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1
IGWEONYIA OBIAGELI .V
THE ANALYSIS OF VALUE ADDED TAX AND
ITS IMPACT
ON THE NIGERIA ECONOMY
BUSINESS ADMINISTRATION
ACCOUNTANCY
Okeke,chioma m
Digitally Signed by: University of Nigeria,
Nsukka
DN : CN = okeke,chioma m
O= University of Nigeria, Nsukka
OU = Innovation Centre
2
THE ANALYSIS OF VALUE ADDED TAX AND ITS IMPACT
ON THE NIGERIA ECONOMY
IGWEONYIA OBIAGELI .V
PG/ MBA/09/54303
DEPARTMENT OF ACCOUNTANCY
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS.
NOVEMBER 2011
3
TITLE PAGE
THE ANALYSIS OF VALUE ADDED TAX AND ITS IMPACT
ON THE NIGERIA ECONOMY
BEING DISSERTATION REPORT SUBMITTED IN PARTIAL
FULFILMENT OF THE REQUIREMENT FOR THE AWARD
OF MASTERS DEGREE IN BUSINESS ADMINISTRATION.
(M.B.A DEGREE IN ACCOUNTANCY)
TO
DEPARTMENT OF ACCOUNTANCY
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS.
BY
IGWEONYIA OBIAGELI .V
PG/ MBA/09/54303
NOVEMBER 2011
4
APPROVAL PAGE
This is to certify that IGWEONYIA OBIAGELI VIRGINIA a
post graduate student in the department of Accountancy
and with registration number PG/MBA/09/54303 has
satisfactorily completed the requirement for the project
research in partial fulfillment for the award of Masters of
Business Administration degree (MBA) in Accountancy.
…………………………… ………………………….. PROF (MRS) UCHE.MODUM DR.O. UGWUOKE
Project Supervisor Head of Department
……………………………. ………………………….
Date Date
5
DECLARATION
I IGWEONYIA OBIAGELI VIRGINIA , a post graduate student
in the department of accountancy with registration number
(PG/MBA/09/54303), Hereby declare that this project work
is written by me and that the work embodied in this project is
original and has not been submitted in part or full for any
other degree of this nature or any other university.
………………………………….
IGWEONYIA OBIAGELI .V.
PG/MBA/09/54303 RESEARCHER
6
DEDICATION
This work is dedicated to the almighty God, for the strength
wisdom and understanding he has given to me through all
those difficult times and also to MY FAMILY, For their
immense support, assistance and encouragement.
7
ACKNOWLEDGMENT
My profound gratitude goes to my supervisor
PROF.U.MODUM whose criticism, corrections, suggestions,
guidance and advice contributed immensely in making this
project work a reality.
I am also grateful to my head of department, Dr. O.
Ugwuoke for his advice and encouragement. I also express
my gratitude to all my lecturers -Mr. J. N. Modebe, Prof. J.
O.Onah,Dr.(Mrs.) Regina Okafor, Mrs. Ofoegbu, Mr. O.
Agaolu, Dr (Mrs) Onyeanu and the rest of them in the
department of Accountancy who had at one time or the
other instilled in me a valuable knowledge in this field of
study.
This thesis could not have come to reality without the
encouragement and assistance given to me by my cousins,
friends, brothers and sisters. My special thanks goes to my
husband-Mr. Igweonyia .B.N. and my children for their
support and encouragement throughout the period of my
studies and also Mr paul Aduba.I must also appreciate the
special prayers from my mother –Mrs. Okafor Regina. Finally
I thank my friends and Mrs. Akaniro Ngozi for her support
and other colleagues in the field of study, who were not
mentioned above and to several authors from whose books
and works I have abstract information. In owe immense debt
of gratitude.
IGWEONYIA.O.V.
8
ABSTRACT
The Purpose of this study is to investigate the impact of VAT on the Nigeria economy as it relates to how it can improve
government revenue and throws more light in its contribution to the economic growth and development of Nigeria. In
addition to the oral interview and questionnaires distributed, was a review of study of literature relating to the impact,
administration and collection of VAT in Nigeria. Simple percentages, bar chart, pie chart, and chi-square
X2 = (O-E)2
E Were used for data analysis on which purposive sampling
technique was adopted. The findings shows that A,VAT has economic impact in consumption pattern in Nigeria
B, VAT has positive impact on the economy of Nigeria. C, The payment of VAT has improved the prospects of
businesses, organizations and industries in Nigeria and the study strongly recommends that:
i. There should be functional VAT offices in every council area to coordinate a vigorous campaign to educate
people and seek their cooperation. ii. The above will no doubt erode the negative attitude that
some of the taxpayers have developed towards VAT. iii. Government should make adequate provision, for
retrieving the VAT proceeds from companies and other collection agents.
9
TABLE OF CONTENTS
Title page - - - - - i
Approval Page - - - - - ii
Declaration - - - - - iii
Dedication - - - - - iii
Acknowledgment - - - - - iv
Abstract - - - - - vi
Table of contents - - - - - vii
List of tables - - - - - xi
List of figures - - - - - xiii
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 Question - - - - - 7
1.5 Research Hypotheses - - - - - 7
1.6 Scope of the Study - - - - - 8
1.7 Significance of the Study - - - - - 8
1.8 Limitation of the Study - - - - - 9
1.9 Definition of Terms - - - - - 11
References
10
CHAPTER TWO
OVERVIEW OF LITERATURE REVIEW
2.1 Introduction - - - - - 14
2.2 Definition and Purpose of Taxation - - - 15
2.2.1. Purpose of Taxation - - - - - 15
2.3 Attributes of a Good Tax System - - - 16
2.4 Impact, Incidence and Taxable Capacity - - 18
2.5 Types of Tax System - - - - - 19
2. 6 Kind of Taxes - - - - - 20
2.7 Value Added Tax in Nigeria - - - - - 22
2.8 Conceptual Analysis of Value Added Tax (VAT) - 24
2.9 Aims of Vat in Nigeria - - - - - 27
2.10 List of Some African Countries with their Rate of
Value Added Tax. - - - - - 28
2.11. The Impact of Value Added Tax in Nigeria - - 30
2.12 Administration of Vat in Nigeria - - - 32
2.13 Accounting for Vat - - - - - 34
2.14 Vat Calculation in Nigeria - - - - - 35
2.15 Remittance of VAT - - - - - 36
2.16 Taxable Goods and Services and Rate - - 37
2.16.1 Goods and Services Exempted by Vat - - 40
2.17 Offences and Penalties of Registered Person - 40
11
2.18 Advantages of Vat in Nigeria - - - 42
2.19 Disadvantages of Vat in Nigeria - - - 43
References
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction - - - - - 47
3.2 Research Design - - - - - 47
3.3 Sampling Techniques - - - - - 48
3.4 Sample Size/Population - - - - - 48
3.5 Data Collection Techniques - - - - 50
3.6 Data Analysis Techniques - - - - - 50
3.7 Validity and Reliability Test of Instrument - 51
References
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND
INTERPRETATION
4.1 Introduction - - - - - 54
4.2 Data Analysis - - - - - 54
4.2.1 Response Rate - - - - - 54
4.3 Test of Hypothesis - - - - - 66
4.3.1 Test of Hypothesis (Ho1) - - - - - 67
4.3.2 Test of Hypothesis (H02) - - - - - 69
12
4.3.3 Test of Hypothesis (Ho3) - - - - - 71
4.3.4 Test of Hypothesis (Ho4) - - - - - 72
References
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSIONS AND
RECOMMENDATION
5.1 Introduction - - - - - 78
5.2 Summary of Findings - - - - - 78
5.3 Conclusion - - - - - 80
5.4 Recommendations - - - - - 81
Bibliography
Appendix A: Questionnaire
Appendix B: Oral Interview Guide
Appendix C: Manufacturing firm visited
Appendix D: List of service providers visited
Appendix E: List of wholesalers visited
13
LIST OF TABLES
Table 2.10: African Countries with their VAT Ratio 29
Table 2.15.1: Taxable goods and services and rates - 38
Table 4.2.1 Sampled Questionnaires and Response
Rate - - - 55
Table 4.2.2 Demographic Data of Respondents - 56
Table 4.2.3: Types of Business Activities - 57
Table 4.2.4: Classification of Vat - - - - 58
Table 4.2.5: The Impact of Vat in Nigeria - - 59
Table 4.2.6: Vat Collection in Nigeria - - 60
Table 4.2.7: Vat Rate in Nigeria -- - - - 60
Table 4.2.8: Medium of Education of Vat - - - 61
Table 4.2.9: Motivation to Vat Staff -- - - 63
Table 4.2.10: Impact of Vat on Consumption Pattern 63
Table 4.2.11: Effect of Imposition of Vat on Businesses
and Industries. - - - - 64
Table 4.2.12: Challenges to Vat Implementation and
Administration - - - - - 65
Table 4.2.13: Impact of VAT on the Nigeria
Economy. - - - - 65
14
Table 4.3.1: Calculation of Chi-Square for Hypothesis
One (Ho1) - - - - 67
Two (Ho2) - - - - - 70
Table 4.3.3. Calculating Chi-Square for Hypothesis
Three (H03) - - - - - 73
Table 4.3.4. Calculating Chi-Square for Hypothesis
Three (H04) - - - - - 75
15
LIST OF FIGURES
Figure 4.2.1: Types of Business Activity - - - 57
Figure 4.2.2: Bar Chart (Classification of Vat) - - - 58
Figure 4.2.3 Pie Chart (Medium of Education on Vat) - - 62
Figure 4.2.4: Pie Chart - - - - 69 -
16
CHAPTER ONE
INTRODUCTION
1.1 Background of the study:
Value Added Tax (VAT) in Nigeria is a Federal Government
tax, which is administered using the existing machinery of
the Federal Inland Revenue Services (FIRS).
