ABSTRACT
This study assess the contributions and challenges of value added tax (VAT) to Nigerian Economic development. Specifically, the study examine the contribution of VAT to gross domestic product (GDP). Secondly, it analyse the effect of VAT on federal collected revenue. Thirdly, the study evaluate the influence of VAT on consumption of goods and services. Finally, the study investigate the opinion of tax personnel on challenges of VAT administration in Nigeria. Ex-post facto and survey research design was used for this study. The scope covers from 1994 when VAT started in Nigeria to 2018 the last available report. Secondary data were collected from Central Bank of Nigeria (CBN) statistical bulletin 2018. While the primary data was source from Federal Inland Revenue Service (FIRS) Umuahia. Simple regressions and one-sample t-test analysis methods were used to analyse and test the hypotheses. The analysis was perform with Econometrics View (Eview) 8 and Statistical Package for Social Sciences (SPSS) version 20. The result of this study shows that value added tax has significant impact on gross domestic product. Secondly, the study reveal that value added tax has significant contribution to Federal collected revenue. Thirdly, value added tax has no significant effect on consumption of goods and services in Nigeria. Lastly, the study shows that there exist significant difference in the opinion of the tax personnel on the challenges of value added tax administration in Nigeria.
TABLE OF CONTENTS
Title page i
Declaration ii
Certification iii
Dedication iv
Acknowledgement v
Table of
contents viii
List of Tables ix
Abstract x
CHAPTER
ONE: INTRODUCTION
1.1 Background
to the Study 1
1.2 Statement of the Problem 3
1.3 Objective of the Study 4
1.4 Research Questions 5
1.5 Research Hypotheses 5
1.6 Significance of the Study 6
1.7 Scope of the study 6
1.8 Limitations of the Study 6
1.9 Definition of Terms
CHAPTER TWO: REVIEW OF
RELATED LITERATURES
2.1 Conceptual Framework 8
2.1.1 Concept of Tax 8
2.1.2 Meaning and Concept of
Value Added Tax 10
2.1.3 The Origins and
Development of the Value Added Tax 13
2.1.4 Nature of Value Added
Tax (VAT) 14
2.1.5 Value Added Tax in
Nigeria 15
2.1.6 Aims of Value Added Tax 17
2.1.7 Taxable Goods and Services and Rates 18
2.1.8 Administration of Value Added Tax 19
2.1.9 Remittance of VAT 21
2.1.10 Accounting for VAT 21
2.1.11 Offences and Penalties of Registered
Persons 22
2.1.12 Problems of VAT Administration 23
2.1.13 Collections and Computation of Value
Added Tax 23
2.1.14 Agenda for the Effective Management
of Value Added Tax 24
2.1.15 VAT as Replacement
to Sales Tax 24
2.1.16 Value Added Tax and Economic Growth 25
2.2 Theoretical Framework 27
2.2.1 Theory of Laffer Curve 27
2.2.2 Ibn Khaldun’s Theory of Taxation 28
2.3 Empirical Review 29
CHAPTER THREE: RESEARCH
METHODOLOGY
3.1 Research Design 33
3.2 Scope of the study 33
3.3 Method of Data Collection 33
3.4 Sources of Data Collection 34
3.5
Data Analysis Techniques 34
3.6 Model Specification 34
CHAPTER
FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Presentation
of Data 36
4.2 Analysis
and Interpretations 37
CHAPTER FIVE: SUMMARY OF FINDINGS,
CONCLUSION, AND RECOMMENDATIONS
5.1 Summary of Findings 43
5.2 Conclusion 43
5.3 Recommendations 44
References
Appendix
LIST OF TABLES
Table 4.1 Data Presentation 36
Table 4.2 GDP and
VAT Regression Result 37
Table 4.3 Federal
Collected Revenue (FCR) and VAT Regression Result 38
Table 4.4 Consumption
of Goods and Service Regression with VAT 39
Table 4.5 Descriptive
Statistics of overall Challenges 41
Table 4.6 One-sample
t-test Result 42
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Taxation as an
instrument of fiscal policy is a critical contributor to revenue generation
capacity of government and by extension a stimulator of economic growth and
development (Afolayan & Okoli, 2015). The economic
importance of taxation as an instrument of revenue generation in any country
cannot be overemphasized. Tax has a rich and colourful background and almost as
old as man (Okoye &Gbegi, 2013). There are quite number of definitions of
tax or taxation depending on the administration of the tax. Taxation is the
process or machinery by which communities or group of persons are made to
contribute in some agreed quantum and method for the purpose of administration
and development of the society (Igbonyi, 2008). Tabansi (2001), define taxation
as the system of imposing levy by the government against the income, profit, or
wealth of the individual, partnership and corporate organization.
There are two types of taxes according to the burden and
incidence bearer namely: direct and indirect taxes. The direct taxes are those
taxes, which are called on the return of factors of production. The burden and
incidence are directly borne by the taxpayer and cannot be shifted. Such taxes
includes: personal income tax, company income tax, capital gain tax, petroleum
profit tax etc. on the other hand, indirect taxes are taxes, which are levied
entirely on goods and services. The burden is not borne by the manufacturer, wholesaler
or retailer, but the final consumer. The manufacturer shift the burden to the
wholesaler by high price, the wholesaler also shift in the same manner to the
retailer who finally shift it to the final consumer. Indirect tax includes:
import and export duties, excise duty, sales tax (now value added tax (VAT))
etc.
