Current Law and Practice of Value-Added Tax in Nigeria
Chapter One
Objective of the study
The objectives of the study are;
- To find out the law of values added tax in Nigeria
- To find out the practice of values added tax in Nigeria
CHAPTER TWO
REVIEW OF RELATED LITERATURE
LEGAL FRAMEWORK
The Value Added Tax Act16 originally consisted of 42 sections and three Schedules. The various amendments introduced by the Finance (Miscellaneous Taxation Provisions) Decrees18 over the years were differentiated by adding alphabets such as A, B, C, etc after the amended sections. For example, in 1996, Section 8 of the Decree was amended by inserting Sections 8A and 8B in addition to existing section 8 resulting in sections 8, 8A and 8B. The same applies to sections 10 and 13 which later have sections 10A, 10B and 13A. The various amendments to the VAT Decree, as amended, were consolidated in Value Added Tax Act, Cap V-1, Laws of Federation of Nigeria, 2004. Sequels to the consolidation exercise, the provisions of the Act were renumbered by a number to each section serially including the sections which were hitherto differentiated by alphabets which resulted in 27 sections. After the consolidation exercise of 2004, the VAT Act was recently amended by the Value Added Tax (Amendments) Act19 2007. The Value Added Tax Act, Cap V-1, Laws of Federation, 2004 consists of 47 sections with one Schedule which contains a list of goods and services exempt. The Federal Inland Revenue Service (FIRS) had published a number of Information Circulars on VAT21 which to some extent throw light on some of the provisions. It suffices to say that the FIRS Circulars or Information Notices are not legal documents and are merely issued for the guidance of taxpayers. They are neither binding on nor create estoppels against the FIRS
Scope of Imposition
VAT is imposed “on the supply of all goods and services other than those goods and services listed in the First Schedule to this Act”. If the charging provisions were to be strictly construed, VAT will be chargeable on international, inter-State and intra-State supplies of goods and services. Apparently in recognition of the need for territorial limitation of the tax to goods and services supplied in Nigeria, the FIRS Information Circular 9304 provides that “supplies made outside Nigeria are outside the scope of Nigerian VAT. Even without making this qualification, it is hard to see how the tax can be administered extra-territorially considering the principle in Boucher v Lawson that no nation will take account of the revenue law of another nation. While the self imposed limitation in the Information Circular might have served good practical purpose, there is the need to effect amend section 2 of the VAT Act to limit the scope of the tax to supply of goods and services in Nigeria. Guidance can be taken from the provisions of section 1(1) of the Value Added Tax Act, 1994 of the United Kingdom which provides that: “Value Added Tax shall be charged in accordance with the provisions of this Act – (a) on the supply of goods and services within the United Kingdom (including anything treated as such a supply, (b) on the acquisition in the United Kingdom from other member states of any goods; and (c) on the importation of goods from places outside the member States. The VAT Act had witnessed significant changes in the design of its charging clause. At inception, VAT was chargeable and payable on goods and services listed in column A of Schedules 1 and 2 while Schedule 3 contained the list of exempted goods and services. Based on the original design, there were 17 chargeable goods and 24 chargeable services. However, following the policy to expand the base of VAT, a new design was adopted which imposed tax on the supply of “all” goods and services other than the goods and services listed in the Schedule to the Act. The new design, therefore, fundamentally changed the standard for determining chargeable goods. The bright line rule for determining whether a particular good or service is taxable under the extant law is whether it is specifically exempted in the First Schedule. In the absence of any specific exemption, the good or service will be taxable thus giving the tax a very wide base.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine Current law and practice of value added tax in Nigeria. CBN, Lagos state forms the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain Current law and practice of value added tax in Nigeria. 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 of Current law and practice of value added tax in Nigeria
Summary
This study was on Current law and practice of value added tax in Nigeria. Two objectives were raised which included: To find out the law of values added tax in Nigeria and to find out the practice of values added tax in Nigeria. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
The legal framework for VAT in Nigeria is quite simple and easy-to-understand. The simplicity of the VAT Act is commendable considering that VAT is not only the concern of lawyers and accountants but also that of ordinary businessmen and women who are under obligation to register and collect VAT as agent of the Government. The VAT administration has been pursued so far in a manner devoid of political and civil upheavals, which heralded its introduction and administration in some other countries. The VAT Law and administration had witnessed some significant growth since inception in 1993. The above discussion has revealed that more changes have taken placed in the areas of expanding the base of the tax for instance through the restriction of exemption, expansion of registered persons, restricting the scope of refund, and curbing evasion by making the issuance of invoice mandatory. The VAT administration has also been streamlined with that of other federal taxes under the Federal Inland Revenue Service (Establishment) Act (FIRS Act). For instance, the Local VAT Offices (LVOs) which were hitherto separated from Income Tax Offices now form part of the Integrated Tax Office (ITO). Also, the dichotomy in appeal process under the VAT Act through the establishment the VAT Appeal Tribunal has been abolished while all appeals in respect of federal taxes (including VAT) now lie to the Tax Appeal Tribunal. Notwithstanding, these changes, there are a number of areas which are of concern to the taxpayers which are yet to be reviewed. Such areas include the need to make the scope of VAT more definite rather than open-ended, abolition of branch registration, the need to redefine input VAT in a manner that will ensure that businesses do not bear any burden of VAT by making it possible for them to net off their input VAT. It may also be expedient to exempt the retail stage in the informal sector of the economy until the commercial activities at this level becomes fairly well regulated and streamline the gap between law and practice. In the final analysis, the future growth of VAT will, to a large extent, depend on the outcome of the case that is pending before the Supreme Court on the competence of the Federal Government to continue to administer VAT under the 1999 Constitution. Should the case be the decided in favour of the Federal Government, it is hoped that future amendments would address some of these concerns. However, if the Plaintiff should succeed, it will draw the curtain on VAT in Nigeria and give birth to State Sales Tax or State modified VAT
Recommendation
There is need to increase the Nigerian VAT rate to 10%. This will help in generating revenue for the Nigerian government.
There is need to amend the Act order to give a clear meaning of food items that can be called basic food items to avoid further controversies.
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