THE ANALYSIS OF VALUE ADDED TAX AND ITS IMPACT IN THE NIGERIAN ECONOMY (A CASE STUDY OF FEDERAL INLAND REVENUE SERVICES ENUGU STATE)

ABSTRACT

This study was carried out to analyze the value added tax (VAT) and its effect in the economy and to identify areas of shortcomings and to make recommendations for corrective measures. The scope of the study was limited to Enugu State. Data were collected based on these objectives:

i.                  To asses the response of vatable person (taxpayer).

ii.                 To increase the awareness of vatable public.

iii.               To assess the impact of value added tax on final consumers.

iv.               To find out if significant correlation exist between VAT Revenue and GDP Literature reviewed from relevant texts and journals revealed that VAT has been exceeding its target revenue since commencement and that state government expenses have been cleared to some extent with VAT revenue. The study further revealed that VAT revenue is not tied to a specific capital project and that there is loophole in the VAT Decree under registration of taxable person. The study also showed that VAT has only added to the multiple tax system operational in Nigeria. And further revealed that VAT has the propensity to increase prices, deplete people’s finances and reduce their purchasing power; contribute to inflation and produce multiplier effects on all sectors of the economy including health. Furthermore, the study also revealed that VAT is a better option to other taxes and that tax-payer render returns promptly to the taxes authority. These finding were examined using descriptive survey, questionnaire and chi-square to test the hypothesis formed. A sample size of 40 was selected by simple random sampling. Data was analyzed and presented using percentages and chi-square, which gave rise to the findings. Based on the finding, recommendations and suggestions were made.

CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND TO THE STUDY

Value Added Tax (VAT) has become a major source of revenue in many developing countries. In Sub-Saharan Africa for example, VAT has been introduced in Benin Republic, Cote d’Ivore, Guineu, Kenya, Madargascar Mauritius, Niger Republic, Senegal, Togo and lately, Nigeria. Evidence suggests that in these countries VAT has become an important contributor to total government tax revenues (Ajakaiye, 2000). Shalizi and Squire (1988) found out that VAT accounted for about 30% of total tax revenue in Cote

d’Ivoire, Kenya and Senegal in 1962, the oil producing countries are not excluded from the list of countries introducing this tax hurdle. Tait (1989) showed that VAT had been in effect in Ecuador and Mexico since at least 1973 by 1983 accounted for 12.35% and 19.71% of total government revenue in these countries respectively, Indonesia introduced VAT in 1983 and by 1988; the ratio of VAT revenue to GDP had risen to 4.5% (Bogetic and Hassan, 1993).

This impressive performance of VAT in virtually all countries where it has been introduced, according to Ajakaiye (2000), clearly influenced the decision to introduce VAT in Nigerian in January 1994. VAT is a consumption tax that is relatively easy to administer and difficult to evade and it has been embraced by many countries world-wide (federal Inland Revenue Services, 1993). Evidence so far supports the view that VAT revenue is already or significant source of revenue in Nigerian. For example actual VAT revenue for 1994 was N8.189 billion, which is 36.5% higher than the projected N6 billion for the year. Similarly, actual VAT revenue for 1995 was N21billion compared with the projected N12 billion. In terms of contributions to total federally collected revenue VAT accounted for about 4.06% in 1994 and 5.93% in 1995. Total of N404.5billion was collected as VAT (5.1% of total revenue) in 2008.

While the performance of VAT as a source of revenue in Nigeria is encouraging, it remains difficult to find attempts to systematically assess the impact of VAT on the economy. Recent research works on the impact of taxation on the Nigerian economy lumped up all the various taxes together without isolating VAT, how and in what direction has VAT been affecting the Nigerian economy proxy by Gross Domestic product (GDP)? Is there any relationship between the two economic variables?

In the attempt to answer the question posed above we shall in the interim see what is VAT, who is a vatable person, the law establishing VAT in Nigeria, the goods and services that are vatable (taxable), the goods and services exempted from VAT, the economic benefit of VAT, the impact of VAT on the final consumer etc....

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Item Type: Project Material  |  Size: 116 pages  |  Chapters: 1-5

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