VAT has a directorate within the frame work of the Federal
Inland Revenue Services (FIRS) with the head office in
Abuja. It has a network of zonal and local offices throughout
the federation. The Directorate of the tax is headed by a
director who is assisted by two deputy directors. The Zonal
Coordinator of the Federal Inland Revenue Services (FIRS) at
Lagos, Ibadan, Enugu, Kaduna and Jos also coordinates the
activities of local VAT offices within their areas and are
responsible to the VAT Directors in Abuja for all Value
Added Tax (VAT) related matters.
VAT as a form of tax was introduced in Nigeria with effect
from 1st January 1994 based on the report of the study
group set up in 1991 by government to review the system of
indirect tax in Nigeria.
Before the introduction of VAT in Nigerian economy, the
Federal Government has been working relentlessly on how
to revamp the Nigeria economy. To this effect, a lot of
economic measures have been introduced. Among the
economic measures introduced included the Second-Tier
17
Foreign Exchange Market (SFEM), Structural Adjustment
Programme (SAP), and Foreign Exchange Market (FEM) etc.
All these efforts at revamping the economy were to no avail
as the economy seems to be an ailing child that has defied
all economic therapy or fiscal measures. Prompted by its
avowed position to revamp the Nigerian economy at
whatever cost, the Federal Military Government under the
leadership of General Sani Abacha introduced a fiscal policy,
the Value Added Tax (VAT) in January 1994.
VAT is a consumption tax at each stage of the consumption
chain and is borne by final consumer. It requires a taxable
person upon registering with the Federal Board of Inland
Revenue to charge and collect VAT at a flat rate of 5% on all
vatable goods and services.
Where the supply is not subject to VAT, the VAT liability will
either be Zero-rated or exempted. Zero-rated goods and
supplies are all export goods and supplies. Supplies that are
zero-rated are still taxable but no actual tax is payable to
the government. The important difference between Zero-
rated and exempt items is that any input VAT relating to
Zero-rated supplies is recoverable, whereas that relating to
exempt supplies are not recoverable.
The registration of Value Added Tax (VAT) is to cover all the
business activities of the vatable persons. Therefore all
domestic manufactures, wholesalers, distributors, importers
and suppliers of goods and services in Nigeria are expected
18
to register for VAT within six months after the
commencement of the decree or six months from the
commencement of business, which ever is earlier.
A vatable person is one who trade in vatable goods and
services for a consideration. Every vatable person has the
obligation to register for Value Added Tax (VAT) payment.
Professionals like lawyers, accountants, Engineers etc who
provide professional services to their clients are require to
register. There is therefore no thresh-hold for registration.
VAT paid by a business on purchases is known as input tax,
which is recovered from VAT charges on company sales
known as output tax. If output exceeds input in any
particular month, the excess is remitted to the Federal
Board of Inland Revenue (FBIR) but where input exceeds
output, the tax payer is entitled to a refund of excess from
Federal Board of Inland Revenue (FBIR) though in practice
this is not always possible.
A tax payer however has the option of recovering excess
input from excess output of a subsequent period.
It should be stated at this point that recoverable input is
limited to Value Added Tax (VAT) on goods imported directly
for resale and goods that form the stock-in trade sued for
the direct production of any new product on which the
output VAT is charged.
19
Vat in Nigeria were created as replacement or substitution
for the sales taxes that were in operation before. They were
imposed on all goods that were manufactured in the country
as well as goods that had been made outside the country
and were selling there.
The impressive performance of VAT within the first
government fiscal policies such as:
Scraping of some form of excise duty;
The reduction of the marginal rate of personal income
tax to 25% and lowest tax bracket from 10 to 5;
The reduction of company income tax rate to 30 and;
The reduction of the rate of capital tax from 20% to
10%.
Following these, Value Added Tax (VAT) seems to be the best
among other types of taxes. It is against this background
that we are going to analyse VAT and to see the impact it
has on the nation‘s economy.
1.2 STATEMENT OF THE PROBLEM
The significant impact of VAT or the role played by Value
added Tax in the development of the nation cannot be
overemphasized. Revenue is raised by the government
through taxation for the development of the nation‘s project.
Vat was introduced as a revenue mobilization strategy to
cover up the deficiencies experienced with the former sales
20
tax because of its progressive nature. Government ability to
adequately and effectively retrieve the proceeds from
companies and other agents of collection remains a problem.
It does not appear as if there is adequate machinery for
effectively monitoring of the remittance of the tax withheld to
the relevant tax authorities, this means that the federal
inland revenue , the body charged with the administration
and implementation of Vat lacks the logistic support , this
invariably will give room for tax evasion and avoidance.
Secondly, the dishonest practice by some tax officials also
posed a serious threat to effective tax administration in
Nigeria, especially when such practices are capable of
having demoralizing effects on the honest tax payers.
Consumers will still want to low how much they are paying
as Vat as most of these taxes are not duly reflected on their
invoice. it is generally believed that vat is another way of
reflecting economic hardship on the consumer to the
advantages of the manufacturers and companies. It could be
seen as an excuse to raise prices of goods and services
arbitrary. For instance, landlords are now charging vat on
house rents, some hotels are charging vat on their services
without remitting same to the appropriate authorities. These
are contrary to the regulation governing the vat system.
The uncommon nature of this tax system, has resulted in
unaware of its existence by majority with resultant effects of
21
low credibility by the government, this has made people to
scorn the payment.
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.
It is against these backdrops, that this research seeks to ask
certain question to determine if the introduction of VAT is a
worthwhile venture or policy.
Has Value added tax any impact on government
revenue in Nigeria?,
Does VAT have any economic on consumption pattern
in Nigeria?
What are the problems confronting the effective
implementation and administration of VAT in Nigeria?
And to what extent has VAT impacted on the business
organization, firms and industries in Nigeria?.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to assess the implication
of value Added Tax in revenue generation of Nigeria.
Specifically, the study attempts
1. To determine the economic impact of value - Added tax
on the consumption patterns of Nigeria.
22
2. To assess the impact of value added tax on the Nigeria
Economy.
3. To examine the impact of value added tax on the
prospective businesses, firms, organizations and
industries in Nigeria
4. To identity the potential problems confronting the
implementation and administration of Vat in Nigeria.
1.4 RESEARCH QUESTION
As a follow up to the objectives of this study are the,
following research questions
1. To what extent does value added tax impacted on the
consumption patterns of Nigeria?
2. Does Value Added Tax (VAT) have any positive impact
on the Nigeria Economy?
3. To what extent has VAT improved the performance of
businesses, organizations and industries in Nigeria?
4. Are there problems confronting the implementation
and administration of VAT in Nigeria?
1.5 RESEARCH HYPOTHESES
The following generated hypothesis will be examined
Ho1: Value Added Tax (VAT) has no economic impact on the
consumption patterns of Nigeria
Ho2: Value Added Tax (VAT) does not have positive impact
23
on the Nigeria Economy.
Ho3: Payment of (VAT) has not improved the prospects of
business, organizations and industries in Nigeria.
Ho4: There are no challenges confronting the implementation
and administration of VAT in Nigeria.
1.6 SCOPE OF THE STUDY
This study covers the economy as a whole (The Federal,
State and Local Government) but with particular reference
to the Federal Board of Inland Revenue (FIBRS) which is the
relevant tax authority for the value added tax in Nigeria.
The data collection was restricted to the VAT office, business
registered and non registered, consumers and wholesalers
within Enugu metropolis, hence the findings of the study
was generalized to cover VAT activities within the metropolis
and Enugu VAT office at No. 7 Ridge way Road.
1.7 SIGNIFICANCE OF THE STUDY
This research work will be an invaluable source of literature
for researchers, student, marketing practitioners,
accountants, bankers, companies, government agencies and
related field who might be interest in knowing much about
the concept of ―VAT.
24
It‘s general contribution to economic development of Nigeria
were mentioned. It‘s advantages and disadvantages, types of
taxes, the origin of VAT, its application, impact and
administration were thoroughly analyzed which will be an
indispensable material to the above mentioned beneficiaries.
It will also help the government in her policy formulation to
suggest alternative strategies that can aid effective
administration and monitoring of the VAT process and
procedures.
The list of vatable goods and services will also be mentioned
in subsequent chapter together with the countries that had
practiced this system of taxation with the date of adoption.
