Inland Revenue Services (FIRS) at Lagos, Ibadan, Enugu, Kaduna and Jos also
coordinates the activities of local VAT offices within their areas and are
responsible to the VAT Directors in Abuja for all Value Added Tax (VAT) related
matters. VAT as a form of tax was introduced in Nigeria with effect from 1st
January 1994 based on the report of the study group set up in 1991 by
government to review the system of indirect tax in Nigeria.
Before the introduction
of VAT in Nigerian economy, the Federal Government has been working
relentlessly on how to revamp the Nigeria economy. To this effect, a lot of
economic measures have been introduced. Among the economic measures introduced
included the Second-Tier Foreign Exchange Market (SFEM), Structural Adjustment
Programme (SAP), and Foreign Exchange Market (FEM) etc. All these efforts at
revamping the economy were to no avail as the economy seems to be an ailing
child that has defied all economic therapy or fiscal measures. Prompted by its
avowed position to revamp the Nigerian economy at whatever cost, the Federal
Military Government under the leadership of General Sani Abacha introduced a
fiscal policy, the Value Added Tax (VAT) in January 1994. VAT is a consumption
tax at each stage of the consumption chain and is borne by final consumer. It requires
a taxable person upon registering with the Federal Board of Inland Revenue to
charge and collect VAT at a flat rate of 5% on all vatable goods and services.
Where the supply is not subject to VAT, the VAT liability will either be
Zero-rated or exempted. Zero-rated goods and supplies are all export goods and
supplies. Supplies that are zero-rated are still taxable but no actual tax is
payable to the government. The important difference between Zero-rated and
exempt items is that any input VAT relating to Zero-rated supplies is
recoverable, whereas that relating to exempt supplies are not recoverable.
The registration of
Value Added Tax (VAT) is to cover all the business activities of the vatable
persons. Therefore all domestic manufactures, wholesalers, distributors,
importers and suppliers of goods and services in Nigeria are expected to
register for VAT within six months after the commencement of the decree or six
months from the commencement of business, which ever is earlier. A vatable
person is one who trade in vatable goods and services for a consideration.
Every vatable person has the obligation to register for Value Added Tax (VAT)
payment. Professionals like lawyers, accountants, Engineers etc who provide
professional services to their clients are require to register. There is
therefore no thresh-hold for registration. VAT paid by a business on purchases
is known as input tax, which is recovered from VAT charges on company sales
known as output tax. If output exceeds input in any particular month, the
excess is remitted to the Federal Board of Inland Revenue (FBIR) but where
input exceeds output, the tax payer is entitled to a refund of excess from
Federal Board of Inland Revenue (FBIR) though in practice this is not always
possible. A tax payer however has the option of recovering excess input from
excess output of a subsequent period. It should be stated at this point that
recoverable input is limited to Value Added Tax (VAT) on goods imported
directly for resale and goods that form the stock-in trade sued for the direct
production of any new product on which the output VAT is charged.
Vat in Nigeria were
created as replacement or substitution for the sales taxes that were in
operation before. They were imposed on all goods that were manufactured in the
country as well as goods that had been made outside the country and were
selling there. The impressive performance of VAT within the first government
fiscal policies such as:
i.
Scraping of some form of excise duty;
ii.
The reduction of the marginal rate of
personal income tax to 25% and lowest tax bracket from 10 to 5;
iii.
The reduction of company income tax rate
to 30 and;
iv.
The reduction of the rate of capital tax
from 20% to 10%.
Following these, Value
Added Tax (VAT) seems to be the best among other types of taxes. It is against
this background that we are going to analyse VAT and to see the impact it has
on the nation‘s economy.
1.2 STATEMENT
OF THE PROBLEM
The significant impact
of VAT or the role played by Value added Tax in the development of the nation
cannot be overemphasized. Revenue is raised by the government through taxation
for the development of the nation‘s project.
Vat was introduced as a
revenue mobilization strategy to cover up the deficiencies experienced with the
former sales tax because of its progressive nature. Government ability to
adequately and effectively retrieve the proceeds from companies and other
agents of collection remains a problem. It does not appear as if there is
adequate machinery for effectively monitoring of the remittance of the tax
withheld to the relevant tax authorities, this means that the federal inland
revenue , the body charged with the administration and implementation of Vat
lacks the logistic support , this invariably will give room for tax evasion and
avoidance. Secondly, the dishonest practice by some tax officials also posed a
serious threat to effective tax administration in Nigeria, especially when such
practices are capable of having demoralizing effects on the honest tax payers.
