ABSTRACT
The study examined the impact of value added tax on the Nigerian economy. The data used was secondary data, sourced from Federal Inland Revenue Service (FIRS) and Central Bank of Nigeria statistical bulletin. Multiple regression of ordinary least square (OLS) method of analysis was used. The result from the study revealed the following: that value-added tax had positive and significant impact on gross domestic product in Nigeria, while petroleum profit tax had negative and insignificant impact on gross domestic product in Nigeria. The study therefore concludes that value added tax had positive and significant impact on the Nigerian economy which is in line with Ibu Khaldun’s theory of taxation which recognizes the positive impact of value-added tax on the economy, hence the study recommends the following: that government should sustain value added tax and administrative loopholes should be covered for VAT revenue to continue to contribute more positively and significantly on the Nigerian economy. This implies that government should ensure the accountability and transparency in the management of VAT revenue, and that as a matter of urgency government should arrest the insecurity situation in the Niger Delta areas and the country at large to avoid pipe line vandalization and illegal refineries and government should create an enabling environment for the relocated oil companies to come back to Nigeria in order to boost oil production in the country and the increase on revenue that will accrue from petroleum profit tax.
TABLE
OF CONTENTS
Title i
Declaration ii
Certification iii
Dedication iv
Acknowledgments v
Table of contents vi
List of tables viii
Abstract ix
CHAPTER ONE: INTRODUCTION 1
1.1 Background
to the Study 1
1.2 Statement of the Problem 3
1.3 Objectives
of the Study 4
1.4 Research
Questions 4
1.5 Research
Hypotheses 5
1.6 Scope
of the Study 5
1.7 Significance
of the Study 5
CHAPTER TWO: REVIEW
OF RELATED LITERATURE 7
2.1 Conceptual Framework 7
2.1.1 Concept
of Tax 7
2.1.2 Forms
of Taxes 8
2.1.3 Definition
and Concepts of Value Added Tax (VAT) 9
2.1.4 Aims of VAT
in Nigeria 10
2.1.5 Different types of valued added tax (VAT) 11
2.1.6 Value Added
Tax in Nigeria 12
2.1.7 Administration
of VAT in Nigeria 14
2.1.8 Value Added Tax in
Nigeria 15
2.1.9 Value Added
Tax and its Challenges 16
2.1.10 The
Impact of value added tax on Nigerian economy 17
2.2 Theoretical
Framework 19
2.3 Empirical
Review 24
CHAPTER
THREE: RESEARCH METHODOLOGY 30
3.1 Research
Design 30
3.2 Nature
and Source of Data 30
3.3 Model
Specification 30
3.4 Techniques
of Analysis 31
3.5 Decision
Rule 31
3.6 Description of Variables 31
3.6.1 Dependent Variable: 31
3.6.2 Independent Variable: 32
CHAPTER FOUR: DATA
PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS 33
4.1 Data presentation 33
4.2 Regression Analysis and interpretation of
Result 34
4.3 Test of
Hypotheses 34
4.4 Discussion of findings 36
CHAPTER FIVE: SUMMARY OF FINDINGS,
CONCLUSION AND RECOMMENDATIONS 38
5.1 Summary of Findings 38
5.2 Conclusion 38
5.3 Recommendations 38
REFERENCES 40
LIST OF TABLES
Table Page
4.1:
Data used for the Regression analysis 33
4.2:
Regression Result 34
4.3.1: Test
of Hypothesis one 34
4.3.2: Test
of Hypothesis two 35
CHAPTER
ONE
INTRODUCTION
1.1 Background to the Study
In most countries in the world, revenue generated through value
added tax (VAT) has been recognized as accounting for a significant percentage
of the total revenue generated by the government. Thus,
value added tax has been adopted by several countries of the world
because of the growing concern about economic efficiency and tax simplicity in
a competitive and integrated economy (Jenkins & Kuo, 2015).
The precedence for the introduction of VAT in Nigerian
was based on the fact that taxation as an instrument of fiscal policy is vital
in generating revenue to finance the activities of government, redistribute
income, stabilise the economy as well as stimulate growth and development
(Damian, 2010). For the first two decades after independence the economy was
relatively buoyant as a result of favourable balance of payments and the oil
boom. However, increasing cost of running the government, fluctuation in oil
price, inflation and the recent global economic recession have returned the
attention of managers of the nation’s economy to the importance and relevance of
taxes, especially value added tax in ensuring sustained economic growth.
The need to redirect and re-organise the priorities of
the Nigerian economy became urgent as the nation approached the new millennium.
The international price of crude oil, Nigeria’s biggest foreign exchange
earner, was falling and Nigeria was faced with the inevitable vulnerability of
a monoculture economy. For a nation that had gone through an unprecedented
economic boom in the seventies, it was a terrible experience. The Nigerian tax
system, which went through a terrible period in the eighties and seventies as
revenue from petroleum took central and dominant role within the economy, was
expected through the introduction of this effective tax system to come back to
life (Ijewere, 2013). It became urgent, therefore, to find alternative means of
raising revenue for the government, both internally and externally. The
external means is through promoting and exportation of non-oil goods like
primary agricultural products and semi-processed agricultural products. One of
the internal means is through general over-hauling of Nigeria tax system by
introducing a well managed and efficient tax system.
Overtime, the administration of tax systems and the
enthronement of a tax payment culture nationwide continue to challenge
successive government in Nigeria. One of the attempts to expand the tax net
with minimum resistance and also to reduce tax evasion so that most of the tax
income revenue would get to the government of Nigeria was the introduction of
value added tax (VAT) in 1993. This tax reform actually came into operation in
January 1994 to replace the old sales tax which was narrow in scope in terms of
tax revenue generate from goods and services. In other words, VAT is a broader
tax system structured to raise revenue for government (federal, state and local
governments).
