TABLE OF CONTENTS
1.1 Background of the Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Relevant Research Questions
1.5 Statement of Hypotheses
1.6 Scope of the Study
1.7 Limitation of the Study
1.8 Significance of the Research
1.9 Definition of Unfamiliar Terms
REVIEW OF RELATED LITERATURE
BACKGROUND OF VALUE ADDED TAX (VAT) IN NIGERIA
2.1.1 Worldwide History of Value Added Tax
2.1.2 History and Development of VAT in Nigeria
2.2 THEORETICAL AND CONCEPTUAL FRAMEWORK OF
VALUE ADDED TAX
2.2.1 Definition of the concept Value Added Tax
2.2.2 Characteristics of Value Added Tax
2.2.3 Advantages of Value Added Tax
2.2.4 Principles of a Good Tax System
2.2.5 Definition of Government Revenue
2.2.6 Sources of Revenue to the tree tiers of
Government in Nigeria
2.2.7 Revenue sharing experience among the three
tiers of Government in Nigeria
2.2.8 Problems of Tax Revenue Generation in
2.2.9 The Concept of Economic Growth
2.2.10 The Concept of Economic Development
2.2.11 Indices or Measures of Economic Development
2.2.12 World-Wide Comparative Analysis of Value Added
of Value Added Tax (VAT) as Practiced in Nigeria
18.104.22.168 10 Key Facts
22.214.171.124 VAT as a Replacement of Sales Tax
126.96.36.199 The Nature of the VAT
188.8.131.52 Administration and Policy
184.108.40.206 Goods and Service Covered by VAT
220.127.116.11 Determination of Value
18.104.22.168 VATable Person
22.214.171.124 Remittance of VAT
126.96.36.199 Liability to VAT
188.8.131.52 Rate of VAT
184.108.40.206 Records of Accounts
220.127.116.11 VAT Inspection
18.104.22.168 Accounting for VAT Proceeds
22.214.171.124 Offences and Penalties
2.3 MODELS AND THEORIES OF VALUE ADDED TAX
2.3.1 Models based on coverage and scope of
2.3.2. Models Based on the Treatment of Capital in
2.3.3 Models Based on Methods of Computing VAT
2.4 Review of Authors
2.5 Current Literature on Value Added Tax and
2.6 Summary of Literature Review
MATERIALS AND METHODOLOGY
3.1 Restatement of Research Questions
3.2 Restatement of Hypothesis
3.3 Research Design
3.4 Characteristics of the Study
3.5 Population of the Study
3.6 Sampling Techniques and Size
3.7 Data Collection Instruments
3.8 Test of the Validity and Reliability of
the Research Instrument
3.9 Procedure for Processing Data
3.10 Method of Data Analysis
3.11 Limitations of Methodology
DATA PRESENTATION AND ANALYSIS
4.1 Presentation of Data
4.2 Data Analysis
4.3 Specification of Analysis Instruments
4.4 Test of Hypothesis
4.5 Interpretation of Results
4.6 Discussion of Findings
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings
OF THE STUDY
The Nigerian economy is
basically a mono-product driven economy. Crude oil has been its main stay since
1956 when it was discovered in commercial quantity in Oloibiri, in the present
Bayelsa State. Revenue from petroleum profit tax is the most significant source
of revenue of the Nigerian government, accounting for over 80% of government revenue
and over 90% of its total foreign exchange earnings (Soyode & Kajola,
2006). Over the past half century, Nigeria has mostly depended on oil for its
revenue source. This scenario is not good for the economy, as any misfortune in
the petroleum sector will translate to calamity for the nation. This is
worsened by the fact that crude is not a renewable energy source, which means
it is possible to dry up at any time.
In a bid to diversify the
sources of revenue for the country, the Federal Government set up a committee
in 1991 to review the system of indirect taxes in the country, with a view to
broadening it. This culminated in the introduction of the Value Added Tax, via
the instrument of the Value Added Tax Act of 1993. This new tax, which became
effective on January 1, 1994, replaced the former sales tax, which had a
narrower base (Gyang, 2012). Moreover, VAT, as a form of indirect tax, is
acclaimed to be easier and more convenient to collect than other direct taxes
like income, profit, capital gains, etc taxes.
