An Evaluation of Role of Value Added Tax as the Source of Income in Nigeria
CHAPTER ONE
OBJECTIVES OF THE STUDY
The following are the objectives of this study:
- To evaluate the role of value added tax as a source of income in Nigeria.
- To examine the level of proper utilization of VAT income generated by Nigeria government.
- To examine the effect of income generated from value added tax on economic development in Nigeria.
CHAPTER TWO
LITERATURE REVIEW
Introduction
In this section, we shall look at the conceptual and theoretical framework of value added tax before looking at other related literatures to VAT as a system of taxation in Nigeria
Conceptual Framework
Tax is a compulsory payment made by all concerned to the government of a country from which essential services are rendered, without necessarily offering an explanation on how the money generated was spent or equating the services with the money collected (Abdullahi, 2011).Tax administration was nonetheless given to federal Inland Revenue Services, which was already charged with the responsibility of administering most other taxes in Nigeria. The introduction of VAT in Nigeria through Decree102 of 1993 marks the phasing out of the Sales Tax Decree No. 7 of 1986.
Concept of Value Added Tax in Nigeria
According to Ola, value added is the difference between “the increase in the value of goods or services in the process of their production of delivery”. Bhartia provided another definition of value added tax as: “VAT is a tax not on the total value of the good being sold, but only on the value added to it by the last seller. The seller, therefore, is liable to pay a tax not on its gross value, but net value: that is the gross value minus the value of inputs”.
Nigeria operates a federal system of government hence the fiscal operations has serious implications on the tax system as administered in the country. The government’s fiscal power is based on the three tier structure of Federal, State and Local Government each which has different tax jurisdictions. The introduction of VAT in Nigeria through Decree 102 of 1993 marks the phasing out of Sales Tax Decree No. 7 of 1986. The Decree took effect from 1st December 1993, but by administrative arrangement invoicing for tax purpose did not commence until 1st January 1994.The tool that introduces Value Added Tax spells out goods and services that attract VAT. It illustrates, for instance that food items do not attract VAT, besides, sellers of goods on which VAT is paid must first of all register with Federal Inland Revenue Service, the goal is to confirm that the five per cent (5%) VAT is paid on goods and services it was believed by many Nigerians that the tax was introduce as a means of avoiding taking loans from international agencies.
Onwuchekwa et al. observed that the Value Added Tax was introduced in Nigeria for several reasons, among which the following are.
- To widen the countries revenue base thereby making it less dependent on oil export
- To expand the levy base with an equal burden on imported and domestically produced goods and services. The old sales tax places locally manufactured good at disadvantage relative to imported ones.
- It would diminish the incidence of taxation towards expenditure rather than income
- Through Value Added Tax, it was believed that the harmonization of our tax system would be achieved especially with these flat rates of 5% throughout the nation.
- It makes it easier to claim credit for input tax, since a registered person must hold tax invoice.
Concept and Nature of Taxation
Taxation is seen as a burden which every citizen must bear to sustain his or her government because the government has certain functions to perform for the benefits of those it governs. A précised definition of taxation by Farayola (2007) is that taxation is one of the sources of income for government, such income as used to finance or run public utilities and perform other social responsibilities. Ochiogu (2014) defines tax as a levy imposed by the government against the income, profit or wealth of the individuals and corporate organizations.
CHAPTER THREE
RESEARCH METHODOLOGY
Research Design
For this study, the ex-post facto design was employed to seek reality through fact because the data and the situations for the study are already in existence. The study adopts annual data covering the period from 2001 to 2010 on the study variables. The data used were presented in absolute values and two different analytical techniques are employed in this study, namely the use of descriptive statistics and an econometric ordinary least square (OLS) regression technique.
Sources of Data
The required data were obtained from written work such as textbook, annual reports by recognized agencies such as: Central Bank of Nigeria (CBN), statistical Bulleting for the years, Federal Inland Revenue Service, conference report, chartered institute of Taxation of Nigeria journals and internet materials. The study covered federation revenue generated from value added tax in Nigeria economy. Emphasis was placed on the impact of VAT on revenue generation in Nigeria macro economy. The study covered the frame of 2001 to 2010 accounting years. To check for and control probable sources of errors and spuriousness of results as well as maintain stochastic stability, data are compared from at least three different sources before acceptance and subsequently tested for stationarity.
CHAPTER FOUR
Result and Discussions
In order to test the significance of hypothesis one, the findings showed in table 2 revealed that value added tax, petroleum profit tax, company income tax and education tax were the variables selected on the basis of highest partial correlation to meet the entry probability requirement of less or equal to 0.05 (≤ 0.05). The result depicts the relationship between the dependent variable (total federally collected revenue) and each independent variables (value added tax, petroleum profit tax company income tax and education tax) that meet the entry probability requirement of less or equal to 0.05 (P≤0.05). The result further showed that the four variables, value added tax, petroleum profit tax company income tax and education tax had a strong positive correlation of 0.971 with the dependent variable, total federal collected revenue. This means that the four variables together had a strong relationship with the total federal collected revenue in Nigeria.
CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
The result of the study revealed that value added tax is beneficial to the Nigeria economy. This can be understood from the behaviour of the variables in this research, which shows that value added tax is statistically significant to revenue generation in Nigeria. From the findings, for Nigeria to attain its economic growth and development, she must be able to generate enough revenue in order to meet up with the challenges of her expenditures in term of provision of social amenities and the running costs of the Government. The result of this study indicates that if more goods and services are taxed, the revenue base of the country will increase. We still recommend that the value added tax bases be widened to bring the informal sector into the value added tax net so as to stem possible evasion even by the so faithfully complying under the old rate.
RECOMMENDATION
- That the federal, state and local governments should harness their potentials in terms of legislation, machineries and procedure for collection of Value Added Tax.
- Customs and Excise Duties leak away at the borders, wharfs, airports and seaports through the activities of Customs Officials and other security agents at such places.
- Government should intensify effort in organizing seminars and workshops to educate viable organizations and individuals on the need for prompt payment of Value Added Tax.
REFERENCES
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- Adams, C. (2011) For Good and Evil; The impact of Taxes on the Course of Civilization, U. S. A; Madison Publishers.
- Adams, S. (1910) The Wealth of Nations; London; Everyman’s Library Ltd.
- Adereti, S.A., Adesina, J.A., & Sanni, M.R. (2011). Value added tax and economic growth of Nigeria. European Journal of Humanities and Social Sciences. 10(1), 456-471.
- Adeyemi, K.S (2012). Sustainable Development strategies for poverty Alleviation the Tax perspective. Paper delivered at the annual tax conference of the chartered institute of taxation of Nigeria, Nicon Luxury Hotel, Abuja, 10th May.
- Afuberoh, D., & Okoye, E. (2014). The impact of taxation on revenue generation in Nigeria. A study of Federal Capital Territory and selected states. International Journal of Public Administration and Management Research. 2(2), 22-47.
- Aguolu,O. (2014) Taxation and Tax Management in Nigeria, 3rd Edition, Enugu; Meridan Associates.
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- Anyafo, A.M.O., (2006). Public Finance in a Developing Economy: The Nigerian Case. Department of Banking and Finance, University of Nigeria, Enugu Campus, Enugu.
