The Effects of Value Added Tax (VAT) on the Profitability of Manufacturing Firms: A Case Study of United Cement Company of Nigeria Ltd (UNICEM) and Sumal Food Ltd
Chapter One
OBJECTIVES OF THE STUDY
The main objective of the study is to assess the effects of value Added Tax in revenue generation of manufacturing firms in Nigeria. Specifically, the study attempts To examine how VAT has influence the productivity of manufacturing organizations in the Nigerian economy.
- To investigate the effects of VAT revenue in the GDP of the Nigerian economy.
- To determine how the productivity of manufacturing organizations in Nigeria has enhance the GDP of the Nigerian economy.
- To enumerate goods and services covered by VAT and those exempted from VAT.
- To identity the potential problems confronting the implementation and administration of Vat in Nigeria.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
Tax revenue mobilization as a source of financing developmental activities in Nigeria has been a different issue primarily because of various forms of resistance, such as evasion, avoidance and other forms of corrupt practices Different groups of scholars have tried to write on the subject of value added tax in less developing countries including academicians, tax experts and professionals, commissioners by international monetary funds (IMF) world bank, organization of petroleum exporting countries (OPEC) etc. Extensive studies have nevertheless, been done on the alternation prominence of indirect tax on developing countries in general and Nigeria in particular. The core function of taxation as revenue generating tool in developing countries has been studied by eminent scholars.
Developing countries have been paying more attention to VAT as a means of rationalizing the system of taxation. Among them are Nigeria, Senegal, cote D‘Ivoire, morocco, Tunisia etc. VAT is levied on almost all business transactions in over 130 countries around the world because it is intended to impose a neutral effect on business. The income of government is mainly from taxes, rates, fees and fines, special assessments and revenue from government owned enterprises and mineral resources.
The bulk of government income in developing countries like Nigeria is principally derived from indirect taxation on manufacturing firms, while in the developed countries like USA, the bulk of government revenue is rather derived from direct taxation. Borrowing becomes necessary when income from regular sources is not sufficient to take care of expenditures. The money borrowed must be repaid with some interest out of regular current income or by additional borrowing. But the practice of borrowing cannot be regular feature in Government administration, hence the need for revenue collection agencies in developing countries to maximize revenue collection.
Profitability being one of the most important measures of the performance of business enterprises, managing value-added tax (VAT) liabilities across a range of business presents considerable financial risk, especially when the complexity of VAT is underestimated.
Financial ratio analysis VAT has become one of the most important issues of the companies for evaluation of the performance with respect to macroeconomic policy and state law enforcement. According to VAT Act, financial ratio analysis for performance evaluation has been considered by corporate executives. The information about the determination of the extent and impact of VAT helps company managers to take appropriate decisions as well as to achieve sustainable development and the income approach. Therefore, the identification of the various aspects of VAT on the economy is essential. The effect of VAT on financial performance is among the cases in which, despite its importance, enough research in this field has been performed in Nigeria. Taxes are the best tool to provide general income, redistribution of wealth, the establishment of fiscal discipline and economic management. Based on 20 year forecast of Iran, until the end of the fifth development plan, the government must be able to mainly provide its current expenses through tax revenue and reduce its reliance on oil revenues. The modern method of taxation as VAT can be a fundamental solution to improve the national economy. According to the VAT Act which was enacted in June 2008 in Nigeria, economic institutions must catch a percentage of the added value of the goods and services from buyers to deposit it to the tax administration account.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This chapter deals with the method used in collecting data required in carrying out this research work it explains the procedures that were followed and the instrument used in collecting data.
SOURCES OF DATA COLLECTION
Data were collected from two main sources namely:
- Primary source and
- Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment, the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
POPULATION OF THE STUDY
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information for the study the effects of value added tax (vat) on the profitability of manufacturing firms: a case study of united cement company of Nigeria Ltd (Unicem) and sumal food Ltd. The researchers randomly select 200 staffs from United Cement Company of Nigeria (field and contract staffs) and sumal food Ltd as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analyzing the data obtained.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the main objective of this study was to examine the effects of value added tax (vat) on the profitability of manufacturing firms: a case study of united cement company of Nigeria Ltd (Unicem) and sumal food Ltd..
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges hindering industrialization especially in the rural region or area.
SUMMARY
The government of Nigeria in its quest to increase revenue mobilization decided to change the tax structure in order to ensure efficiency, effectiveness in the administration of tax, and reduce over dependency in oil as the only major source of revenue. The sales tax were replaced by VAT in December, 1993 with the introduction of Decree 102 of 1993 which marks the phasing out for the sales tax decree 107 of 1986, on the grounds that the previous system encouraged tax evasion, had a narrow base of revenue generation and deferred the payment of tax. In view of the above assertion, there is the need for the researcher to look into the impact of
VAT in Nigeria economy and whether the introduction of VAT has any positive or negative impact on the economy. The study revealed the following.
CONCLUSION
Having critically examined the research questions, and the research findings, the following conclusion was made based on the information gathered;
Value added tax VAT has significant and negative impact on the Asset Management (activity) of manufacturing firms. That means any change in VAT results in the change in the activity ratio and changes the company’s ability in asset management. Therefore, it is suggested to company managers to have more attention in the change time of value added tax rate for better manage asset (activities). The negative coefficient between VAT and debt management also showed that the rate of VAT increase through the study period led to a reduction in the company’s ability to pay long-term commitments. Based on the used criteria in profitability, positive coefficient between VAT and profit shows that any increase in the rate of value added tax has effects on the profitability of the companies through the impact on sales. The VAT reform of purpose and meaning in addition to reduce the tax burden, strengthen enterprise competition ability and ability of resisting risks and overcome the harmful effects of the international financial crisis, more important is fundamentally changing the industrial structure at present in Nigeria, to promote the upgrading of industrial structure and optimization. Payment of VAT has improved the prospects of business organizations and industries in Nigeria to an extent, which we are all witness today for instance, there has been an improvement in power supply recently and stability in the prices of petroleum and allied products. Finally, Despite the Positive side of the introduction of VAT, there are still the views of the opposition which to an extent portrays the policy in a negative form or perspectives.
RECOMMENDATION
From the findings of this study it is recommended to consider this issue in the analysis of financial ratios and decisions about external financing for better debt management to pay long-term commitments in the time of VAT rate change.
It is also recommended that managers should consider VAT inflationary effects on sales and profits at the time of VAT. Because the negative relationship between VAT and the market value suggests that any increase in the rate of value added tax result in a decrease in the market value of the companies’ shares through the impact on earnings per share and given that the beginning of the Fifth Plan development in each year, one percent increase in the rate of VAT is consider in the agenda, it is therefore recommended that shareholders should consider the effect of rates increase on the market value of shares.
The government should adequately make provision for retrieving the proceeds of VAT from companies and other agents of collection.
Seminars and workshops so far organized on this issue are narrow in its scope and design. These should be functional VAT offices in every council area to coordinate a vigorous campaign to educate people and seek their cooperation. This will no doubt erode the negative attitude that some of the consumers have developed towards, VAT.
Reference
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