THE ADVANTAGE OF VALUE ADDED TAX IN TERMS OF REVENUE GENERATION
BACKGROUND OF THE STUDY
Some years back, the agricultural sector was playing an
important role in the Nigeria economy both in generating revenue and in the
physical impact. This was before oil started its own impact on the economy. The
impact created by the oil sector begging to be more relevant within a short
period of time. Other sectors of the economy become secondary in terms of their
relevance’s. The sectors were neglected in the favour of oil. Oil thus becomes
the leading factor and the leading product in term of revenue generating and
foreign exchange contribution. The condition of the economy became vulnerable
to the condition of the word oil market form 1970 till date. The fluctuation of
price in the world of oil market in the Nigeria economy. This is by
diversifying the revenue generated based on the higher economy. In addition to
the above mention situation, the Nigeria state was increasingly acquires ring
national responsibilities along with the traditional role of the government.
The financial requirement of the government has been increased over the years
in facilitating the accomplishment of government functions. Worthy of mention
is this connection in the effective way of revenue generation and collection by
the government against responsible for the task. The idea of introducing value
added tax (VAT) was therefore considered and the federal government finally
approved its introduction. Value added tax is therefore expected to increase
and be effective, contribute towards enhancing the revenue generation based on
the government. The system is expected to minis of eliminate the corrupt
practices associated with revenue assessment and collection. The importance of
revenue in any country and of course Nigeria cannot be overemphasized. Revenue
has been the bedrock of government performance. The history of revenue in
Nigeria dated to the pre-colonial era when tax and levies were paid to the
fathers or lord as the case may be to Oba’s, Kings, Emirs. The tax or levies
were to be paid in cash or in kind during the pre-colonial era. It was used to
support the sustenance of the colonial administration. It has even been used to
mobilize farmers into cash crop production mainly for the colonial export
through the use of the cash taxes. Even after independency, tax has played in
important role in generating revenue for the government. It as used for the
running of the affairs of the post independence government in Nigeria.
Furthermore, it has also been used to archive other policies such as the
protection of the infant industries, income re-distribution, checking and
controlling the consumption of some certain goods. Etc. it is therefore very
much likely that it will continue to play a very important role in Nigeria
economy. Following the difficulties. Irregularities, complains associated with
the assessment and collection of the said tax, operation committee was set up
by the federal government in 1991 to review the entire tax system in operation.
The committee recommended the idea of introducing value added tax (VAT) in the
country and another committee was set up to undertake the feasibility study and
make recommendation on its implementation after which he federal government
finally approved the introduction of value added tax in Nigeria tax system with
effect from 1st September 1993 and was incorporated in the 1994 budget.
STATEMENT OF PROBLEM
This research is made to find out the position of value
added tax on the overall Nigeria on taxation system. It is the find out the
impact or role both in terms of generating revenue for the government and
controlling irregularities wildly believed to be associated with the said tax.
It is also set to find out beyond Technique level practical problems associated
with it and to make recommendation at the end of the study.
OBJECTIVE OF THE STUDY
The objective of this study is to examine the introduction
of the value added tax (VAT) as a system of taxation in Nigeria and also to
look at the relationship between Value Added Tax and generation of revenue
through other forms of taxation. It is also the objective of this study to find
out the problem associated with the administration of VAT since its
introduction and also to give recommendation on how o make VAT very effective
and responsible to the need of the Nigerians. The study also intends to find
out the advantages of Value Added Tax (VAT) in term of generating revenue in
SIGNIFICANCE OF THE STUDY
The significance o the study is that government is in need
of money to execute its increasing projects. Having introduced VAT to replace
the sole taxation, to escape the all the difficulties in the old system. The
study is aimed at enhancing the effective implementation and achievement of the
objective, as such; VAT should be regarded as worth and should be encouraged
and supported. This study is very important, as the value added tax is a new or
a modified system, which has a lot of significance. The public needs to be
educated on its operation. The study will bring the outstanding between the
government, the populaces (the tax payer) and the tax authorities together
Proper knowledge of the Values Added Tax would bring increase return to the
government as a result of the compliance by the payer and proper record keeping
by the officials.
