ABSTRACT
This research work examined the impact of value added tax on revenue generation of Nigeria, chapter one dealt with the introduction, the background of the study, the statement of the problem, hypothesis, objective of the study etc. The objective of the study is to determine the impact of value added tax on revenue generation of Nigeria. However, chapter two dealt with the literature review of different authors, textbooks and related journal were reviewed. The chapter three focus on the research methodology use, the research designed employed was ex post facto research design. Data were sourced from secondary sources. Analyses of data and testing of hypotheses were done through the aid of statistical tools such as tables, and simple regression model. In chapter four, the researcher analyze the data the findings from data analyzed indicates that value added tax has a significant and positive relationship on real gross domestic product growth rate and total tax revenue generation in Nigeria as proxies for Revenue generation. The study how ever revealed that The organizations especially private companies who deal on vatable goods and are expected to withhold these taxes for the government should be encouraged to be openly accountable and responsible in the remittance of such taxes to the government as at when due. The government on its part should account properly for the taxpayers’ funds by utilizing the funds in the provisions of obvious basic amenities and public goods. This sis intended to boost the morale of the citizens and encourage them to trust in the capability of the government to represent them well when entrusted with the funds of the state.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vi
List of Tables x
Abstract xi
CHAPTER ONE: INTRODUCTION
1.1
Background of the Study 1
1.2
Statement of the Problem 4
1.3
Objectives of the Study 6
1.4
Research Questions 6
1.5
Research Hypotheses 6
1.6
Scope of the Study 7
1.7
Significance of the Study 7
1.8
Limitations of the Study 8
1.9
Operational Definition of terms 8
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 9
2.1.1 An Overview of Taxation in Nigeria 9
2.1.1.1 Overview of Vat System 14
2.1.2 Types of Tax System 15
2.1.3 Kind of Taxes 15
2.1.4 Value Added Tax in Nigeria 17
2.1.5 Conceptual analysis of Value Added Tax
(VAT) 18
2.1.6 Aims of Vat in Nigeria 20
2.1.7 Impact of Value Added Tax on Economic
Recovery 21
2.1.8 Taxable goods and services Rate 22
2.1.9 Goods and services exempted by Vat 24
2.1.10 Offences and Penalties of registered person 24
2.1.11 Advantages of Vat to Revenue generation in
Nigeria 25
2.1.12 Vat Amended Act (2007) 26
2.1.13 Vat Amended Bills (2005) 27
2.2 Theoretical Frameworks 27
2.2.1. Faculty Theory of Taxation 27
2.2.2 Laffer Curve Theory 28
2.2.3. IbnKhalduns
Theory of Taxation 28
2.2.4. Efficiency
Criterion Theory 29
2.3. Empirical
Review 30
2.4 Gaps In Literature 35
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design 36
3.2 Area of study 36
3.3 Population of the Study 37
3.4 Sample size and technique 37
3.5 Method of Data collection 37
3.6 Sources of
Data 37
3.7 Data
Analysis Techniques 37
3.8 Model
Specification 38
CHAPTER FOUR: PRESENTATION AND OF
ANALYSIS OF DATA
4.1
Descriptive Analyses of
Variables 40
4.2
Test of Hypotheses 42
4.2.1
Hypotheses One 42
4.2.2 Hypothesis Two 43
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1
Summary of Findings 45
5.2
Conclusion 46
5.3
Recommendation 46
REFERENCES 49
LIST OF TABLES
Table 2.1 Taxable goods and services rate 22
Table 4.1 Descriptive Analyses of Variables 40
Table 4.2 Regression of Indirect Tax 42
Table 4.3 Regression
Analyses of Taxes on GDP 44
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
One of the recurrent problems of the
three-tier structure of the government in Nigeria is dwindling revenue
generation as characterized by yearly budget deficits and insufficient funds
for economic growth and development. This economic reasoning emphasized the
revenue need of government and indicates that, apart from strengthening the
existing sources of revenue, it is also necessary for government to diversify
its revenue base in order to meet its constitutional responsibilities. Myles
(2000) states that financial capacity of any government depends among other
things, on its revenue base, the fiscal resources available to it and the way
these resources are generated and utilized. It is therefore, the duty of the
government to adequately mobilize potential revenue across the country to
prevent economic stagnation. This mobilization involves the adoption of
economically and politically acceptable taxes that would ensure easy
administration, accounting, verification, auditing and investigation based on
the equality, neutrality and other attributes of a good tax. Consumption taxes
have a wider coverage since the cause of adverse variance can be adequately
controlled under proper administration (Leach, 2003). The revenue generated
from consumption taxes can help to boost the financial base of any economy.
This however involves exploiting the potential and adopting the type of
consumption tax that will recognize the tax payers as utility minimizing
individuals and safeguarding their evading behaviour. The essential
consideration in choosing a consumption tax option from other tax options
includes; assessment of administrative feasibility of each tax and determining
its relative revenue potentials, its degree of voluntary compliance, its
relative neutrality, its equity essential for regressiveness and the efficiency
of these criteria, one can easily see the under lying reasons why government
replaced a Retail Sales Tax (RST) with Value Added Tax (VAT) as consumption
tax.