All these will contribute immensely to the knowledge
previously had by some of the beneficiaries mentioned
above.
1.8 LIMITATION OF THE STUDY
The researcher encountered a lot of hindrance and problems
in the course of carrying out this research work. Among the
major problems is the difficulties in getting and gathering
information and others which include the following:
1. FINANCE
Due to the nature of office and business within the scope,
the researcher spends a lot of money on visiting, traveling
25
from one location to another, from one office to the other
and even had to repeat a visit more than three times to seek
for information, all these involves money considering the
financial constraint of the researcher and limited resources
available to her.
2. SOURCES OF INFORMATION
Many registered and non registered business owners were
reluctant to give out or provide information about the
research, since they believe that tax payment is something
very confidential and therefore could not open up to the
researcher.
3. INADEQUATE RECORD KEEPING
Some of the respondents visited were unable to present
complete and comprehensive records of their business .while
some were not keeping proper records of their business
activities and as such could not give adequate and correct
information on the effect of vat on their businesses rippling
on the economy of Nigeria.
4. TIME:
Time constraint has been another vital limitation and
obstacle towards effective realization of the main objectives
of this study. Time was really not on my side since I have to
combine the little time left with my academic work and
preparation.
26
1.9 DEFINITION OF TERMS
It is the researchers intention that this project work will be
read and understood by all that may be interested in it
either officially or ordinary. Hence, the need for highlighting
the important terminologies used cannot be over-
emphasized.
The Decree 102, which established the Value Added Tax
(VAT) came into being in the year 1993. The Decree spelt out
the following terms unless the context otherwise requires. As
far as this project is concerned, the meaning is just as they
are in Decree.
“Vatable Person (Registered Person)”: This refers to a
manufacturer, wholesaler, an importer and a supplier of
taxable goods and services. As a taxable person, he is a
person registered under section 8 of the Decree.
“Authorized Officer”: This means an officer who has been
authorized by the board of Inland Revenue to perform any
function under or in pursuance of this Decree.
“Board”: This is the Federal board of Inland Revenue.
“Chairman”: This means the chairman of the Federal Board
of Inland Revenue.
“Company”: Company here as defined under the
Companies and Allied Matter Decree 1990 and a cooperate
body that may be formed under any other written law and
27
include any association, whether incorporate in or outside
the country (Nigeria)
“Importer”: This means a person who imports taxable
goods.
“Invoice” This means any document issued as an evidence
of demand for payment.
“Manufacturer”: Means any person who engages in the
manufacturing of goods. It also includes a person who has
manufactured for him or on his behalf by other goods made
to his specification or design.
“Manufacturing”: Means the process by which a commodity
is finally produced including assembling, packaging,
bottling, repackaging, mixing, blending, grinding, cutting,
bending, twisting and pining any other similar activity.
“Owner”: Means in respect of any goods, aircrafts, vessel,
vehicles, plant or other goods, a person other than an officer
acting officially, who hold out himself to be the owner,
manufacturer agent or person in possession of or
beneficially interested in, or having control of or power of
disposition over goods, aircraft, vehicle, plant or other goods.
“Supply of Services”: Means any services provided for
consideration.
“Tax Period”: Means one calendar month commencing from
beginning of the month to the end of that month etc.
28
REFRENCES
FGN (1993) Value added tax (VAT) Decree No102. Federal
Ministry of Information and culture.
Ikewumi (1994) Value added Tax, the fact as a positive Tax.
National concord.
Aguolu.o (1999) Taxation and Tax management in Nigeria,
Enugu Meridam Press associates.
Okpe I. (2oo1) Guide to Nigerian company Taxation, Chiezugo
Ventures, Enugu.
Baridam. D .M. (2001) Research methods in administrative
science, Portharcourt Shev Books Association
29
CHAPTER TWO
OVERVIEW OF LITERATURE REVIEW
2.1 Introduction
Although, very few literature exist and were written on the
subject of value added tax in less developing countries by
different groups of scholars, academicians, tax experts and
professionals, commissioners by international monetary
funds (IMF) world bank, organization of petroleum exporting
countries (OPEC). Extensive studies have nevertheless, been
done on the alternation prominence of indirect tax on
developing countries in general and Nigeria in particular.
The core function of taxation as revenue generating tool in
developing countries has been studied by eminent scholars.
Several developing countries have since been given
increasing attention to VAT as a means of rationalizing the
system of taxation. Among them are Nigeria, Senegal, cote
D‘Ivoire, morocco, Tunisia etc. VAT is levied on almost all
business transactions in over 130 countries around the
world because it is intended to impose a neutral effect on
business.
The income of government is mainly from taxes, rates, fees
and fines, special assessments and revenue from
government owned enterprises and mineral resources. The
bulk of government income in developing countries like
30
Nigeria is principally derived from indirect taxation, while in
the developed countries like USA, the bulk of government
revenue is rather derived from direct taxation. Borrowing
becomes necessary when income from regular sources is not
sufficient to take care of expenditures. The money borrowed
must be repaid with some interest out of regular current
income or by additional borrowing. But the practice of
borrowing cannot be regular feature in Government
administration, hence the need for revenue collection
agencies in developing countries to maximize revenue
collection.
2.2 Definition and purpose of Taxation
Taxation is often defined as ―the levying of compulsory
contributions by public authorities, having the jurisdiction
to defray the cost of their activities‖. The money collected is
used for the common good of the citizenry, for the
production of certain services, which are considered to be
more efficiently provided by the state rather than by
individuals. E.g. maintenance of law and order at home, and
defense against external enemies.
2.2.1. Purpose of Taxation
The definition of taxation given above underlines the main
purpose of taxation. That is to raise revenue to defray the
cost of services provided by the state. Other purposes of
31
taxation are to reduce inequalities arising from the
distribution of wealth, to restrain certain types of
consumption, to protect home industries and to control
certain aspects of the country‘s economy. E.g. balance of
payment, employment, savings, investment and
productivity. In addition, to the above, other purpose of
taxation could be summarized as follows.
1. Increased effective productivity of the nation.
2. Increase in the quantum of revenue collection.
3. Improvement in services of the government
4. Improve employment at all industry verticals
5. Induction of modern technology into the system
6. Rationalization of terms and conditions of the economic
system.
7. Rationalization of employment terms and conditions.
2.3 Attributes of a Good Tax System
Adam Smith (1778) one time British economist annunciated
four attributes which he called cannons of taxation (in his
book The wealth of Nations‖). These principles are very
significant and they are as true today as in his days. They
are:
Equity: The tax system should be fair to both tax
officers and tax payers. The subject of every state
ought to contribute towards the support of the
government as nearly as possible in proportion to their
32
respective abilities. Ability to pay refers to the economic
resources under a person‘s control.
Certainty: The tax authorities should make all tax
systems and mode of administration very clear to the
tax payer. In other words, tax payers should be made
aware about the tax system being used. They should
also be aware about the obligation under the system.
Similarly, the tax payer should be aware of the benefit
to be derived. Additionally, the time of payment ,the
manner of payment, the amount to be paid, the place
of payment as well as all rights and obligations under
the tax laws must be known to both the tax
administrator and the tax payer, the tax system should
be made very convenient to the tax payer.
Convenience: Every tax ought to be levied at the time
or in manner in which it is most likely to be convenient
for the contributor to pay it. The method of collecting
the tax should be such that the majority of tax payers
would understand and routinely comply. The collection
method should not b overly intrude on tax payers
privacy but should offer minimal opportunity for non-
compliance.
Economy: This implies that the tax revenue should
always exceed the cost to be incurred in generating the
tax or its administration. Every tax ought to be so
contrived as both to take and keep out of the pockets of
33
the people as little as possible over and above what it
brings into the consolidated fund. Apart from the above
mentioned cannons of taxation, these are other
attributes that later come up to support those
annunciated by Adam Smith. They are.
Simplicity: A major component of economic efficiency
is the tax structures simplicity, that is what it cost
taxpayer to comply with tax policy..
Elasticity: This means that a tax system should
respond automatically to changes in the tax payer‘s
wealth, population and other important variables.
Productivity: This principle emphasizes that the tax
system ought to produce a high met yield of revenue
but not so high as to damage the source of that
revenue.
2.4 Impact, Incidence and Taxable Capacity
i The impact of tax. This refers to the pinch of payment
and this is on the person who pays the tax initially.
It is upon those who bear the first responsibilities of
paying it to the tax authorities.
ii The incidence of tax: This means the ultimate
economic burden represented by the tax. It is the
money burden which is on the person who finally
pays the tax and who is unable to pass it on to
34
another The terms indicate the ―final resting place‖ of the
tax.
Iii Taxable capacity: This is a country‘s limit or
capacity to accept and absorb taxation and this is
determined to a large extent by numerous factors
which includes.
The country‘s real wealth
The attitude of the population to taxation in general
The type of taxes levied
The possibilities of tax evasion
The level beyond which any increase in taxation
might lead to a reduction in national income. (e.g.
the effect of tax incentives, wage demands, price
increases).
