ABSTRACT
The Purpose of this study is to investigate the impact of VAT on the Nigeria economy as it relates to how it can improve government revenue and throws more light in its contribution to the economic growth and development of Nigeria. In addition to the oral interview and questionnaires distributed, was a review of study of literature relating to the impact, administration and collection of VAT in Nigeria. Simple percentages, bar chart, pie chart, and chi-square X2 = Σ(O-E)2E .
Were used for data analysis on which purposive sampling technique was adopted. The findings shows that
A,VAT has economic impact in consumption pattern in Nigeria
B, VAT has positive impact on the economy of Nigeria.
C, The payment of VAT has improved the prospects of businesses, organizations and industries in Nigeria and the study strongly recommends that:
i. There should be functional VAT offices in every council area to coordinate a vigorous campaign to educate people and seek their cooperation.
ii. The above will no doubt erode the negative attitude that some of the taxpayers have developed towards VAT.
iii. Government should make adequate provision, for retrieving the VAT proceeds from companies and other collection agents.
CHAPTER ONE
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:
Scraping of some form of excise duty;
The reduction of the marginal rate of personal income tax to 25% and lowest tax bracket from 10 to 5;
The reduction of company income tax rate to 30 and;
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.
Has Value added tax any impact on government revenue in Nigeria?,
Does VAT have any economic on consumption pattern in Nigeria?
What are the problems confronting the effective implementation and administration of VAT in Nigeria?
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.
1.4 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?
1.5 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.
1.6 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.
1.7 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.
1.8 LIMITATION OF THE STUDY
The researcher encountered a lot of hindrance and problems in the course of carrying out this research work. Among the major problems is the difficulties in getting and gathering information and others which include the following:
1. FINANCE
Due to the nature of office and business within the scope, the researcher spends a lot of money on visiting, traveling from one location to another, from one office to the other and even had to repeat a visit more than three times to seek for information, all these involves money considering the financial constraint of the researcher and limited resources available to her.
2. SOURCES OF INFORMATION
Many registered and non registered business owners were reluctant to give out or provide information about the research, since they believe that tax payment is something very confidential and therefore could not open up to the researcher.
3. INADEQUATE RECORD KEEPING
Some of the respondents visited were unable to present complete and comprehensive records of their business .while some were not keeping proper records of their business activities and as such could not give adequate and correct information on the effect of vat on their businesses rippling on the economy of Nigeria.
4. TIME:
Time constraint has been another vital limitation and obstacle towards effective realization of the main objectives of this study. Time was really not on my side since I have to combine the little time left with my academic work and preparation.
1.9 DEFINITION OF TERMS
It is the researchers intention that this project work will be read and understood by all that may be interested in it either officially or ordinary. Hence, the need for highlighting the important terminologies used cannot be over- emphasized.
The Decree 102, which established the Value Added Tax (VAT) came into being in the year 1993. The Decree spelt out the following terms unless the context otherwise requires. As far as this project is concerned, the meaning is just as they are in Decree.
“Vatable Person (Registered Person)”: This refers to a manufacturer, wholesaler, an importer and a supplier of taxable goods and services. As a taxable person, he is a person registered under section 8 of the Decree.
“Authorized Officer”: This means an officer who has been authorized by the board of Inland Revenue to perform any function under or in pursuance of this Decree.
“Board”: This is the Federal board of Inland Revenue.
“Chairman”: This means the chairman of the Federal Board of Inland Revenue.
“Company”: Company here as defined under the Companies and Allied Matter Decree 1990 and a cooperate body that may be formed under any other written law and
include any association, whether incorporate in or outside the country (Nigeria)
“Importer”: This means a person who imports taxable goods.
“Invoice” This means any document issued as an evidence of demand for payment.
“Manufacturer”: Means any person who engages in the manufacturing of goods. It also includes a person who has manufactured for him or on his behalf by other goods made to his specification or design.
“Manufacturing”: Means the process by which a commodity is finally produced including assembling, packaging, bottling, repackaging, mixing, blending, grinding, cutting, bending, twisting and pining any other similar activity. “Owner”: Means in respect of any goods, aircrafts, vessel, vehicles, plant or other goods, a person other than an officer acting officially, who hold out himself to be the owner, manufacturer agent or person in possession of or beneficially interested in, or having control of or power of disposition over goods, aircraft, vehicle, plant or other goods. “Supply of Services”: Means any services provided for consideration.
“Tax Period”: Means one calendar month commencing from beginning of the month to the end of that month etc.
This material content is developed to serve as a GUIDE for students to conduct academic research
THE ANALYSIS OF VALUE ADDED TAX AND ITS IMPACT ON THE NIGERIA ECONOMY
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