Thus,
the introduction and full recognition of the potential value of VAT in revenue
generation after planning its adoption into the Nigerian tax system has become
a controversial issue that forms debate among several authors that the purpose
of the introduction of the value added tax as one of the method of taxation in
the Nigeria economy has not yet been known. In view of this, this study intends
to avert all the prevention deficiency deduced by the researcher and thereby
revealed the benefits of the value added tax as our revenue generation in this country
(Nigeria). This would be achieved by the effects or roles of VAT on Nigerian
economy since it inception in January 1994 to date and how it has superseded
its predecessor (sale Tax).
In
Nigeria, value added tax is one of the instruments the Federal government
introduced in 1993 to generate additional revenue. Yet, most prominent
Nigerians and interest groups had spoken against its introduction. It would
appear that VAT is froth with some problems. After its adoption into the
Nigeria tax system, it has become a controversial issue that generates debate
among several authors like Naiyeju (2009) that the purpose of introducing value
added tax as one of the methods of taxation in Nigeria economy has not yet been
known.
Each
time goods are passed from one stage to the other, intermediary value is added
to it, it is this value that is being taxed and borne by the final consumer. In
this country, VAT is a gross product type of tax imposed on the destination
principle. At the moment, there are seventeen categories of goods and
twenty-four categories of services that attract VAT. The goods and services
exempted by the act are purely those that bother on peoples welfare and whose
requirements are necessary for improving human development. These include
medical and pharmaceutical products, basic food items, educational materials,
agricultural services and equipment, etc. However, there is much confusion over
which goods or services should be in the exemption list. Furthermore, Nigeria
adopts the same 5% VAT charges on all goods and services, either domestic or
imported. It was increased to 10% on May 23, 2007. But, Nigerians rejected the
hike in the VAT rate and the Nigerian Labour Congress went on a five day strike
which eventually jeopardized the economy. And this made the Federal government
to reverse to the old VAT rate. Nigeria also imposes a zero rate on export
commodities with a view to encouraging favourable balance of trade. It would
seem, however, that the benefits of VAT outweigh its demerits. What is only
required is a measure of commitment and transparency in the mobilization and
allocation of VAT proceeds.
Tax
revenue, all over the world plays a vital role in the development of an
economy; this facilitated many nations to introduce value added tax on goods
and services. Tax imposition and its collection, mostly depends upon a
country’s economic structure, its developmental phase, growth of its service
sector, extent to which the country has been industrialized, and its employment
level (Qamruz, Okasha, & Muhammad, 2012)
Value
added tax is a consumption tax, levied at each stage of the consumption chain
and borne by the final consumer of the product or service. Value added tax has
become a veritable source of revenue in many developing countries in
Sub-Saharan Africa; it has been introduced in several countries. Nigeria can be
traced to the report of the committee set up by the Federal government in 1991
to review the entire tax system with a view to expanding the financial base for
revenue generation so as to enhance the economic growth of Nigeria. The
introduction of VAT in Nigeria through decree 102 of 1993 marks the phasing out
for the sales tax Decree No. 7 of 1986. The Decree took effect from 1st
December 1993, but by administrative arrangement, invoicing for the purpose did
not commence until 1st January 1994 (Gendron, 2005).
The
tax is charged on the supply of goods and services, the vendor has the
responsibility to collect VAT from the purchasers of goods and services
(individuals or companies), on behalf of the Federal Inland Revenue Service
(FIRS). The tax is charged and payable on the supply of all goods and services,
other than those exempted. The honourable minister of finance may by order of
the federal government to publish in Gazette amend the rate of tax chargeable
and also modify the list of exempted goods and services.
From
the perspective of the seller it is a tax on the value added to a product or
services while from that of the buyer it is a tax on purchase price. The
producer or the service provider remits to the government the difference
between the VAT output and VAT input and retains the rest to offset the taxes
they have previously paid on the inputs. VAT has become a major source of
revenue in Nigeria; its adoption with the enactment of Value Added Tax Decree
in
December,
1993 with an effective date of 1st January 1994 was an important landmark in
tax reforms in Nigeria (Ajakaiye, 2000).
So
therefore, Value added tax is a consumption tax, levied at each stage of the
consumption chain and borne by the final consumer of the product or service.
Value added tax has become a veritable source of revenue in many developing
countries in Sub-Saharan Africa, It is felt that the narrow base of the
consumption negates the fundamental principles of consumption tax; which by
nature is expected to cut across consumptions of goods and services, it is on
this basis that this study focuses on the impacts of value added tax to revenue
generation of Nigeria.