2.5 Types of Tax System
We have three major systems of taxation, these are:
1. Progressive tax system: It is a system of taxation
whereby those with higher income pay more, whereas
lower income earners pay less tax. In Nigeria, PAYE
uses progressive tax system because the graduated tax
rate reflects.
2. Regressive Tax System: Under this system, the higher
income earner pays proportionately lower whilst the
lower Income earner‘s pays higher. Regressive tax
systems are practiced in few developed countries.
35
3. Proportional Tax System: It is a tax system whereby all
persons pay a flat rate of tax irrespective of the size of
your income. Your tax payment is proportional to your
income.
2.6 Kind of Taxes
These are many classifications by different authors as what
should be the major kind of taxes. The general acceptable
classification is
a. Direct Tax
b. Indirect Tax
a. Direct Tax: This is a tax extracted directly from the
person who will bear the burden of it. It is tax directly
collected from the income of the tax payer. It includes, poll
tax, a general property tax income tax. The administering
authority of this kind of tax is the internal revenue services
or (Board of internal revenue).
Advantages of direct taxation
Incidence and yield are easy to determine
The tax payer knows with certainty what he is expected
to pay
Yield increase automatically as wealth and population
increases.
Direct taxes are in general progressive
Disadvantages of direct taxation
The Cost of administration is very high
36
The effect on incentive, enterprise and savings in the
case of those with large incomes may be considerable.
b. Indirect Tax
This is the tax levied indirectly .it is levied on commodities
before they reach the final consumer, but ultimately paid by
the consumer as part of the market price. Here the impact
and incidence are of different persons. They are called
indirect because the administering authorities which levy
the taxes on goods and services do not collect the taxes from
the consumer but do so indirectly through importer,
manufactures or other intermediaries. The shifting or
passing on of the liability is effected by loading the tax
element on the selling price of the commodities sold to the
next person in the commercial chain until it is finally borne
by the consumer.
Advantages a Indirect Taxation
a. Payment and collection of the tax, are easy and
convenient
b. In general, its yield is elastic
c. Evasion is very difficult
d. Restriction of harmful consumption,
Disadvantages of indirect taxation
a. They are often regressive
b. Revenue may be uncertain where the demand for the
taxed good is elastic
37
c. Incidence is not easy to determine
d. They are not always equitable.
The above mentioned systems of taxation cannot be
complete without references to the popular tax theory know
as ―The faculty theory of Taxation‖.
This faculty theory of taxation seeks to establish the
principle that tax payers should contribute towards the
revenue of the state in some direct relation to their capacity
to do so. The theory is simply that the rich should be taxed
more heavily than the poor because their ability to pay is
grater. For example, Persons whose incomes are up to N
10,000 a year might pay N30000which militates against the
fundamental rule of taxation that is ―Equity‖.
2.7 Value Added Tax in Nigeria
In Nigeria, the idea of VAT started with the acceptance of
recommendation of the study group on indirect taxation in
November 1991, set up by the federal government. The
federal government was however, not satisfied with revenue
yield from the sales tax whose base is regarded as norms
and which covers only nine categories of goods plus sales
and services in registered hotels, motels, and similar
establishment. 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. Value Added Tax, in
38
contrary has a broader base and includes, most
professionals services and banking transactions that are
high profit generating sectors, only locally manufactured
goods were targeted by the sales tax Decree of 1986;
although this might not have been the intention of the law.
VAT is neutral in this regard. Under VAT a considerable part
of the tax to be realized is from imported goods. This means
that under VAT, locality manufactured goods will not be
placed at a disadvantages relative to import. Since VAT, is
based on the general consumption behavior of the people.
The expected high yield from it will boast the fortunes of the
state government with minimum resistance from the tax
payers of the tax (Ola, 1999).
The decision to accept the recommendation of the study
group set up by the federal government on indirect taxation
in November 1991 was made public in the budget speech of
the Head of State. This resulted in setting up the modified
Value Added Tax (MVAT) committee on 1st June 19992 as
recommended by the study group. The recommendation of
the committee that VAT should be administered by an
independent commission rather than the federal inland
revenue services, which was the body already charged with
the responsibility of administering most other taxes in
Nigeria was rejected by the federal government. This led to
the introduction of VAT in Nigeria, through Decree 102 of
1993 which marks the phasing out for the sales tax decree
39
No 7 of 1986. The Decree took effect from 1st December,
1993 but by administrative arrangement, invoicing for tax
purposes did not commence until 15t January, 1994: Value
Added Tax is a consumption tax on economic operations
which include imported goods and services. Vat is computed
at a flat rate of 5% of price of goods and services and at zero
rates for export (Seyi, 1993).
2.8 Conceptual analysis of Value Added Tax (VAT)
The concept VAT (Value-Added Tax) has been given different
definitions by different authors and writers. According to
Nworji as Quoted in (Chima 1996) Value-Added Tax is
defined as a ―consumption tax whereby the consumer is
made to bear the tax burden. The tax burden is passed from
the manufacturer to wholesaler to retailer and finally to the
consumer who has been designed to bear it without
complaints‖ from the above, it therefore means that the VAT
can only be avoided by the consumer if he avoids buying any
of the vat able goods or services, that is an item on which
VAT is paid. Similarly, a vatable person is one who trades in
vatable goods and services for a consideration.
According to IMF survey, VAT can be defined ―as an indirect
tax imposed on each sale beginning at the start of the
production and distribution cycle and culminating in the
sales to the consumer. It went further to create the
40
impression that it is the consumer that absorbs the VAT as
part of the sales prices, showing that VAT essentially is a
consumption tax collected, throughout the production
chain.
VAT is a more broadly based tax on consumer expenditure
which with a few exception, is levied in all goods and
services at the rate which vary from one country to another.
Okpe (2000) in his own definition, defined ―VAT‖ as a multi
stage tax imposed on the value added to goods and services
as they proceed through various stages of production and
distribution and to services as they are rendered, which is
eventually borne by the final consumer but collected at each
stage of production and distribution chain. This definition,
brings out the three characteristics of value added tax,
which are
1. VAT is a consumer tax
2. VAT incidence is on the final consumer
3. VAT is a multi stage tax.
Jennings (1986( also describe VAT as a tax levied at each
stage which supplies changes hands. In the case of
manufactured items, this could be at the primary producer,
manufacturer, wholesaler and retailer stages. It is ultimately
borne by the consumer.
41
From the above definitions, of VAT by Jennings, he suggests
that there are intermediaries through which a produced
goods or services must pass before getting to the financial
consumer. At each stage the goods pass from one person to
another, a value is added to it. It is this value that is being
taxed and borne at last by the final consumer. The above
mentioned, suggests that the value of the goods and services
to the final consumer presents the aggregate of all the values
added by successive traders or intermediaries in the chain.
Since each trader pays only the VAT attributable to the
value he added at his stage the final tax for any given final
value is same, irrespective of the number of stages in the
process or chain.
The operation of VAT can be viewed as a typical chain of
transactions where goods produce by a manufacturer are
sold to a wholesaler who sells to a retailer who in turn sells
to a consumer. Everybody in the chain except the consumer
gets a refund for the impute VAT he paid on his purchases.
Since the consumer is not entitled to any refund in respect
of the VAT included in the price he paid to the retailer, it is
at this stage that the tax can be said to form part of the net
Cost of the goods purchased by him. (Ezejelue 2001).
42
2.9 Aims of VAT in Nigeria
Oyegbile (1996) observed that the Value Added Tax was
introduced in Nigeria with several reasons, among which are
the following.
To broaden the nations revenue base thereby making it
less dependent on oil export
To broaden the tax base with an equal burden on
imported and domestically produced goods and
services. The old sales tax places locally manufactured
good at disadvantage relative to imported ones.
It would diminish the incidence of taxation towards
expenditure rather than income
Through Value Added Tax, it was believed that the
harmonization of our tax system would be achieved
especially with these flat rates of 5% throughout the
nation.
It makes it easier to claim credit for input tax, since a
registered person must hold tax invoice.
It makes it easier for the collection of tax collected on
behalf of the federal government by businesses or
organization, which have registered with the federal
inland revenue Services (FIRS, VAT Directorate) for
VAT purposes
The introduction of VAT has bought fairness to all tax
payers, because a number of goods and services which
43
were not previously covered by the sales taxes were
brought together under the VAT regime.
To under the base of the tax system in the country,
because VAT is the only Tax impose on a wide range of
goods and services without undue attention being
given to the place of manufacturer of item (local or
imported) or the peculiar nature of the commodity.
(Luxury and harmful products).
To help the common people, traders industrialists and
also the government. It is indeed a move towards
efficiency; healthy competition and farmers in the tax
system.
2.10 List of Some African Countries with their rate of
Value Added Tax.
The following is the list of the African countries of the
world were VAT systems are in place, together with their
dates of introduction and the VAT rates at introduction.