The intention of this
study, therefore, is to establish what contributions the Value Added Tax (VAT)
has made to the growth and development of the Nigerian economy. This is with
the intention of seeking to establish if the VAT can be used by the government
as a veritable alternative source of revenue that can foster development.
1.2 STATEMENT OF THE PROBLEM
The volatile nature of
oil prices in the international market coupled with the security challenges in
the country, with particular reference to the Niger Delta, which disrupts and
sometimes makes production activities of the oil companies almost impossible is
a matter of concern to all well meaning Nigerians. In addition to these, the
drive by the world community, especially the United States of America, to
develop an alternative source of energy for fuelling industry is an issue for
worry for economies around the world that depend on oil exports to sustain
themselves. The development of vehicles that do not use fossil fuel to run by
the advanced countries, who constitute the bulk of the consumers of our oil,
should alert us to start looking for alternative sources of revenue for
national development in time.
The recent discovery of
oil in such countries like Niger and Ghana, in commercial quantities, which
hitherto had none of the precious commodity is also an indication that the world oil market will sooner or later
become saturated and demand for petroleum products will drastically fall to
unbearable extents for oil exporting countries.
In addition to the above,
Basila (2010) complained that all levels of government have turned to the
borrowing business, as a means of financing government expenditure. He argued
that this makes VAT relevant as the scheme is designed for the benefit of the
states and local governments.
& Tashie (2013), in an effort at justifying their proposal for tax policy
reforms put forward the following four arguments:
That there is a
compelling need to diversify the revenue portfolio for the country in order to
safeguard against the volatility of crude oil prices and to promote fiscal
sustainability and income viability at lower tiers of government;
on a cash budget system, where proposals for expenditure are always anchored to
revenue projections. This, they argued, facilitates determining the optimal tax
rate for a given level of expenditure.
system is concentrated on petroleum and trade taxes while direct and
broad-based indirect taxes like the value added tax (VAT) are neglected, and
fiscal deficit that over the years has threatened macroeconomic stability and
prospects for economic growth makes the prospect of tax reform very appealing.
Given the foregoing
scenario, this researcher is of the view that it is high time that the Nigerian
Government began critically thinking of alternative ways of generating revenue
to cater for the needs of the economy. This revenue means must, as a matter of
fact, be viable and sustainable and not an ad-hoc approach.
VAT has come a long way
in Nigeria. Its contribution to the revenue of the country has been rising and
is becoming significant since it became effective in January 1994.
This study is, therefore,
intended to investigate whether VAT has made any significant contribution to
the development of the Nigerian economy. This is with a view to forming an
opinion as to whether the VAT can become a veritable alternative source of
revenue for the Government, in her search to diversifying her revenue sources
in a viable and sustainable way.
From the foregoing, the
problem of this research is to investigate into the effect of Value Added Tax
(VAT) on economic growth and development in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The objective of this
study is to
amount of VAT Revenue generated by the Government from 1994 to 2012.
contribution of VAT to the revenue diversification drive of Nigeria from 1994
to 2012, as reflected in its contribution to Government Revenue during the
contribution that VAT has made to economic growth of Nigeria from 1994 to 2012,
contribution that VAT has made to the economic development of Nigeria from 1994
to 2012, as reflected in its relationship with the Gross Domestic Product (GDP)
of the country for the period.
1.4 RELEVANT RESEARCH QUESTIONS
Research questions, if
answered, help in resolving the problem of the study. ICAN (2006) said they are
logically derived from the problem statement and the objectives.
If at the end of this work
the following questions are answered, it is hoped that they will help in
resolving the problem of this research:
i. How much has Government been able to generate as VAT
Revenue over the years 1994 to 2012?
ii. Has VAT made any significant contribution
to Government Revenue (GR) in Nigerian from 1994 to 2012?
iii. Has VAT any significant relationship
with the economic growth of Nigeria from 1994 to 2012?
iv. Has VAT any significant relationship
with the Gross Domestic Product (GDP) of Nigerian from 1994 to 2012?