1.2
Statement of the Problem
In
Nigeria, value added tax is one of the instruments the Federal government
introduced to generate additional revenue. Yet, most prominent Nigerians and
interest groups had spoken against its introduction. It would appear that VAT
is froth with some problems. After its adoption into the Nigeria tax system, it
has become a controversial issue that generates debate among several authors
like Naiyeju and (2009) that the purpose of introducing value added tax as one
of the methods of taxation in Nigeria economy has not yet known.
Poor VAT administration as identified by Olaoye (2009) was one of
the problems confronting VAT in Nigeria. Tax authorities perform only the
technical functions without performing the needed management functions, taken
the complexity of tax administration into consideration, there are bound to be
ineffectiveness of tax administration. Basically, the performance of only
technical functions leads to false declaration, refusal to complete tax return
forms, fraud, inflation of deductible expenses, smuggling, default, illegal
bunkering, etc. The dishonest practices by some tax officials also pose a
serious threat to the effective tax administration in Nigeria especially when
such practices are capable of having demoralizing effects on honest tax payers
Taiwo (2008), observed that the distribution
of government revenue is skewed in favor of one tax base or the other (Journal
of Accounting (2016), in Nigeria. Nevertheless, the overwhelming evidence of
positive impact of oil revenue on economic growth in Nigeria cannot be
overemphasized (Odusola, 2006). However, the question is, are other forms of
taxes not important for considerations? Emanating from the above therefore,
there are some questions to ask (1) what relationship exists between Nigerian’s
tax revenue from personal income by tax payers and economic development of the
nation? (2) What is the contribution of other tax bases such as value added tax
to the overall tax revenue of Nigeria? It is against these backdrops, that this
research is carried out with a view to finding out the causes and proffer
solution(s).
1.3
Objective of the Study
The main objective of this study is the impact
of value added tax to revenue generation of Nigeria, while the specific
objectives include:
I.
To determine the impact of value added tax (VAT) to Real Gross Domestic
Product growth rate of Nigeria.
II.
To ascertain the impact of value added tax (VAT) to total tax revenue
generations of Nigeria.
1.4 Research Questions
The following questions have been formulated
in line with the objectives of the study.
I.
How does value added tax affect Real Gross Domestic Product growth rate
of Nigeria?
II.
To ascertain the impact of value added tax (VAT) to total tax revenue
generations of Nigeria.
1.5 Research Hypotheses
The following null hypotheses have been
formulated.
Ho1: Value added tax has no significant effect on Real Gross Domestic
Product growth rate of Nigeria.
Ho2: Value added tax has no significant effect on total tax revenue
generation of Nigeria.
1.6 Scope of the Study
The study is on the impact of value added tax
to revenue generation of Nigeria, covering the period of 11 years, that is,
between 2007 and 2018, the concentration was focused majorly on value added
tax.
1.7 Significance of the Study” This research work will be an invaluable source
of literature for researchers, and related field who might be interest in
knowing much about the concept of ― value added tax (VAT).Some of the
beneficiaries includes;
Tax authority: This
study will be relevant to tax authority because it will help them have an in
depth understanding of Vat able person and therefore enable to adjust or
further their policies as regards their VAT rate
Government: This
study will enable the government to ascertain the income that flows in from
Value Added Tax and of course help them to determine their policies
General Public:
This study will help the general public to understand the importance of value
added tax and future encourage or promote compliance among the general public
Future researchers: Future
researcher would benefit from this study because they can make reference to
this work while undertaking their researcher work.
1.8 Definition of Terms
Nigeria Tax Authorities: This refers to
the revenue collection agencies of the Federal Government of Nigeria represented
by the Federal Inland Revenue Service (FIRS), State Internal Revenue Service
(SIRS) and Local Government Revenue Committee.
Joint Tax Board (JTB): This is the
supervisory and regulatory body that defines the scope of operation and
administrative system between the various tiers of tax authorities.
Revenue: Implies resources or pool of
funds available to the Federal Government of Nigeria from internal and external
sources.
Tax: Obligatory transfer of financial
resources from the private organisation to the public sector for common pool
Tax Administration: Refers to tax
management process and procedures for the effective and efficient transfer of
financial resources from the private organisation to the public pool.
Board: This refers to the Federal Board
of Inland Revenue (FBIR)
Service: This refers to the Federal
Inland Revenue Service (FIRS)
Tax Justice: This refers to the tax
administration transparency issues in Nigeria.
Tax Reform Policies: These are policies
established by the Federal Government in Nigeria on tax administration and
implementation.
Tax Consultants: These are firms
employed by the Federal Government of Nigeria charged with the duties of tax
administration and collection.
Tax
Evasion: This refers to the deliberate failure to
pay taxes usually by making false reports. It is using illegal means to avoid
paying taxes.
Tax evasion: schemes involve an
individual or corporation misrepresenting their income to the Inland Revenue
Service.
Government Revenue:
This is defined as Money received by a government, it is an important tool of
fiscal policies of the government and it is the opposite of government
spending.
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