44
Table 2.10: African Countries within their VAT Ratio
Country Date
introduced State levied Tax rate%
Algeria 1992 Retail 7,13,21,20
Benin
Republic 1991 Wholesale 18
Cote-d‘ivore 1960 Wholesale 5,11,25,35
guinea 1960 Retail 13,6
Kenya 1960 Retail 5,18,30,50,
75
Madagascar 1960 Retail 15
Malawi 1989 Retail 10,17,55,85
Mali 1991 Wholesale 10,5,
Mauritius 1983 Retail 5,
Morocco 1986 Retail 7, 14,19
Niger 1986 Retail 10,17,24,
Senegal 1961-1980 Retail 7,20,30,34
South Africa 1991 Retail 14
Togo 1984 Retail -
Tanzania Mid 1994 Retail -
Nigeria 1994 Wholesales 5
Tunisia 1988 Manufacturing 1,17,29
Source: IMF reports.
45
From the above table, It shows that most of the African
countries introduced VAT system of taxation earlier than
others, while Nigeria and Tanzania were among the
countries that adopted it lately.
2.1 1.The Impact of value added tax in Nigeria:
The introduction of VAT (Value Added Tax) in the countries
tax system has recorded much positive impact. Though, in
the pursuance of any line of Action, whichever method that
is adopted cannot be entirely without merit or demerit. This
observation holds equally for the adoption of VAT in our
economic body polity. There are advantages that go with it,
but there are some arguments against the adoption of VAT
in Nigeria.
According to Daily times (1996), the value added tax (VAT)
which is a consumer based tax has assumed a high profile
since the government introduced it in 1994 to replace the
former sales tax which was in operation then. The value
added tax generated as estimated sum of N 13.677 Billion in
the first half of 1994 about 24 percent above the pro rata
revenue of Nil billion projected revenue for the period. The
paper also, added that the figure obtained from the federal
Inland Revenue services (FIRS), showed that out of the total
collection, over N7.791 billion was realized from VAT on
46
import while non-import for the period fetched N5.886
billion.
Monthly collections showed that the highest yield of N2 .914
billion was recorded in May, while the lowers below the
estimated monthly yield was realized in February, the month
of January yield 2.3 billion, March 2.255 billion and June,
2.186 billion.
The Federal Government had estimated a revenue of N22
billion from VAT for 1996, compared to over N19 billion
colleted in 1995. The government recorded a development
that encouraged the Federal Government to reduce personal
tax relief in 1995, by the end of 1995, the new tax scheme
shoot up its contribution to the revenue pool of the
government to the tune of N20.26 billion.
Consequently, government has announced its intention to
shift its focus from income tax to the tax consumption which
he claim is less prone to tax evasion and it is progressive in
nature. The government earned about N7.0 1 billion from
VAT in the first three months of 1996.
Naiyeju (2000) also assert that there are obvious reasons
why the effective administration of the value added tax merit
nothing but a national celebration in Nigeria.
Alheri (1995) confirmed this by stating that VAT has proved
to be a realistic economic policy in spite of public outcry
against the tax regime at its inception. In 1994, the federal
budget stipulated that VAT must realize an estimated
47
revenue of N6 billion while international financial
organizations had their estimate at about N4 billion, but
surprisingly, VAT met and exceeded the budget in 1994
budget estimate by over N2 1 billion, raising a total of N36
billion in that year.
Alheri, also added that 589 local governments in Nigeria in
1994 shared VAT revenue of N6 1 million while federal
capital territory FCT -received N317 million revenue in 1994
and 1995 respectively. Finally, VAT administrating in Nigeria
has contributed to the Universal perception of tax as a
dynamic substance. Part of the changes of VAT policy in
1996 was that payment of income tax was changed to be
made through the bank. Selected banks were appointed to
receive VAT proceeds from where they will be transferred to
Central Bank of Nigeria at specified interval; (Ani 1996). The
triumph of VAT in Nigeria is the triumph of reasons and
expertise. It is the triumph of governments‘ determination in
the implementation of a very difficult fiscal policy.
2.12 Administration of VAT in Nigeria
The VAT system in Nigeria is administered by the federal
Inland Revenue services. (VAT directorate). The board is
charged with the function of assessment and collection of
the tax and shall account for all amounts so colleted in
accordance with the provision of the decree. Although, it is
administered and controlled by the federal government using
48
the existing tax machinery of the federal Inland Revenue
services in close co-operation with the Nigeria custom
services and the state Inland Revenue services. The net
proceeds from VAT are shared among the federal, states and
local government in the ratio of 45.35:20. The prospective
VAT payer obtains and completes form 002 and returns
same to the nearest VAT office. Once, registered, the VAT
proceeds are expected on monthly basis to be paid to the
VAT office.
This is done in consonance with the regulation establishing
these bodies that are in charge of VAT in Nigeria.
i. The board of federal Inland Revenue services (The
board of FFBIR).
ii. The Federal Inland Revenue services (FIRS) which
comprises six directors with headquarters at Abuja
being headed by one of the directors.
iii. The technical committees: These committees come into
existence through section 3 of the VAT decree with
major responsibility on advisory capacity.
iv. The VAT directorate, As explained earlier, the whole
administrative machinery of VAT, lies in these
directorate, who works in close co-operations with the
Nigeria customer‘s services and the state inland
revenue services.
49
2.13 Accounting for VAT
VAT, was introduced long ago, and there is need to
emphasis the peculiar aspect in accounting that relates to it.
These are.
The taxable period: This is the period covered by any
particular VAT return. This period is one month in
Nigeria. It has been extended administratively by the
federal Inland Revenue services.
Payment basis: - VAT collected how to be accounted for
and the taxable period in which a payment is made or
received. In accounting for VAT, it is important for
registered person to take note of the following point.
Where a trader pays VAT in respect of goods for resell,
the amount so paid is debited to a VAT account as
receivable, when the goods are later sold, the VAT
collected is grater than the VAT paid, the VAT account
will have a credit balance, which the trader pays to the
VAT directorate.
When a trader is acting as a collecting agent in respect
of goods which he acquired for resale, the VAT should
not be included in the account as expenses. When
renders returns and pays the VAT, to the vat
directorate, the VAT account should be debited and the
cash book credited accordingly. At the end of the
traders accounting period, any VAT not yet paid over to
50
the government should be reflected as a liability in the
balance sheet.
When, a trader suffers VAT which he cannot pass on to
the ultimate consumer, e.g. the trader buyers a vehicle
for his business, the VAT will only increase the cost of
the goods or services to him and should be accounted
for a such.
2.14 VAT Calculation in Nigeria
There are many methods of calculating VAT available to
different countries of the world that have adopted VAT as
their tax system.
According to Okpe (2001), there are three options available
in Nigeria for the calculation of VAT or its computation.
Among these are:
i. Addition method
ii. Subtraction method
iii. Credit method
i. Addition method: This method, involves the
calculation of Value Added Tax, by adding all
payment for untaxed inputs and multiply same by
VAT rate to get VAT payable to the government.
ii. Subtraction method: This method has two available
models to it. It has the European model and
51
Japanese method or model. Under the European
models - the input tax is subtracted from output tax,
VAT = output - input.
iii. Japanese model: Here, the value added tax is
calculated by subtracting the cost of taxed inputs
from sales and multiply by the tax rate to get the tax
liability: in summary, it means Sales - purchases x
tax rate = The tax liability.
iv. Credit method: Under this method, a firm would
multiple - its sales by the tax rate to calculate VAT
collected on sales. Secondly, the firm would credit
VAT paid on inputs against VAT collected on sales
and remit the difference to the government. The firm
would calculate its VAT liability before setting its
prices in order to shift the VAT fully to the
consumer.
2.15 Remittance of VAT
Every vatable person is to remit to the relevant local VAT
office the net VAT payable, which is the excess of the output
tax over the input tax while filling VAT return. Remittances
are supposed to be made together to the VAT returns filed.
The VAT carries a single rate of 5% on vatable goods and
services, zero rates are assumed for export while there are
goods and services exempted from the tax. Within the three
major types of VAT
52
1. The consumption VAT
2. cross product VAT
3. The income VAT
2.16 Taxable goods and services and rate
Vat covers manufactured goods and imports and well as
professional and banking services. Though, the list of
affected goods and services published by FIRS is still subject
to amendment. Table 2.1.1 shows some of the goods and
services and specific rate chargeable.
53
Table 2.16.1: Taxable goods and services and rates
S/N Taxable goods (Rate%)
1. All goods manufactured or assembled in
Nigeria 5
2. All goods imported to Nigeria 5
3. All second hand goods 5
4. Household furniture and equipment 5
5. Petroleum and all petroleum products 5
6. Jewels and jewelries 5
7. Textiles, clothing, carpets and rugs 5
8. Beer, wine, spirit, soft drink and bottled
water 5
9. Performs and cosmetics (including toiletries) 5
10 Cigarette and tobacco 5
11 All vehicles and their spare parts 5
12 All air craft, air craft bodies and their spare parts
5
13 Soaps and detergents 5
14 Mining and minerals 5
15 Office furniture and equipment 5
16 Electrical materials of description 5
17
Such other goods that made to be
determined by the board from time to time as taxable goods
5
54
S/N TAXABLE SERVICES RATE(%)
1 All services rendered by the financial institutions excluding peoples banks and
mortgage institutions
5
2 Accountancy services including any type of
auditing, book keeping or related services 5
3 Legal services including services supplied
there with 5
4 Computer including the provision of bureau facilities, system analysis, design ,
software, site development ,and training
5
5 Supply services by an architect 5
6 Services supplied by brokers 5
7 Services supplied by security companies and enterprises
5
8 Courier services 5
9 Repairs, alterations, processing or any other services provided in connection with the
designated good by designated dealer
5
10 Telecommunication equipment, installment
and maintence services. 5
11
Letting of video tapes or any other audio,
visual recording or hiring , carrying and
rewriting of video tapes and similar services
5
12
Entertainment services including plays ,
performance, crime shows and music
concert, conducted by educational
institutions as part of learning.
