ABSTRACT
Value
Added Tax is a consumption tax imposed at a flat rate of 5% of invoice value of
certain goods and services. It is a tax that is imposed on the value that is
added to goods and services as they pass through the various stages in the
business chain by registered person in the course of their taxable activities
up to the final consumer.
The
net effect is of VAT is that final consumers pays it while the registered
person’s role is to collect tax on behalf of the Federal Board of Inland
Revenue (FBIR).
Value
Added Tax is one of the major source of revenue to the Nigerian economy and
thus, the need to evaluate its impact in the said economy, in order to no were
and how to improve on it.
In
conclusion, this research questionnaires were administered to all vatable
organizations and persons and hypothesis was formulated to confirm the results
of the study. This sturdy exposed some problems in the VAT system in Nigeria,
such as the high rate of tax evasion in the country, whether government can
increase the experience of tax managers etc and recommendations were made on
how such problems could be reduced, such as through public enlightenment, staff
training, setting of targets to management and so on.
TABLE
OF CONTENTS
Title
Page
Declaration
ii
Certification iii
Dedication iv
Acknowledgement v
Abstract vi
Table
of Contents vii
Chapter One
1.0
INTRODUCTION 1
1.1 Background of the study 2
1.2 Statement of the problem. 2
1.3 Objective of the study. 3
1.4 Significance of the study 3
1.5 Delimitation and limitation of the study. 4
1.6 Research questions 4
1.7 Formulation of hypothesis. 4
1.8 Definition of Terms. 5
Chapter Two
2.0 LITERATURE REVIEW 6
2.1 The nature and historical background 6
2.2 VAT administration and policy. 8
2.3 Highlights of the Nigerian VAT. 15
2.4 Returns and remittance. 22
2.5 Success of VAT in Nigeria. 23
2.6 VAT and economy growth. 26
2.7 Effects of VAT on employees and employers. 27
2.8 Problems
and prospect of VAT system in Nigeria economy. 29
Chapter Three
3.0 RESEARCH METHODOLOGY AND DESIGN
3.1 Research design. 34
3.2 The area of the study. 34
3.3 Population 34
3.4 Limitation 34
3.5 Instrument 34
3.6 Validity and reliability of the
instrument. 35
3.7 Method of data collection and analysis. 35
3.8 Sources of data. 36
Chapter Four
4.0 ANALYSIS AND PRESENTATION OF DATA.
4.1 Introduction. 37
4.2 Evaluation of data collected. 37
4.3 Statistical Analysis. 56
Chapter
Five
5.0 SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary 63
5.2 Conclusion 63
5.3 Recommendation 64
Bibliography
66
Research
project questionnaire
CHAPTER ONE
1.0 INTRODUCTION
Value Added Tax (VAT) is a
consumption tax that has been embraced by many countries worldwide and it is
relatively easy to administer and difficult to evade. It is imposed on certain
goods and industrial raw materials and other inputs imported into or produced
in Nigeria at a single rate of 5%. It is a tax borne by final consumer of
vatable goods and services because it is included in the price paid.
Value Added Tax was introduced into the
Nigerian tax system through Act (the decree) No. 102 of 1993 with the effective
date of 1st December 1993. The Act repealed the sales Tax Act 1986.
The Act is now known as Value Added Tax Act, Cap V1 LFN 2004. The tax was
introduced sequel to the report of 1991 study group on the review of indirect
taxes in Nigeria.
Sales Tax originated in Nigeria in 1982 when
Lagos state Government introduced sales tax on number of goods and services,
this was successful in terms of revenue generated, because of this, many other
states now introduced it. Due to this a series of laws and tax rates were
enacted which makes their calculation difficult in many cases. In 1986 the federal government promulgated
the sales decree to curtail the confusion which may result from different tax
and rates. The decree stipulated the methods of collections to be used for the
sales tax, the rates, the goods and services which it applies and other factors
to be taken into consideration.
The Value Added Tax is an improvement on the
sales tax. Unlike the sales tax, VAT is a multi-stage levy collected on sales
at all stages of sales and distribution. In the operation of VAT, each seller
issues an invoice given the amount of VAT paid, which becomes a credit for
further set-off if the item is used as input in the chain of production and
distribution. The credit methods distinguish VAT from sales tax and actually
eliminate the cascading effect of the latter tax.
The basic underlying principle is that the tax
is collected on behalf of the government by business and organization which has
been registered with Federal Inland Revenue service which serves as VAT
directorate.
Thus, in Nigeria the administration oversight
of the value added tax is vested in the Federal Inland Revenue Service.
1.1 BACKGROUND
OF THE STUDY
The idea of introducing value Added Tax in
Nigeria was mooted in 1991 in the context of a review of the country’s entire
tax system. A committee was set up to conduct feasibility study on the
implementation of such tax, but the committees mandate did not extend to
accessing the possible impact of the tax. Consequently the decision was made
public in the 1992 budget speech, this resulted in the setting up of the
modified Value added Tax (MVAT) Committee on 1st June 1992 as
recommended by the study group. Government on its own wisdom as informed by the
various considerations decided that VAT should be administered by federal
Inland Revenue Service which already is charged with the serious responsibility
of administering most other taxes including Petroleum Profit Tax (PPT).