Azubuike (2009) opined that a tax system such as VAT
should be able to mobilize a nation’s internal resource in order to create an
environment conducive to promote economic growth. Bakare (2013) argued that, the
impressive performance of value added tax (VAT) in other countries as well as
the intention of the Nigerian government to increase her non-oil revenue base
principally accounted for the introduction of the VAT tax system. The value
added tax system is consumption tax levied on the supply of goods and services
which will be difficult to evade both by the rich and the poor, small or large
companies. It is an indirect tax system designed in the form of a final tax
liability on the final consumer of goods and services. In corroboration, Emmanuel
(2013) opines that VAT is a tax on estimated market value added to a product or
service at each stage of its manufacture or distribution and the additions are
ultimately added to and services bear the tax burden or the incidence because
they cannot recover the tax paid on consumption of goods and services. Countries
all over the world, look for ways to boost their revenue to finance both
capital and current projects, this facilitated many nations to introduce value
added tax on goods and services. For instance, in Africa, VAT has been
introduced in Benin Republic, Cote d’Ivore, Guinea, Kenya, Madagascar,
Mauritius, Senegal, Togo and in Nigeria to ensure that revenue is generated
internally to finance government capital and recurrent expenditure, in order to
ensure rapid and sustained economic growth and development (Adereti, Adesina &
Sanni, 2011). Therefore, the study seeks to empirically ascertain the extent
the introduction of value added tax has influence significantly Nigeria’s
economic growth.
1.2 Statement
of the Problem
While the performance of Value Added Tax as a source
of revenue in Nigeria is encouraging, it remains difficult to find ways to
systematically assess and ascertain the true impact of VAT on the economy.
Recent research works on the impact of taxation on the Nigeria economy lumped
up all the various taxes together without isolating VAT (Adereti, Adesina &
Sanni, 2011). In other words, most researchers have not bothered to enquire
into the extent to which Value Added Tax support or contribute to economic
growth in Nigeria.
Another
problem perceived by enterprises or businesses in Nigeria is that of increase
in the cost of raw materials, Semi-finished goods (WIP) as well as finished
goods and services caused by VAT. This has also affected
the consumption of goods and services resulting from increase in their prices.
Poor relationship between tax payers and tax authorities is also a source of
serious concern. The issue of not remitting VAT collection promptly is equally
worrisome since it needs to be done within 30 days of collection by business
ventures.
Furthermore,
persistent and worsening macro-economic indices such as rising
inflation, growing unemployment and continued individual under-capacity
utilization is not helping matter too. This has exerted negative influence on
the extent of applicability revenue generated through taxation. More so, lack
of trained personnel and logistic support from the government and FIRS has
contributed immensely to poor VAT administration and implementation which invariably
has resulted in reduction in revenue generation from vat. For the purpose of
this paper work we shall examine the implication of reduction in revenue
generated through VAT on Nigerian economic growth.
1.3 Objectives of the Study
The
main objective of this study is to ascertain the impact of value added tax on
the economic growth of Nigeria, while the specific objectives include the following:
i.
To examine the impact of Value Added Tax (VAT)
on Gross Domestic Product in Nigeria;
ii.
To ascertain the impact of Petroleum Profit Tax
(PPT) on Gross Domestic Product of Nigeria.
1.4 Research Questions
The
study addressed the following research questions:
i.
How does Value Added Tax (VAT) impact on Gross
Domestic Product in Nigeria?
ii.
To what extent has Petroleum Profit Tax (PPT)
impacted on Gross Domestic Product in Nigeria?
1.5 Research Hypotheses
The following formulated hypotheses will be subjected to empirical
testing for the purpose of this research work:
HO1: Value Added Tax (VAT) does not have
significant impact on Gross Domestic Product in
Nigeria;
HO2: Petroleum Profit Tax (PPT) has
no significant impact on Gross Domestic Product in Nigeria.
1.6 Scope of the Study
This study focused on the impact of value added tax on the Nigeria
economy. Hence, the study covered the period from 2002 – 2016. The time frame
was adopted based on the adjustments in Nigerian tax system which has resulted
to the introduction of value added tax.
1.7 Significance of the Study
This research work is an invaluable source of citation for
research, student, marketing practitioners, accountants, bankers, companies,
government agencies and related field who might be interested in knowing much
about the concept of VAT.
1.
Benefits
to financial institution
It provides information on the preparation of value added tax in
our financial institution and also serve as a source of information about the
implementation and assessment procedure of value added tax in Nigeria including
its effect on the disposable income of the citizens.
2.
Government
and its agencies
It provides recommendation, which when adopted will improve the
operation of value added tax system. However, it will also serve as source of
information to the government in her policy formulation to suggest alternative
strategies that can aid effective administration and monitoring of the VAT
processes and procedures.
3.
Policy
Makers:
The study which centres on the impact of value added tax on the
economic growth of Nigeria will expose policy makers on various forms of value
added tax and their significant implications on the economic growth of the
Nigeria. It will also ensure that policy makers are well intimated on the
various strategies that can be adopted to ensure that the administration of
value added tax is done in a such a way that desire objectives are achieved.
4.
Academic
institutions and Potential Researchers:
More so, the study will be of significant benefits to
academicians and potential researchers in the field of banking and finance, in
that, it will add to the existing knowledge in the discipline and it will serve
as a guide for potential researchers and provides insight for future research
on the topic and related field for academia’s and policy makers who are willing
to improve on the existing knowledge.
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