5
13 Air travels and company hire 5
55
14
Any other services as may be presented by
the board from time to time as taxable
services.
5
Source: (Firs information circular No. 93040)
2.16.1 Goods and services exempted by VAT
VAT example essentials goods such as all medical and
pharmaceutical products basic food, books and educational
materials, news papers and magazine,baby products,
fertilizers, age culture and veterinary medicine, farming,
transportation equipment while:
Services exempted include:
Medical services, services rendered by community banks,
peoples bank and mortgage institution. All diplomatic items
are exempted as covered by international agreements and
air line tickets for international travel.
2.17 Offences and Penalties of registered person
There are various offences with heavy stiff penalty under the
VAT system. Some of these offences are;
Offences
1. 1 Giving false information on matter considered
material
2. Failing to notify change of address
3. Failing to issue receipts
56
4. Obstructing inspection of premises in order to
ascertain if premises are used for taxable goods or
services.
There are swift automatic penalties differentiated by the
types of transgression. Same of the penalties are as follows.
Penalties
1. Offence-Furnishing of false document or statement
penalty-liable on conviction to a fine of twice the
amount under declared.
2. Offence - evasion of tax:
Penalty - liable on conviction to a true of N30,000 or two
times the amount of tax being evaded, whichever is
greater, or imprisonment for a term not exceeding 3 years.
3. Offence - failure to notify change of address within 1
month of such change
Penalty - payment of N5000, 000
4. Offence - failure to issue tax invoice for goods sold or I
services rendered.
Penalty - liable on conviction to a fine of 50% on the
invoice that was not issued.
5. Offence - resisting, considering, obstructing or
attempting to hide or (obstruct an authorized officer
from performing his duty on inspection).
Penalty - liable on conviction to a fine of Nb, 000 or
imprisonment for (a term of 6 months or to both fine and
imprisonment).
57
6. Offence -failure to submit returns by taxable person
Penalty - payment of a fine of N5000 for every month in
which the failure continues
7. Offence - failure to keep proper records and accounts
for his business transaction to allow for the correct
ascertainment of tax.
Penalty - N2000 for every month in which the failure
continues
2.18 Advantages of Vat in Nigeria
The introduction of VAT has a number of benefits or
advantages that goes with it. Among these includes
1. Uniform rater of VAT, will boost trade activities and will
create a favorable atmosphere for the country‘s
economic experience
2. It will generate there revenue for the government than
the sales tax and at the same time reduce over
dependence on oil revenue.
3. The introduction of vat will widen the tax base with it‘s
in built capacity to raise more tax revenue.
4. It will reduce tax payer‘s hazards to visit tax offices and
leads to better tax compliance.
5. All goods and services taxes will be administered under
the regime
6. The introduction of VAT, will to a reasonable extent
reduce tax evasions.
58
7. VAT can be used as a tool of government fiscal policy,
by exempting some class of goods and services to
achieve specific economic objectives.
8. VAT is relatively more efficient than the former sales
tax. It has replaced inefficient, distorting or badly
administered taxes, such as taxes on capital goods,
exports or imports (Ezejelue 2001)
9. Another advantage of the Value Added Tax is its
neutrality; This means a situation where a tax has no
influence on the behaviour of both the consumers and
the producers.
10 VAT, will therefore help common people, traders,
industrialists and also the government. It is indeed a move
towards efficiency, healthy competition and fairness in the
tax system.
2.19 Disadvantages of VAT in Nigeria
There are few disadvantages that goes with the introduction
of VAT than the advantages. This still points to the fact that
VAT is a welcome tax system, inpsite of these few
disadvantages which includes
1. Its regressive nature. It means that since VAT has a
uniform rate of 5% on both luxury goods and services,
it means that the higher the income, the less the
59
percentage spent on consumption and consequently
the less the percentage paid on consumption tax.
2. The impositions of VAT have increased the prices of
most goods and services in the country. For instance a
hotel room that geos for N3000 per night is increased
to N3 150 to the advantage of the owners, who in most
cases does not remit the VAT.
3. Some argued that the imposition of VAT on raw
materials imported into the country will amount to an
additional burden on the cost of production.
4. Okpe (2001) also argued that VAT will lead to one time
increase in price inflation, high administrative cost
because of the expanded base of the tax and there is
the tendency for the tax officials to rely on the self
policing nature of the tax to do his work for him and
finally, that the burden of record keeping can be very
high a VAT agents in term of materials and the time
spent.
60
REFERENCES
Clifford, J. C. (1965) ―VAT, the British System Explained‖
pp. 44-47 London Pitman.
Dangnha Koti - (2007) Indirect Taxation. Saleua Press.
Ola, C. S. (1999) Nigeria Income TAX and Practice. Heinem
an Educational Books Nigeria Plc, Ibadan.
Seyi, O. (1993) Fundamental Princples of Nigeria Tax.
Sagriba Tax Publication.
Naiyeju, K. (1996)‖ Value Added Tax, the facts of a positive
Tax in Nigeria‖.1st Edition. KUPAG Public Affairs, pp.
97.
Chima, B. O. and Udensi C.E. (1996) Government &
Business Relations. The Nigeria Perspective, Precision
Printers and Publishers, Achara Layout Enugu.
Okpe, T. J. (2001) Guide to Nigerian Companies Taxation,
Enugu. Chiezugo Ventures.
Oyegbile S. 0. (1996) The Principle and practice of Property
Rating and Taxation. Jamesons Graphic Publishers
VAT Decree 1993 - Firs circular No. 9304. 1MF Report.
ObI, I. J. (1993) Policy and Administration of Value Added
Tax in Nigeria 3rd Edition. Ochiogu Publishers
61
Osisoma, B. C. (1990) Studies in Accountancy, Texts and
Readings; Enugu. New age Publishers
Ezejelue A. C. (2001) Primer on International Accounting.
Educational Books and Investment Limited. Port Harcourt-
Rivers State.
62
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This explains how the research was conducted .It is an
explanation of the way and when the research is going to be
carried out (Okafor:1996, p37). It provides a detailed
account of the methods, to be used in collecting the data,
Why the choice of these methods what data to be collected,
how they would be gotten and analyzed (Baridan 2001, P.
198).
This chapter concentrates more on the sources of data
collected, the research population or design, sampling
procedure employed and the sample size. Besides, the
research instrument used in the data collection, the
procedure and tools for data analysis and techniques were
also discussed fully discussed in this chapter.
3.2 RESEARCH DESIGN
This means the structuring, of investigation aimed at
identifying variable, and their relationship to one another.
This is used for the purpose of obtaining data to enable the
researcher test hypothesis or answers research questions. It
is an outline or a scheme that serves as a useful guide to the
63
researcher in his effort to generate data for his study. (Asika:
2006. p.2‘7) it is a model proof that allow the researcher to
draw inferences concerning casual relations among the
variables under investigation.
The study was conducted within Enugu metropolis,
surroundings and VAT office in particular or the Federal
Inland Revenue Services Office at Okpara Avenue. The
Choice of Enugu was painstakingly considered owing to its
representation, accessibility and limited time constraints as
well as financial difficulties to enable this research cover the
whole VAT fraternity in Nigeria
3.3 SAMPLING TECHNIQUES
Sampling is the process of selecting a part of a population to
represent a whole. The researcher used judgemental
sampling (JS) in the selection of sample in the study The
research was conducted on the basis of giving equal right to
selected males and females in the strata. This enabled the
researcher to sample the view of all the groups under
investigation on the implication of VAT
3.4 SAMPLE SIZE/POPULATION
Population consists of the summation of items or individuals
where sample can be drawn.
64
This study centered on VAT Services Office in Enugu
metropolis where the researcher used her judgmental
sampling to pick eighteen (18) persons, constituting of
senior and management staff of VAT office.
Eight (8) manufacturers were selected for this research, of
which twenty six (26) persons were sampled; three (3)
persons from each firm, with exception of Innoson Technical
Industrial Company Limited were I sampled five (5) persons
because of the big size of the company. See appendix for the
list of manufacturing firms.
Eleven (11) wholesalers in and around Enugu metropolis
were sampled, I picked three (3) persons each from each
wholesaler precisely the manager, accountant and cashier.
This made the number of wholesalers to be thirty-three (33)
in all. The appendix is also attached.
Eleven (11) service providers were selected for this work, of
which three (3) each were picked from each service providers
made up of the manager, the accountant and the supervisor.