VAT is a tax imposed on the value that is added
to goods and services as they pass through various stages in the business chain
by registered person in the course of the taxable activities up to the final
consumer. The net effect is that final consumer paid value added tax while the
registered person’s roles in the process, is to collect tax for the federal
Board of Inland Revenue (FBIR).
1.2 STATEMENT
OF THE PROBLEM
Various problems cause the introduction of
value Added Tax because of its poor administration and implementation. This
often raises doubt about the efficiency and effectiveness of Value Added Tax.
Other problems include:-
1.
Is there any deficiency in Tax system in
Nigeria?
2.
How can the administration of VAT be managed?
3.
How realistic is the cost of training and
developing the administration of VAT?
4.
How is Tax management involved in the
administration of VAT?
5.
Where is provision for establishing and
administering VAT inconsistent?
6.
Why is government policy not consistent?
7.
Why are tax payers not willing to pay their
tax?
8.
What are causes of delay on the part of
government agencies in carrying out government legislation?
9.
Is there any adverse effect of VAT on operating
cost and prices of production?
10.
How can discipline, corruption and mismanagement
of government funds be minimized?
1.3 OBJECTIVE
OF THE STUDY
This research project is carried out to
evaluate the impact of Value Added Tax in Nigerian economy. Government and the
people will want to know the problem hampering the effective operation of Value
Added Tax as a leading source of income to the Nigerian economy which could be
deduced into the underlisted:-
1.
To examine the method of calculating VAT
returns.
2.
To find out and state the causes of deficiency
in VAT.
3.
To analyse the basic purpose of VAT.
4.
To find out an existing state of affairs in
administration of tax.
5.
To make a careful consideration of the
implementation of VAT.
6.
To investigate the ways to minimize tax evasion
and avoidance.
7.
To explain how administrations of VAT can be
managed.
8.
To substantiate the introduction of value Added
Tax.
9.
To examine the causes of delay on the part of
government agencies in carrying out government legislation.
1.4 SIGNIFICANCE
OF THE STUDY
The significance of the study cannot be
over-emphasized. The contribution to knowledge is enormous since it will
provide an insight on the explanation and reasons for the introduction of VAT.
The study will also identified deficiency in
the administration and implementation and also offers suggestion on the problem
faced by VAT.
1.5 DELIMINATION
AND LIMITATION OF THE STUDY
The information and result of this study will
be limited by the data and other information gathered from interviews, finance
and inadequate time to thoroughly carry out the study as envisaged.
1.6 RESEARCH
QUESTION
Questions that will serve as a guide in the
quest for answers to the problems investigated include the following:-
1.
What is your opinion about the impact of the 5%
VAT on prices in Nigeria?
2.
Can government do anything to minimize the cost
of administration and implementation of VAT?
3.
Can Government increase the experience of the
management?
4.
Do you have adequate legal passion for VAT and
authority to compel Tax defaulters to pay?
5.
Is there any person(s) behind the unwillingness
of tax payers towards their tax responsibilities?
6.
Is there any possible solution to put in place
to gear up the ego of the tax payers?
1.7 FORMULATION
OF HYPOTHESIS
H0
= Null Hypothesis
H1
= Alternative Hypothesis
HYPOTHESIS ONE
H0: Value
Added Tax has no impact on prices of production in Nigeria.
H1: Value
Added Tax has impact on prices of production in Nigeria.
HYPOTHESIS TWO
H0: The cost of
administration and implementation of Value Added Tax cannot be minimized by the
government.
H1: The cost of
administration and implementation of Value Added Tax can be minimized by the
government.
HYPOTHESIS THREE
H0: Government
cannot increase the experience of the management.
H1: Government
can increase the experience of the management.
HYPOTHESIS FOUR
H0: we do not
have adequate passion for VAT and the authority to compel tax defaulters to
pay.
H1: we have
adequate passion for VAT and the authority to compel tax defaulters to pay.
HYPOTHESIS FIVE
H0: There is
nobody behind the unwillingness of tax payers towards their tax responsibility.
H1: There are
person(s) behind the unwillingness of tax payers towards their tax
responsibility.
HYPOTHESIS SIX
H0: There are no
solutions to put in place to gear up the ego of tax payers.
H1: There are
possible solutions to put in place to gear up the ego of tax payers.
1.8 DEFINITION
OF TERMS
FINAL CONSUMER –
These are last buyers of goods and services.
VATABLE GOODS AND SERVICES –
these are certain goods and services supplied for money or money-worth consideration.
INDIRECT TAX – These are taxes on
goods or services. The burden of this tax can be shifted partly or wholly to
another person depending on the elasticity point facing the item.
REVENUE – this refers to another name
for income generated from sources.
ORGANISATION – A group of person
with special act or goal such as club or business.
BUSINESS – Includes any trade,
commerce or manufacturing or any concern in the nature of trade, commerce or
manufacturing.
VAT DIRECTORATE –
Body vested with the right to collect Value Added Tax.
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