Consumers will still
want to low how much they are paying as Vat as most of these taxes are not duly
reflected on their invoice. it is generally believed that vat is another way of
reflecting economic hardship on the consumer to the advantages of the
manufacturers and companies. It could be seen as an excuse to raise prices of
goods and services arbitrary. For instance, landlords are now charging vat on
house rents, some hotels are charging vat on their services without remitting
same to the appropriate authorities. These are contrary to the regulation
governing the vat system.
The uncommon nature of
this tax system, has resulted in unaware of its existence by majority with
resultant effects of low credibility by the government, this has made people to
scorn the payment. Lack of trained personnel and logistic support from the
government and FIRS has contributed immensely to poor vat administration and
implementation which invariably has resulted in reduction in revenue generation
from vat. It is against these backdrops, that this research seeks to ask
certain question to determine if the introduction of VAT is a worthwhile
venture or policy.
i.
Has Value added tax any impact on
government revenue in Nigeria?,
ii.
Does VAT have any economic on consumption
pattern in Nigeria?
iii.
What are the problems confronting the
effective implementation and administration of VAT in Nigeria?
iv.
And to what extent has VAT impacted on
the business organization, firms and industries in Nigeria?.
1.3 OBJECTIVES
OF THE STUDY
The main objective of
the study is to assess the implication of value Added Tax in revenue generation
of Nigeria. Specifically, the study attempts
1. To determine the economic impact of
value - Added tax on the consumption patterns of Nigeria.
2. To assess the impact of value added
tax on the Nigeria Economy.
3. To examine the impact of value added
tax on the prospective businesses, firms, organizations and industries in
Nigeria
4. To identity the potential problems
confronting the implementation and administration of Vat in Nigeria.
1.3.1 RESEARCH
QUESTION
As a follow up to the
objectives of this study are the, following research questions
1. To what extent does value added tax
impacted on the consumption patterns of Nigeria?
2. Does Value Added Tax (VAT) have any
positive impact on the Nigeria Economy?
3. To what extent has VAT improved the
performance of businesses, organizations and industries in Nigeria?
4. Are there problems confronting the
implementation and administration of VAT in Nigeria?
1.3.2 RESEARCH HYPOTHESES
The following generated
hypothesis will be examined Ho1: Value Added Tax (VAT) has no economic impact
on the consumption patterns of Nigeria Ho2: Value Added Tax (VAT) does not have
positive impact on the Nigeria Economy. Ho3: Payment of (VAT) has not improved
the prospects of business, organizations and industries in Nigeria. Ho4: There
are no challenges confronting the implementation and administration of VAT in
Nigeria.
1.4
SCOPE OF THE STUDY
This study covers the
economy as a whole (The Federal, State and Local Government) but with
particular reference to the Federal Board of Inland Revenue (FIBRS) which is
the relevant tax authority for the value added tax in Nigeria. The data
collection was restricted to the VAT office, business registered and non
registered, consumers and wholesalers within Enugu metropolis, hence the
findings of the study was generalized to cover VAT activities within the
metropolis and Enugu VAT office at No. 7 Ridge way Road.
1.5 SIGNIFICANCE
OF THE STUDY
This research work will
be an invaluable source of literature for researchers, student, marketing
practitioners, accountants, bankers, companies, government agencies and related
field who might be interest in knowing much about the concept of ―VAT.
It‘s general
contribution to economic development of Nigeria were mentioned. It‘s advantages
and disadvantages, types of taxes, the origin of VAT, its application, impact
and administration were thoroughly analyzed which will be an indispensable
material to the above mentioned beneficiaries. It will also help the government
in her policy formulation to suggest alternative strategies that can aid
effective administration and monitoring of the VAT process and procedures. The
list of vatable goods and services will also be mentioned in subsequent chapter
together with the countries that had practiced this system of taxation with the
date of adoption. All these will contribute immensely to the knowledge
previously had by some of the beneficiaries mentioned above.
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