Assessment of the Effect of VAT on Consumption Behavior: (the Case Study of Selected Households in Maiduguri)
CHAPTER ONE
Objective of the Study
The main objective of this study is to carefully examine the effects of VAT on the consumption behavior of the final consumers. Specifically, the following are the objectives of this study:
- to assess the effect of VAT on consumption behavior of goods and services;
- to assess if there is change in consumption pattern after implementation of VAT;
- To measure the significance level of the effect of VAT on consumption pattern of households in Maiduguri and to evaluate VAT encouraging saving scheme.
CHAPTER TWO
REVIEW OF RELATED AND RELEVANT LITERATURE
Introduction
According to Oakland (1961), the original interest in value-added taxation sprung from the desire for a general sales tax which would avoid the “cascade feature of a general turnover tax. Under the latter, the amount of tax borne by any particular final good depends upon the number of intermediate stages of production which precede it. Since final products differ in the degree to which they are vertically integrated, the turnover tax would create a distortion in the pattern of relative goods prices. This effect would be offset somewhat since there would be a tendency for firms to vertically integrate. Since some industries are vertically integrated more easily than others, this force could not fully offset the initial distortion in relative goods prices. A value-added tax on the other hand, is independent of the degree of vertical intergration within an industry. Each firm is taxed only on that portion of its final product which is over and above what it has purchased from other value-added tax paying units. Hence, final goods will be taxed proportionately to their selling price; there will result no distortion of relative goods prices.
- The value-added tax was also thought of as the best form of business taxation.
- Government, it was argued, is a true partner in the productive process.
Hence a payment which is proportional to governmental services is necessary in order to prevent a distortion in the pattern of goods and services produced. The best index of a firm’s use of government services, it was argued, is its value-added in production. Note, however, that if this is indeed the case, then the absence of a value-added tax would not distort the pattern of goods and services. The primary interest in the value-added tax during the twenties and thirties was exhibited in Europe. Because it had the politically undesirable feature of requiring higher statuatory rates than a turnover tax, the value-added tax was not enacted at that time.
Interest in the value-added tax was revived by the Shoup Mission to Japan in the early fifties. The Mission recommended the value-added tax as the primary source of revenue for the local governments. The value-added tax was enacted but was later repealed before it could take effect. The primary reason for its rejection was that labor unions believed the tax to be regressive. An excellent treatment of the Japanese experience can be found in a series of articles by Brofenbrenner2 and in an unpublished doctoral dissertation by Clara Sullivan.3 The latter has done the definitive study of the history and development of value-added taxation and an analysis of its administrative aspects. Oakland (1961).
The Concept of Taxing Value Added
A tax often takes its name from the base on which it is computed. For example, personal income taxes are levied against a base of personal income, and retail sales taxes are a proportion of final sales. Value added taxes are no exception, being levied, in principle, on the value of newly produced goods and services. Value added for a given period is conceptually equivalent to all income — wages and salaries, rent, interest, and profits — generated in the production of aggregate output. A VAT nevertheless differs from a general tax on incomes in that firms, rather than the individuals who ultimately receive income, are responsible for paying the tax to the government. A VAT is often considered to be essentially a retail sales tax. However, a VAT differs from a retail sales tax in that it is collected at each stage of the production and distribution process, not solely at the stage where a product is sold to the consumer.
CHAPTER THREE
RESEARCH METHODOLOGY
RESEARCH DESIGN
The study applied A descriptive research design that involves gathering hard numbers, often via surveys, to describe or measure a phenomenon so as to answer the questions of who, what, where, when, and how. Involves gathering hard numbers, often via surveys, to describe or measure a phenomenon (Tanner and Raymond, 2010). For this study, a survey was been conducted in the scope to assess, describe, Interpret and analyze effect of VAT on consumptions behavior of households Maiduguri. Moreover the study was used both quantitative and qualitative data’s.
SOURCE OF DATA
For this study, both primary and secondary data were been used. Data was gathered mainly from primary sources using questionnaires from the town’s household of different suburbs and interview for officials and management team of FIRS branch office. Some data were collected from secondary sources including books, scholarly articles, government agencies (Ministry of Finance, National Bureau of Statistics and the central Bank of Nigeria) online databases and others.
CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION
The analysis, description and interpretation of the data collected from the respondents. The response rate was so well-organized that 659 questionnaires were distributed and 376 (57%) returned. The analysis, description and interpretation of each of the response were done one after the other under the given subtitle. Lastly, the research project conducted to assess the effect of Value Added Tax on consumption pattern among households in Maiduguri.
CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION
The analysis, description and interpretation of the data collected from the respondents. The response rate was so well-organized that 659 questionnaires were distributed and 376 (57%) returned. The analysis, description and interpretation of each of the response were done one after the other under the given subtitle. Lastly, the research project conducted to assess the effect of Value Added Tax on consumption pattern among households in Maiduguri.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to reiterate that the objective of this study was to assess the effect of VAT on the consumption behavior of consumers, who are indirectly the tax burden bearers.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, conclusion will be drawn and possibly recommendation made in light of the subject matter.
Summary
This study was undertaken to assess the effect of VAT on the consumption behavior of consumers. The study opened with chapter one where the statement of the problem was clearly defined. The study objectives and research hypotheses were defined and formulated respectively. The study reviewed related and relevant literatures. The chapter two gave the conceptual framework, empirical and theoretical studies. The third chapter described the methodology employed by the researcher in collecting both the primary and the secondary data. The research method employed here is the descriptive survey method. The study analyzed and presented the data collected in tables and employed the correlation and regression tool from the SPSS V.20 while the fifth chapter gives the study summary and conclusion.
CONCLUSIONS AND RECOMMENDATIONS
It has been concluded that for the implementation of VAT to go down well with Consumers, the scheme has to come with some compensatory measures such as the reduction of income taxes to put more money in the pockets of households and to boost their purchasing power. And to ensure that the low-income and poor consumers – who may not enjoy the benefits of lower income taxes as most likely they are already exempted from such payment in the first place – are not worse off with VAT, zero-rating some basic essential products and providing other targeted assistance programmes are necessary measures to help them.
REFERENCES
- Alesina, A. and Ardagna, S. (1998), “Tales of Fiscal Contractions”, Economic Policy, Vol. 13, No. 27, pp. 487-545.
- Alesina, A. and Perotti, R. (1997), “The Welfare State and Competitiveness”, American Economic Review, Vol. 87(5), pp. 921-939.
- Alm, J. and El-Ganainy, E. (2012), “Value-added Taxation and Consumption”, Tulane University, Tulane Economics Working Paper Series, No: 1203, p.1-33.
- Andrikopoulos, A., Brox, J., and Georgakopoulos, T. (1993), “A Short-run Assessment of the Effects of VAT on Consumption Patterns: The Greek Experience”, Applied Economics, 25 (6), pp. 617-626.
- Aşırım, O. (1996), “Alternative Theories of Consumption and an Application to the Turkish Economy”, Central Bank of the Republic of Turkey, Research Department Discussion Paper, No: 9604, p. 34.
- Blanchard, O. and Perotti, R. (2002), “An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output”, Quarterly Journal of Economics, Vol:117, pp.1329-1368.
- Carmignani, F. (2008), “The Impact of Fiscal Policy on Private Consumption and Social Outcomes in Europe and the CIS”, Journal of Macroeconomics, Vol: 30, pp.575-598.
- Fakile, A.S (2011). Analysis of Tax Morale and Tax Compliance in Nigeria Unpublished PhD Thesis of covenant University, Otta, Nigeria.
- Feld, L. P and Frey, B. S. (2002). Deterrence and Morale in Taxation: An Empirical Analysis. CESifo Working Paper No. 760.
- Frank. R (1927). “A Contribution to the Theory of Taxation,” Economic Journal, 37, (March), 47-61.
- Frey, B.S. (2003). “The role of deterrence and tax morale in taxation in European countries” Netherlands Institute for Advance Studies in Humanities and Social Sciences, Wassenaar
- Hall, R. (1978), “Stochastic Implications of the Life Cycle Permanent Income Hypothesis: Theory and Evidence”, Journal of Political Economy, Vol: 86, No: 6, pp. 971-87.
