1.1 BACKGROUND OF STUDY
Value added tax is a concept in Nigeria
introduction in January 1994.It antecedent contract to 1987 when
structural adjustment programme [SAP]was introduced in the country.
The architects of (SAP) which include
the world bank and international monetary fund (IMF) had advised on
total review of tax system in the country as a panacea for economic
The federal military government
responded by setting up several committee in succession, which
culminated in the introduction of VAT in 1994 through decree 102
promulgated in 1993.
Prior to the introduction of vat, sales
tax had been in operation. Following recommendation from the committee,
sales tax was abolished and VAT introduced as its replacement.
The economic blue print behind SAP was
generally to a tract more revenue for government. Specifically VAT apart
from halting wide deficit in government account resulting from
government expenditure running steadily ahead of revenue, also intend
v Reduce the country dependence oil revenue.
v Bring in a lot of money because by the incidence on the consumer who hardly know that he is paying the tax
v Provide incentive for export and therefore enhance balance of payment position
v Maintain even tax incidence across various stages of production
v Shift taxation toward consumption
rather saving advocate of VAT had argued among other thing that the new
system was desirable in economy because it will curb consumption of
luxury and socially undesirable goods and services. It was advocated
furthers that VAT would eliminate the multiplicity of tax in the
Moreover, it was argued that it will
make room for more saving and subsequent investment since it, minimize
consumption. VAT also was intended to promote export and discourage
import because export will be given tax exemption while import will be
From the general objective of
the new tax system, it was intended to revamp the national economy
through improved revenue and attitude changes. The enabling law clearly
stated the modalities for its implementation, which was rested at the
hands of federal inland revenue services (FIRO), at its inception, it
was opposed by section fo Nigeria especially manufacturers association
of Nigeria it was argued by the opponents that VAT was regressive,
discriminative of its unpopularity, this is not however to suggest that
VAT may not have its shortcoming VAT, has been in operation for five
years, the players are several industries and services, which are
publicly and privately owned. Five years is enough period for any
policy to make its impact, in view of this, the effect of VAT in Nigeria
1.2 STATEMENT OF PROBLEM
Prescribing economic and fiscal policy
that will keep the economy of Nigeria afloat has been a tall and tough
other various economic methods principles and policies were put in place
by several leaders in the past, yet the economy has defiled all the
solution value added tax (VAT) was one of such conscious economic
policies put in place to get the economy going.
The problems facing the
economy were enormous and multi dimensional. To turn it around, the
government in it fiscal and monetary policies always focuses on the
private sector and the industries.
Industries are at the center
stage of implementation and execution of VAT. They are the manufacturers
of good and provide of several whose products are taxed at each
production stages. Although VAT may attract more revenue for the
ultimate beneficiary the government, but what problem does it constitute
to industries? Does it lead to profit or loss on the part of the
industries concern? The driving force in any enterprise to the profit
motive. In the quest by the government to attract more revenue, does the
extra burden imposed on the consumers in firm of value added tax affect
the profit of these industries and provide of services.
Apart from the impact of VAT
on profit on the industries, it could equally affect the industries in
liquidity, that is the ability of the industries to settle its debts as
and when due.
Moreover, another problem
posed by implementation of Vat on industries is the effect on the volume
of transaction of business in the industries.
VAT, may have two sides of he same coin,
it may contribute to the economy by attracting more money for the
government while at the same time it may be a burden on the economy by
reducing the spate of performance of industries.
It is therefore pertinent to
resolve the question by how, why and whether VAT in one way or the other
affect the profitability, liquidity volume of transaction and overall
performance of industries in Nigeria using NEPA and ABC as reference
1.3 OBJECTIVE OF THE RESEARCH
The following objective will guide this research
v To ascertain what value added tax (VAT) actually means as a tax system.
v To ascertain the objective of value added tax (VAT)
v To verify the effect of value added tax (VAT) in Nigeria industries especially as it concerns Nigeria economy
v To ascertain the advantages and disadvantages of values added tax (VAT)
v To X – ray the problem, prospectus and make recommendation of resolving issues in (VAT)
1.4 SIGNIFICANCE OF THE STUDY
The outcome of this research work the
“effect of value added tax in Nigeria industries”, will be of immense
significance in both practical and theoretical terms.
Practically, different group stand to gain enormously from finding of this research.
First in this regard is the
government of Nigeria government as the major beneficially of VAT and
the regulator of social life and industrial and fiscal policies will use
the finding of this research to smoothen the rough ends of VAT as it
affect both the government industries and the public at large.
The manufacturing sector will
find the finding of this research beneficial in coping with whatever
problem VAT has caused to the sector.
The financial sector will
equally benefit from the research work as it exposes the VAT items and
highlight benefit accruing from imposition of VAT on certain securities.
Foreign interest group
especially prospective foreign investors and foreign financial bodies
will find this work useful. It will not only explain to them what VAT is
and what it is not and the benefit accruing from it but also provide
them in platform for comparison on the operation of VAT in Nigeria and
The general public will find
the outcome of this research work interesting it will serve as an
orientation to many of them may not be a square of the VAT system of tax
in Nigeria. Many question unresolved about VAT on their minds will be
their clarified by the outcome of this research work.
Theoretically, the work
contributes its quota on already existing knowledge about value added
tax and the economy of Nigeria. It will offer a source of secondary data
collection for many researches student. In this way, the research work
will add to the scientific world.
1.5 SCOPE OF THE STUDY
This study will focus its searchlight on
certain selected industries in Nigeria. These are national electric
power authority (NEPA). Nigeria bottling company plc.
Using the above industries as
reference points the researcher will generalize on other industries in
Nigeria specifically, the research will be centred on the effect of VAT
on profitability of these industries adopting a longitudinal study
overtime ranging from pre – VAT to VAT era. It will also focus on
liquidity of these industries limiting it to the same pre – VAT and VAT
period as periods of analysis. It will equally focus on the effect of
VAT on volume of business transaction in these industries using the same
range of pre VAT period.
In all selected establishment,
the research consult with those in account department and top
management who are in position to supply the information needed for the
It is the intension of the research to carry out a comprehensive study on this subject matter.
1.6 LIMITATION OF THE STUDY
However the research envisages that the following constraints may hinder the work.
Time is a big factor that will
constrain the research work. As a result time factor may not permit the
research is a student who combines the rigorous academic activities
with the research work. As the result, the factor may not permit a
effective coverage of target areas.
Also inadequate finance may
constrain the research work. The researcher is a student who depends on
scarce economic resources coming mainly inform of feeding money. The
research work is an expensive project which financial involvement might
not be met by the student.
Another limiting factors may
be the uncooperative attitude of respondent it a known fact that staff
are not free to release information about their organization for fear of
loosing their job.
Inadequacy of data may also
constraints the research. VAT is a result there is not enough
publication of that subject matter.
1.7 DEFINITION OF TERMS
This mean the likely come of
implementation of value added tax (VAT) on these selected industries. It
can either positive in which case it enhance the economic funtune of
industries or negative in which case it hinders the economic fortune of
This means the ability of the selected companies to make profit.
This means the ability of the selected companies to settle its debts as at when due.
Volume of transaction
This means of the level of business transaction of this companies
This means invoice given to register person to collect VAT
Incident of tax
This means the body of the tax on people.
This refers to tax collected by the register VAT able person.
This refers to financial rules and regulation made by the government
This refers to reduction in value on the country currencies in relation to foreign country.
This refers to avoidance of payment of tax by taxable adult.
This refers to income tax that will be taxed