Fifty-two (52) persons were randomly sampled from the
consumers in and around Enugu metropolis, while fifty-four
(54) retailers were also sampled from both in the street and
market in and around Enugu metropolis.
65
3.5 Data Collection Techniques
The data collection techniques form main part of the study.
The data for this study were obtained partly from the
primary source, which were questionnaire issued to the
respondents, information gotten from the oral interview
administered, while the secondary source were most
published materials, such as text books, newspapers,
scholarly journal and government documents and related
materials on the topic.
3.6 Data Analysis Techniques
Both quantitative and qualitative methods were employed in
the data analysis. For quantitative aspects, Statistical
Package for Social Sciences (SPSS) and excel, frequency
distributions, percentages and descriptive analysis of
assessing the implication of Value Added Tax on revenue
generation in Nigeria were also employed.
Data collected were collated and analyzed using various
quantitative statistical models such as bar chart and pie
chart. Each data was examined and analyzed on its merit
and grouped into the various aspects of information
requirement for the purpose of this project work. The
findings were critically examined again to make sure that
they were not incongruous with the research objectives and
66
hypothesis. The findings which will be discus in the next
chapter are presented in statistical form, while chi-square
was used to test the hypothesis based on its scientific
nature. The formular for the chi-square used in this study is
as follows.
X2 = (O—E)2
E
Where X2 = is the computed chi-square
O = is the observed frequencies
E = is the expected frequencies
= is the summation sign
3.7 Validity and Reliability Test of Instrument
Validity is defined as an extent to which a test measures
what it is supposed to be measured. Another term for it is
―relevance‖ (Baridan 2001) the objective is to obtain the true
value of the variable being used. Validity, based on content,
could be face validity. Face validity deals with researchers‘
subjective evaluation while sampling validity deals with
whether a given population of situations is adequately
sampled by the measuring instrument in question. It is
based on expert judgment.
In this study, questionnaire was given to validate its content
and expert judgment on the subject matter in the field of
67
accounting was sought and agreements among the
specialists were reached.
Reliability: Data are said to be reliable if they are
consistently accurate and precise. To ensure reliability in
the study, a section of question was on VAT to know its
implication to revenue generation in Nigeria. The variable
being studied has undergone no real change and
measurement of the object is made over a period of time.
68
REFERENCES
Okafor, U. S. (1996) Marketing Research and Project Writing
guide World Communication Ltd. Ikeja Lagos.
Alugbo C. C. (2002) A practical guide to project writing Credo
publications, owerri, Imo state.
Ban dam, D. M. (2001) Research Methods in Administrative
Science 2nd edition, road 1 Port Harcourt.
Asika N. (2006) Research Methodology in the Behaviour
Sciences. Longman Nigeria Plc, Ikeja Lagos.
Onodugo V. A,. Ugwuonah G. E. and Ebinne E. S. (2010)
Social Science Research, Principles, Methods and
Applications. El-Demark Publishers Enugu.
69
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND
INTERPRETATION
4.1 Introduction
The focus of this chapter is on the analysis of the data
collected from the field of study according to the responses
given by the respondents. In all, two hundred and sixteen
questionnaires were distributed among the VAT office staff,
wholesalers, retailers, service providers, manufacturers, and
consumers out of which one hundred and eight nine were
retrieved. The researcher also contacted other Revenue
Agencies to have additional information on the impact of
Value Added Tax on the Nigeria Economy, which were
equally analyzed.
4.2 DATA ANALYSIS
4.2.1 RESPONSE RATE
The questionnaires were given to the population mentioned
above, which consists of the VAT office staff, the
manufacturers wholesalers, service providers, retailers and
the consuming public.
70
Table 4.2.1 Sampled questionnaires and response rate
Population
Total
questionnaire
sampled
No of
returned
questionnaire
% rate of
returned
questionnaire
VAT office 18 18 9%
Manufactures 26 23 12%
Wholesalers 33 26 13%
Service
providers 33 29 15%
Consumers 52 44 27%
Retailers 54 49 24%
Total 216 189 100%
Source: Computed from the questionnaire.
From the table above, it was discovered that 216
questionnaires were given out and 189 returned.
71
Table 4.2.2 Demographic Data of Respondents
Sex Sub-total % Rate
Male 113 60%
Female 76 40%
Total 189 100%
Age group
20-29 34 18%
30-39 45 24%
40-49 59 31%
50—above 51 27%
Total 189 100%
Educational qualification
GCE/SSCE 36 19%
OND/NCE 30 16%
HND/B.Sc 66 35%
MI3A/M.Sc/P.hd & above 57 30%
Total 189 100%
Source: Computed from the questionnaire
The information above shows that out of 189 respondents,
113 were males while 76 females, showing that they were
more male respondents, than the females, secondly, the Age
Group show that the productive active population was
mainly represented considering their age brackets.
It was also realized that the population of people with
educational attainment above GCE/SSCE is more
72
constituting about 81% of the total population sampled. This
means that the researcher has an advantage of interviewing
people that knows much about VAT and its implication on
the revenue generation in Nigeria.
Table 4.2.3: Types of Business Activities
Sex Sub-total %Rate
Vat officer staff 18 34
Manufacturer 23 44
Wholesaler 26 50
Service provider 29 55
Consumer 44 84
Retailer 49 93
Total 189 360
Source: Field work 2011.
Figure 4.2.1: Types of Business Activity
Source: Field work 2011.
93
84 55
50
44
34
Vat Office
Manufacturers
Whole salers
Service Providers
Consumers
Retailers
73
From the above figure, the total sample size shows a total
figure of one hundred and eighty nine( 189) which consists
of vat office staff, wholesalers, service providers, retailers,
manufacturers and consumers.
No. 6: What category is vat classified.
Table 4.2.4: Classification of VAT
Category No of
Respondent %
Consumption Tax 85 45%
Income Tax 59 31%
Input Tax 19 10%
Export/Import Tax 26 14%
Others 0 0
Total 189 100%
Source: Computed from the questionnaire
Figure 4.2.2: Bar Chart (classification of vat)
Source: Computed from the questionnaire
74
From figure 4.2.2 above, majority of the respondents
classified VAT as Tax on consumption and this can be
attributed to the knowledge gained by payers. They
represented 45% while 31% of the respondents classified
VAT as tax on income. Other classification of VAT identified
by the respondents are tax on input and tax on export and
import which are represented by 17% and 24% of the
respondents view. This implies that the level of education
gained and level of knowledge gained cannot be reconciled.
Question No 7: The implementation of VAT has positive
impact on the Economy of Nigeria.
Table 4.2.5: The impact of VAT in Nigeria
Response No of
Respondent %
Strongly agree 75 41
Agree 53 28
Undecided 9 5
Disagreed 30 16
Strongly disagree - 19 10
Total 189 100%
Source: Computed from the questionnaire
The implementation of VAT has impacted positively to the
Nigerian economy. This was identified by majority of
respondents as worthwhile. This represents 69% of
respondents view in the table above, 26% of the respondents
75
however stated that it has no positive impact while 5% were
undecided on the issue.
Question No 8: Do you think that the collection of VAT in
Nigeria is very effective.
Table 4.2.6: VAT Collection in Nigeria
Response No of Respondent %
Yes 81 43%
No 108 57%
Total 189 100%
Source: Computed from the questionnaire
The collection of VAT in Nigeria is not efficient and effective.
This was stated by 57% of the respondents while 43% of the
respondents stated otherwise. Reasons for the inefficiency of
VAT collection in Nigeria are the inadequate education in
VAT and the non-proper accounting of VAT revenue due to
fraud.
Question No. 9: Do you think that the current 5% VAT rate
is Okay in Nigeria?
Table 4.2.7: VAT rate in Nigeria
Response No of Respondent %
Yes 164 87
No 25 13
Total 189 100%
Source: Computed from the questionnaire
76
The 5% VAT rate in Nigeria is okay. This was stated by 87%
of the respondents while 13% stated otherwise in the above
table.
Question No 11: What efficient and effective method of
communication should be adopted to educate the populace
on VAT?
Table 4.2.8: Medium of education of VAT
Response No of Respondent Degree
Television 51 97
Radio 36 69
Print media 20 38
Community
work/seminars 30 57
Information
VAN/other‘s 52 99
Total 189 360
Source: Computed from the questionnaire
77
Figure 4.2.3 Pie Chart (Medium of education on vat)
Source: Computed from the questionnaire
Source: computed from the questionnaire
The above table shown that majority of the respondents (47)
favors information, van as the effective medium, of
education for vat, while television and radio were rated okay
by 51 and 36 respondents respectively, while community
workshops/seminars and print media were supported by 30
and 20 respondents.
TELEVISION
PRINT MEDIA
COMMUNITY WORK /SEMINARS
INFORMATION VAN / OTHERS
99 97
69 38 57
78
Question No. 12: Do you think that VAT staffs are motivated
enough for effective VAT collection in Nigeria.
