AN ASSESSMENT OF THE EFFECTIVENESS OF VALUE ADDED TAX ADMINISTRATION IN NIGERIA
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CHAPTER ONE: INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of the Problem 6
1.3 Objectives of the Study 7
1.4 Research Questions 8
- Research Hypotheses 8
1.6 Significance of the Study 9
1.7 Scope of the Study 10
1.8 Limitations of the Study 10
1.9 Definition of Terms 11
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 13
- Taxation: Meaning and Historical Perspective 13
- Value Added Tax: Concept, Types and Advantages 20
2.1.3 Objectives for the Imposition of VAT 22
2.1.4 Taxable Goods and Services 22
- Exempted Goods and Services 25
2.1.6 Accounting for VAT 26
2.1.7 Administration of VAT in Nigeria 28
2.2 Theoretical Framework 30
2.3 Empirical Studies 35
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction 46
3.1 Research Design 46
3.2 Population of the Study 47
3.3 Sample Size 47
3.4 Method of Data Collection 47
3.5 Model Specification 48
3.6 Method of Data Analysis 49
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction 51
4.2 Data Presentation and Analysis 51
4.3 Test of Hypotheses 56
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings 60
5.2 Conclusion 61
5.3 Recommendations 62
Appendix I: Data Used for the Study 67
Appendix II: Detailed Output of Regression 68
LIST OF TABLES
Table 1: Sensitivity of Government Income to Value Added Tax 52
Table 2: Sensitivity of Consumption Pattern to Value Added Tax 52
Table 3: Sensitivity of Import of Vatable Goods to Value
Added Tax 53
Table 4: Goodness of fit through R Square 54
Table 5: Regression Analysis for Dependent and
Independent Variables 55
Table 6: ANOVA Result 56
Country seeking to improve its revenue generation would opt for a concept enabling it to best realize its objectives with due regards to its peculiar socio-economic make-up. One of these ways is by taxation. This study seeks to assess the effectiveness of value added tax administration so as to see whether value added tax has affected certain macroeconomic variables in Nigeria. The study period was 1993 through 2012. The study was guided by three (3) research objectives, questions and hypotheses. The study was guided by three (3) research objectives, questions and hypotheses. The theoretical framework of the study was anchored on the expectancy theory of taxation and related literatures to the research work were reviewed. The data for the study were obtained from the Central Bank of Nigeria Statistical Bulletin. Based on the analysis, the study found that value added tax has significantly affected government income in Nigeria; value added tax has significantly affected consumption patterns in Nigeria and value added tax has significantly affected the level of imports in Nigeria. The study recommends among others that the government through its regulatory agencies should inject some fairness in the tax system in the area of consumption tax so that the burden of income tax would lessen on those with a low income level. In addition, the tax revenues should be properly distributed so that economic growth can be harnessed, especially in providing basic social amenities as well as infrastructures in Nigeria.
- Background of the Study
Taxation is the whole machinery needed to implement the collection of taxes. Taxes are compulsory levies imposed by the government on her eligible citizens for the purpose of revenue generation which enables government to discharge its role of providing basic infrastructure and services thus taxes provide funds required for delivery of essential community services and the infrastructure that household and firms rely on in research healthcare, education, security and more (Odah, 2006). Nigeria as a nation has the vision of becoming one among the world’s 20 largest economies in the year 2020; this obviously is the brain behind the priority attention the present administration is directing at infrastructural development which is an essential for economic growth.
A developed economy is one with the ingredient to stimulate investment and create wealth, this by implication offers an atmosphere that is business friendly and has the potentials for the actualization of the vision 202020. The desired outcome requires a lot of money to put the economy in a position that stimulates investment, therefore, tax policies need to attract potential investors, and the revenue from tax should be sufficient enough to meet the infrastructural expenditures of the government. Apere (2013) noted that taxation is a microeconomic and fiscal policy instrument; it involves the transfer of resources from the private to the public sector for the accomplishment of economic and social goals. It is an instrument the government uses to measure, access and control the informal sector that dominate developing economies of the world.
Country seeking to improve its revenue generation would opt for a concept enabling it to best realize its objectives with due regards to its peculiar socio-economic make-up. One of these ways is by taxation. Taxation can therefore be defined as a means by which a government appropriate part of the private sector’s income. The accumulated revenue is used in meeting recurrent expenditure. Tax occupies a unique position, because it is an important part of government policies. The ability of a government to generate revenue from this sector affects services offered by such a government. A means of improving internally generated revenue is through “Value Added Tax” (VAT) (Wambai and Hanga, 2013).
Value Added Tax was FIRS introduced by France in 1954. It has been embraced by well over seventy countries all over the world. These include the entire organization for economic co-operation and development of countries, Japan, Canada, the state of Michigan in the U.S.A and many African countries. In Nigeria, the match towards VAT system started with acceptance of the recommendation of a study group on in direct taxation in November, 1991. The decision to accept the recommendation was made public in the 1992 budget speech of the Head of State. This resulted in setting up the modified Value-Added Tax (MVAT) committed on 1st June, 1992 as recommended by the study group. The recommendation of the committee that VAT should be administered by an independent commission was rejected by the government. Tax administration was however given to Federal Inland Revenue Services, which was already charged with the responsibility of administering most other taxes in Nigeria.
The introduction of VAT in Nigeria through Decree 102 of 1993 marks the phasing out for the Sales Tax Decree No. 7 of 9186. The Decree took effect from 1st December, 1993, but by administrative arrangement, invoicing for tax purpose did not commence until 1st January 01994. Value Added Tax is a tax on the supply of goods and services which is eventually born by the final consumer but all collected at each stage of production and distribution chain. With VAT, government reasoned it will be virtually impossible to evade tax. The instrument that introduced VAT spells out goods and services that attract the tax. It shows, for instance that food items do not attract VAT resides, sellers of goods on which VAT is paid must first of all register with the Federal Inland Revenue Services, the aim is to ensure that the 5% VAT paid on goods and services, but this is not exactly, what is happening now. Market women are charging VAT on food items with the obvious that this tax, simply increases their profit margin, land lords are charging VAT on house rent, hotels are also charging VAT. All these are contrary to the regulation governing this system. The fear is that very soon Nigerians will pay VAT on everything. It is the fear of the already pauperized Nigerians. Sinking more into an abyss that informed the researcher’s decision to look into VAT implementation and input on government revenue. As a result of the uncommon nature of this tax system, majority of the populace in the country are unaware of its existence, consequently, the low credibility of government makes people scam the payment and collection of VAT. It is against this backdrop that this study seeks to assess the effectiveness of value added tax administration in Nigeria.