1.5 STATEMENT OF HYPOTHESES
A hypothesis is a
tentative answer to a research question which may be proved or otherwise, after
testing. It is a statement of logical guess, which reflects the possibility in
the occurrence of an event under investigation. It offers solutions to the
research questions. It also tries to establish a relationship or difference
between the variables involved in the investigation. A hypothesis is subjected
to statistical test so as to prove if it will be retained or rejected (ICAN,
2006). Kerlinger (1973) simply put it as “a conjectural statement of the
relation between two or more variables”. Hypotheses are normally postulated to
guide the conduct of a research.
ICAN (2006) gave the
characteristics of hypothesis to include: (i) they must have direct bearing on
the problems stated; (ii) they should state the relationship or difference
between two or more variables; (iii) they should be clearly and unambiguously
stated; (iv) they should be testable such that their implications can be
deduced; (v) the guessed solution in a hypothesis should be reasonable such
that it does not form an open conflict with studies that have been confirmed,
validated and established.
To achieve the objectives
of this study, the following hypothesis has been put forward:
HO: Value Added Tax does not have any
significant statistical relationship with the economic growth and development
(GDP) of Nigerian from 1994 to 2012.
HI: Value Added Tax has a significant
statistical relationship with the economic growth and development (GDP) of
Nigerian from 1994 to 2012.
OF THE STUDY
This study shall cover
the contributions of VAT to economic growth and development of Nigeria in terms
of the Gross Domestic Product (GDP) for the years 1994 to 2012 only.
Growth in the GDP of a
country is and index of economic development over time, which justifies its
selection in this study. The years 1994 to 2012 are relevant to the study
because they cover the years of the VAT experience in the country from its
inception to date. This is hoped will give a picture of the manner in which VAT
has contributed to national development in Nigeria.
1.7 LIMITATION OF THE STUDY
This work was limited by
time constraint. This was because it was carried out at a time lectures in
other subjects were still ongoing. The challenge of sourcing for data relevant
to the research was also a constraint.
1.8 SIGNIFICANCE OF THE RESEARCH
Every research is carried
out to fulfill some purposes. These represent the importance of the research.
This significance of this study lies in the fact that it is hoped:
successful completion will partially meet the requirement for the award of the
Bachelor of Science (B.Sc.) Degree in
To provide policy
decision makers in Government with recommendations that would help in policy
decision making relating to Value Added Tax (VAT), specifically, and taxation
generally, in Nigeria as they strive towards diversifying the sources of
revenue accruing to Government;
To add to the body
of already existing knowledge on the subject matter of the research; and
To provide a
source of reference for students and up-coming researchers in relation to the
subject matter of the research.
1.9 DEFINITION OF UNFAMILIAR TERMS
The following terms have
been used in this research with the meanings attached to them here.
is the amount of value added in the process of production of goods or the
rendering of a service.
Value Added Tax
is the amount of tax charged on the value added to a product at each stage of
the production process
development here means increase in the production of goods and services in a
country over time which results in a better standard of living for the
citizens. For the purpose of this study, economic development shall be measured
in terms of Government Revenue (GR) and the Gross Domestic Product (GDP).
revenue refers to revenue generated (or collected) by all the three tires of
government, the Federal, State and Local Governments in Nigeria.
the total production of goods and services in Nigeria over the given time
period, measured at the current basic prices.
(2012). An Insight Into Nigerian Taxation
System. 2nd ed. Jos: Jos Professional Tutors Consult.
Chartered Accountants of Nigeria (ICAN). (2006). Business Communication and Research Methodology. Victoria Island,
Lagos: V.I. Publishers Limited.
(1973). Fundamentals of Behavioral
Research. Second ed. Amsterdam: Holt Saunders.
Soyode, L. &
Kajola, S.O. (2006). Taxation Principles
and Practice in Nigeria. Ibadan: Silicon Publishing Company.