study is to determine the role of the impact of value added tax (VAT) on Nigeria
growth and development. The objective of
the same are in suitable the effective of VAT as a suitable alternative to
sales tax in Nigeria; to identify the methods of collecting value added tax and
to identify possible lapses and loopholes in VAT and its application in
study employs primary and secondary sources of data. The primary source of data
was employed to elicit information from the respondent on the concept
considered. Based on this information source, survey analysis of inferential
methodology using chi-square analysis was adopted as a method of hypotheses
the analysis of the study, it was found out that value added tax contributes to
the growth of Nigerian economy, that value added tax is a good source of
revenue generation to the Nigerian economy and that there is proper and adequate
accounting records as far as VAT is concerned. The study suggested that monthly
and quarterly publication of VAT collections and disbursement in a least one or
two national dailies as this will serve as a watchdog and promote
accountability which will consequently prevent diversion of public funds. Also the computerization of all level and
department of tax must be highly favoured.
1.1 BACKGROUND OF THE STUDY
are three types of VAT; consumption income and gross product types, the
difference between them is only on how
purchases of new capital inputs (i.e. plant, furniture, equipment etc) are
treat d in the determination of the tax base for the purpose of this study,
emphasis wit be placed on consumption type.
consumption as the base of the value added tax, consumption can therefore be
defined as the purchase and utilization of goods and services for the
qualification of desires of an individual, business organization or any other
body which could either be private or public. The three major features of VAT
that must always be emphasized in its definition are:
i. That VAT is a consumption
tax (Federal Inland Revenue Service (1993) (FIRS, Information Circular)
That VAT incident is on the final
That VAT is a multi stages tax.
view of the dwindling oil revenue accruing to the government, she in 1991 set
up a study group to review the e tire tax system.
one of the means of raising additional non oil revenue locally, the
introduction of the Value Added Tax was suggested to the Federal Government to
replace the existing sales tax which through a nationally levied tax, the
revenue there from is collected and retained by the state government.
1991, two study groups were set up by the Federal Government for tax reforms in
Nigeria. The first group (on the direct taxes) was set up by the Federal
Ministry of Finance and Economic Planning. The other group on the indirect taxation was
set up by the Federal Ministry of Budget and Planning, and was inaugurated on
April 25th, 1991, by the
then Honourable Minister of Budget and Planning, Alhaji Abubakar Alhaji.
recommendations of this group gave the general guidelines that informed the
abolishment of sales tax as operated under decree No. 7 of 1986.
this Budget speech in January 1 92, Retired General I. B. Babangiga, the then President
and Commander in Chief of the Armed Forces of the Federal Republic of
announced that the government will set up the necessary machinery for the introduction
of Value Added Tax to replace the
existing sales tax in order to broaden the tax revenue base, shift taxation towards
consumption rather than saving, reduce dependence on oil revenue and encourage
investment in the non oil export sectors of the economy.
oil sources have always contributed small amounts to revenue customs duties (taxes
on imported goods) which used to be an important source of revenue in the eighties
have dwindled significantly.
importantly, Individuals and Corporate Income Taxes have also declined as sources
of non oil revenue. For example Custom Duties provided about 20.6% of Federal
receipts in 1988 but decreased to 11.6% in 1992. Company income tax receipts
which accounted for 5.6% of federally collected revenue in 1988 fell to 3.9% in
if the Government must ha e additional revenue to meet growing public expenditure,
it can only come from tax, by increasing both individual and company taxes,
which under the present circumstances is neither feasible nor advisable. In
Nigeria only a small proportion of the
population (mostly civil servants) pay Income tax, so increasing it is not
likely to increase government revenue significantly. Furthermore, real income
has not increased for a very long time. The bulk of the self employed, traders,
farmers and businessmen evade tax and would only pay flat rate levels when
compelled. This gives personal income tax a narrow base that cannot easily be
elongated to yield higher revenue.
tax cannot be Increase either, because of the need to encourage industries. In
the 1993 Budget, government reduced company tax rate from 40% to 35% as an
incentive to local and foreign investors and tax holidays were granted to some companies operating in rural areas.
Increasing corporate tax at this time will definitely have adverse effects on
productivity and national output.
There is therefore, need for a tax increase
a broad based consumption rather than
an income tax will be more suitable, as more people will be able to pay.