STATEMENT OF THE HYPOTHESIS
A hypothesis is an arrangement or tentative generated, which
can be proved with empirical evidence. There are two type of hypothesis
namely; Null hypothesis and alternative
hypothesis. A null hypothesis is a hypothesis of no effect or no difference
while an alternative is a hypothesis that may be accepted if the statically
evidence is rejected by the sample evidence. Data are collected, analyze and
interpreted with a view to accepting or rejecting hypothesis. The data collected
from this research will be federal Inland Revenue service Enugu office. We have
the hypothesis as follows;
Ho: The measures taking by the federal Inland Revenue
service (FIRS) to curtail the much pronounce Nigeria factor of competition and
irregularities has nor been archived
Hi: The measure taking by the federal inland revenue service
(FIRS) to curtail the much pronounce Nigeria factor of competition and
irregularities has been archived.
Ho: Proper planning assessment, collection and monitoring of
the value added tax has not been archived.
Hi: Proper planning
assessment, collection and monitoring of the value added tax has been archived.
Ho: The steps government has taking to compel all cooperate
bodies border and business in it to fully register with VAT department has been
SCOPE OF THE STUDY
The scope of the study is to cover the introduction, the
implementation, problem and prospect of VAT and its relationship with revenue
generation in Enugu state. The line frame will cover from its introduction in
1993 till date. In addition to this all data and information to be used will be
from area office of the federal Inland Revenue service Enugu office.
LIMITATIONS OF THE STUDY
The study is concentrated on the advantage of value added
tax (VAT) in terms of revenue generation and its operation in federal inland
service Enugu office value added tax (VAT) as a new introduced system of tax.
The study was faced with a problem of its own which limited the research
system. Some of the limitation is as follows;
of books and journals etc. due to lack of relevant textbook, journals and
magazine, the other relevant articles or publication on the subject matter
through which one could easily collect his materials for the literature review
in this research work.
b) Its newness: Due
the newness of the value added tax VAT, the taxpayers, the revenue officials
are yet to understand fully this new system of tax. This were experience in the
course of the study when people were interviewed and their response were
similar which reflect lack of understanding.
c) The effect of scanty data: The issue of scanty data arose were some private
organization refuse to disclose some information on their record keeping on Vat
and especially on returns rendered to the federal government. This made it very
difficult to get the required information on VAT operation by the organization
in respect to credit system of VAT.
d) Time: Due top
shortage of time, the study was carried out in Enugu state only. Time did not
allow for wilder research in other state of the federation. It was not easy to
collect most of the questionnaire distributed due to the fact that the people
who the questionnaire were given never got it ready at the appropriate time.
They gave appointment foe it to be collected. Some even said that they missed
e) Interviews: The
interview with the sole trader was not easy to obtained because it was very
difficult to make them understand the purpose of he study is not to bring them
to book for tax purpose.
Another problem or difficulties face with the course of this research is
unwillingness of businessmen and people in position of such vital information
to release them and some of then see the researcher as spies or agent of tax
board or authority.
DEFINITION OF TERMS
The terms use in this study on the important of value tax
are define as follows;
i. Value Added Tax: this is the tax impose on
the value of goods and services in the country either imported or exported
which the surlier or the sellers of the goods add to it.
ii. Economy: this
means control and management of money goods and services in a country.
iii. Goods: the
term goods cover all tangible and intangible assets and commodities that are
traded for considerations.
iv. Supply of
goods: this include delivery and transfer of goods arising from contractual or
legal action or transaction though agents.
Federal Inland Revenue service, it the operation of federal board of Inland
vi. F.B.I.R: the
means federal board of Inland Revenue.
this deal with the aspect of making laws in the system of tax.
viii. VAT on input:
this is the VAT on the purchase of goods and service on a notable person.
ix. VAT on OUTPUT:
this is the VAT charged on the sale of goods and services it is the VAT paid to
the F.I.R.S after vat on the purchase of such good or supply has been deducted.
x. Vatable person:
this means any person co-operate or incorporate who trade in Vatable goods and
service for a consideration.