The
idea of introducing VAT in Nigeria came from the Report of the Study Group set
up by the Federal Government in 1991 to review the entire Tax System. VAT was
proposed and a Committee was set up to carry out feasibility studies on the
implementation. In January 1993, Government agreed to introduce VAT by the
middle of the year. It was later shifted to 1st September 1993 by which time
the relevant legislation would have been made and proper groundwork done
(Federal Inland Revenue Service, 1999).
VAT is a
replacement of the existing Sales Tax, which has been in operation under
Federal Government, legislated Decree No.7 of 1986 but is operated based on
residence. Value Added Tax is a consumption tax that has been embraced by many
countries worldwide. Because it is a consumption tax, it is relatively easy to
administer and difficult to evade.
1.2 Statement of the Problem
Value Added Tax has become important
source of revenue to the government of Nigeria since its introduction in 1993
(Unegbu&Irefin, 2011). It significant contribution to revenue generation of
governments around the globe has drawn the attention of scholar, analyst,
governments (Adereti, Sanni&Adesina, 2011). For instance, the first year of
VAT in Nigeria remains remarkable point to its significant level in revenue
contribution. The actual VAT revenue collected in 1994 was N8.189billion, which
is about 36.5% higher than the projected N6 billion for the year. Similarly,
actual VAT revenue for 1995 was N21billion compared with the projected
N12billion. In terms of contributions to total federally collected revenue, VAT
accounted for about 4.06 % in 1994 and 5.93% in 1995. As much as N404.5billion
was collected on VAT (5.1% of total revenue) in 2008.
Despite these contributions and
achievements made by value added tax (VAT) in Nigeria, there still exist few
empirical studies on the subject matter. Thus, there is need to investigate the
effect of value added tax on economic growth, and Federal collected revenue.
Moreover, considering the dynamic nature of taxation, there is need to
continually; examine the effect of value added tax on economic growth, and
Federal collected revenue.
In addition, one of the main rationales for taxing
consumption rather than income is that it is believed that consumption taxes
(VAT) discourage consumption, encourage savings, and thus generate higher
economic growth (Alm& El-Ganainy, 2012). However, it is striking
that empirical work has, to the knowledge of this study, yet to examine the
impact of value-added tax on consumption. The few
empirical studies available on the effect of value added tax have focus main on
the effect of VAT on government revenue generation, economic growth, without
considering it possible effect on consumption level of goods and services.
Therefore, this study intends to bridge
these gaps. Thus, assessing the effect of value added tax on economic growth,
Federal collected revenue, and consumption level of goods and services.
1.3 Objective of the Study
The broad objective of this study is to
evaluate the contributions and the challenges of value added tax on economic growth
and development of Nigeria. The specific objectives are as follows:
1. To
ascertain the impact of value added tax on gross domestic product of Nigeria.
2. To
analyse the effect of value added tax on the Federal collected revenue in
Nigeria.
3. To
evaluate the effect of value added tax on consumption of goods and services in
Nigeria.
4. To
identify the challenges of value added tax administrations in Nigeria.
1.4 Research Questions
The broad research question guiding
this study is: to what extent does value added tax (VAT) affects the economic
growth and development of Nigeria?
On
the specifics, the research questions are as follows:
1. To
what extent does value added tax impact on gross domestic product of Nigeria?
2. What
is the degree of value added tax contribution to the Federal collected revenue
in Nigeria?
3. To
what magnitude does value added tax affect consumption of goods and services in
Nigeria?
4. What
are the major challenges of value added tax administration in Nigeria?
1.5 Research Hypotheses
In
this study, the following hypotheses shall be tested:
Value added tax has no
significant impact on gross domestic product of Nigeria.
Value added tax has no
significant contribution to the Federal collected revenue in Nigeria.
Value added tax has no
significant effect on consumption of goods and services in Nigeria.
There is no significant
difference in the opinion of tax personnel on the challenges of value added tax
administration in Nigeria.
1.6 Significance of the Study
The study will assist the government in
policy formulations as it relates to value added tax. Thus, it will be used to
design growth – oriented programs and implementation of value added tax changes
that are growth enhancing.
In
addition, it will contribute to the existing literature on the VAT structure in
Nigeria. It will equally provide an empirical groundwork on Nigeria’s VAT
revenue structures upon which prudent tax measures could be based.The study
will be timely, given the current change of Government, and fight against
corruption, rationalizing the budget, eradicating poverty and reforming tax
structure.
1.7 Limitations of the Study
Time
is the major constraint in this research work; this is due to the fact that
this project research is carried along with normal academic programme, making
it difficult to devote full time to this research work.
Availability
of information: most information needed for this study is not within the reach
of the researcher.
Financial
constraint is another limitation to this study; this is due to the fact that
all the information needed for this study is not within costless reach. Despite
the above constraints, a balanced and scientific study was conducted.
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