Table 4.2.9: Motivation to VAT staff
Response No of Respondent %
Yes 136 72
No 53 28
Total 189 100%
Source: Computed from the questionnaire
Majority of the respondents‘ feels that the VAT staffs are
motivated enough to do their work effectively. This according
to the table above represents 72% of respondents views,
28% of respondents however feel that the VAT staffs are not
motivated enough.
Question No. 14: In your own opinion has the imposition of
VAT impacted the consumption patterns of Nigeria.
Table 4.2.10: Impact of vat on consumption pattern
Response No of Respondent %
Yes 146 77
No 43 23
Total 189 100%
Source: Computed from the questionnaire
The above shows that majority of the respondents agreed
that the consumption patterns is Nigeria was some
79
influenced by VAT. This was represented by 146
respondents, while 43 respondents however, had contrary
opinion.
Question 17: In your own assessment, do you agree that the
imposition of VAT has improved the prospective business
and industries in Nigeria.
Table 4.2.11: Effect of Imposition of VAT on businesses
and industries.
Response No of Respondent %
Strongly agree 45 24
Agree 59 31
Undecided 11 6
Strongly disagree 44 23
Disagree 30 16
Total 189 100%
Source: Computed from the questionnaire
From table 4.2.11 above, it was discovered that greater
number of the respondents are of the opinion that VAT has
improved the prospects of businesses and industries within
the country. This is represented by 54% of the total
respondents while 6% were undecided on the issue.
However, 39% disagreed with the above statement or
opinion.
Question No. 19: Has the implementation of VAT any
challenges at all?
80
Table 4.2.12: Challenges to VAT implementation and
Administration
Response No of Respondent %
Yes 136 72
No 53 28
Total 189 100%
Source: Computed from the questionnaire
From the table above, about 72% of the total respondents
agreed that VAT implementation and administration has
some challenges in Nigeria while 28% of the total
respondents, however had a contrary opinion.
Question No. 20: Has the adoption of VAT any positive
impact on the Nigeria Economy.
Table 4.2.13: Impact of VAT on the Nigeria Economy.
Response No o f Respondent Degree
Yes 162 309
No 27 51
Total 189 360
Source: Computed from the questionnaire
The above figure shows that about 162 respondents agreed
that the imposition of vat has a positive impact On the
Nigerian economy
81
Figure 4.2.4 pie chart
Source: Compute from the questionnaire
Source : computed from the questionnaire
The above figure shows that about 162 respondents
agreed that the imposition of vat has a positive impact on
the Nigerian Economy while about 27 respondents has a
contrary opinion.
4.3 TEST OF HYPOTHESIS
The data collected were analyzed. The stated hypotheses
were tested with chi-square statistical tool under the
following headings and procedure.
i. State the hypothesis
ii. State the statistical tools used
iii. Test the hypothesis
iv. Take the decision
YES
NO
51
309
82
4.3.1 Test of Hypothesis (Ho1)
I. Statement of Hypothesis
Ho1: Value Added Tax has no economic impact on the
consumption patterns of Nigeria
II. The statistical tools used.
Data for testing this hypothesis was obtained from question
no 14 from the questionnaire. (Appendix A) chi-square used
in this study is as follows
X2 = (O-E)2
E
Where X2 = is the computed chi-square.
O = The observed frequency
E = The expected frequency
= The summation sign
The table 4.2.10 was used for this analysis
iii. Testing the hypothesis
Table 4.3.1: Calculation of chi-square for hypothesis one
(Ho1)
Responses O E O-E O-E2 O-E2
E
Yes i46 77 69 4761 61.83
No 43 23 20 400 17.39
Total 189 100 79.22
83
Source: Computed from field survey
Computed chi-square (X2) = 79.22.
Table value =
df = (m-i) (n-i)
df = 2-i) (2-i)
df = 1x1=1, =3.84.
iv. The Decision Rule
A decision rule is the statistical objective procedure, which
guides the researcher as to whether a particular hypothesis
is accepted or rejected from a set of data.
In testing the above hypothesis, the decision rule states that
at 0.5 level of significance with 1 degree of freedom of the
calculated value of chi-square X2>X20, reject Ho and accept
Hi, where X20 is the table value of 3.84.
v. Take the decision
The chi-square shows that the calculated value of 79.22 is
greater than the table value of 3.84 at 1 degree of freedom
and at a probability level of 0.5. SO the (H0i) null hypothesis
is rejected and the alternate hypothesis (Hi) upheld, that
―Value Added Tax have economic impact on the
consumption pattern in Nigeria.
84
4.3.2 Test of Hypothesis (H02)
Ho2: Value Added Tax does not have positive impact on the
Nigerian Economy.
ii. The statistical tools used
Data for testing this hypothesis was obtained from question
no 7 from the questionnaires (Appendix A) as analyzed in
table 4.2.5. Chi-square was used as the statistical tool to
test the hypothesis. The formular for-chisquare for this
study is as follows.
X2 = (O-E)2
E
Where X2 = is the computed chi-square.
O = Observed frequency
E = Expected frequency
= Summation sign
iii. Testing the hypothesis
85
Table 4.3.2: Calculation of chi-square for hypothesis two
(Ho2)
Responses O E O-E O-E2 O-E2
E
Strongly agreed 77 41 36 1296 31.61
Agreed 52 28 24 576 20.56
Undecided 9 5 4 16 3.2
Disagreed 32 16 16 256 16
Strongly disagreed 19 10 9 81 8.1
Total 189 100 79.47
Source: Computed from field survey
Computed chi-square (X2) = 79.47
Table value = (X20)
df = (m-1) (n-1)
df = (5-1) (2-1)
= 4x1=49.488
iv. The decision rule
The decision rule stats that a 0.5 level of significance, with 4
degree of freedom, if the computed chi-square value X2>
X20, reject null hypothesis (Ho2) and upheld alternative
hypothesis (H2), where X2o is the table value of 9.488 or
9.49.
v. Take decision
The chi-square shows that the calculated value of 79.47 is
greater than the table value of 9.488 at 4 degree of freedom
86
and at a probability level of 0.5. This result shows that the
alternate hypothesis (H2) that represents the positive
response tested Significant and it was upheld that ―value
added tax have positive impact on the Nigeria Economy.
4.3.3 Test of Hypothesis (Ho3)
1. Statement of Hypothesis
Ho3: Payment of VAT has not improved the prospects of
business, organizations and industries in Nigeria.
iv. The decision rule
The decision rule stats that a 0.5 level of significance, with 4
degree of freedom, if the computed chi-square value X2>
X20, reject null hypothesis (Ho2) and upheld alternative
hypothesis (H2), where X2o is the table value of 9.488 or
9.49.
v. Take decision
The chi-square shows that the calculated value of 79.47 is
greater than the table value of 9.488 at 4 degree of freedom
and at a probability level of 0.5. This result shows that the
alternate hypothesis (H2) that represents the positive
response tested Significant and it was upheld that ―value
added tax have positive impact on the Nigeria Economy.
87
4.3.3 Test of Hypothesis (Ho3)
i. Statement of Hypothesis
Ho3: Payment of VAT has not improved the prospects of
business, organizations and industries in Nigeria.
ii. The statistical tools used
Date for testing this hypothesis was obtained from question
no 17. from the questionnaire (Appendix A) as analyzed in
table 4.2.11. Chi-square was used as the statistical tool to
test the hypothesis. The formular for the study is as follows.
X2 = (O-E)2
E
Where X2 = is the computed chi-square
O = observed frequency
E = Expected frequency
= Summation sign
88
iii. Testing the hypothesis
Table 4.3.3: Calculating chi-square for hypothesis 3 (Ho3)
Responses O R O-E O-E2 O-E2
E
Strongly agreed 45 24 21 441 18.37
Agreed 59 31 28 784 25.29
Undecided 11 6 5 25 4.17
Disagree 44 23 21 441 19.17
Strongly disagree 30 16 14 196 12.25
Total 189 100 79.26
Source: Computed from field survey
Computed chi-square (X20) =79.26
Table value = (X20) = 9.488
Table value df = (rn-i) (n-i)
= (5-1) (2-1)
= 4x1 =4.
iv. The decision rule
The decision rule states that at 0.5 level of significance, with
4 degree of freedom, if the computed chi-square value X2>
X20, reject null hypothesis (Ho3) and upheld alternate
hypothesis (H3) where X2 is the table value of 9.488.
v. Take decision
The chi-square shows that the calculated value of 79.26 is
greater than the table value of 9.488 at 4 degree of freedom
89
and at a probability level of 0.5. This result shows that the
alternate hypothesis. (H3) that represents the positive
response was upheld which means that ―Value Added Tax
has positive impact on the Nigeria Economy and the null
hypothesis rejected as a result.
4.3.4 Test of Hypothesis (H04)
I. Statement of Hypothesis
Ho4: There are no challenges confronting the implementation
and administration of VAT in Nigeria.
II. The statistical tools used
Data for testing this hypothesis was obtained from question
no.19 from the questionnaire (Appendix A) as analyzed in
table 4.2.12. chi-square was used as the statistical tool to
test the hypothesis. The formular for chi-square for this
study is as follows.
X2 = (O-E)2
E
Where X2 = is the computed chi-square.
O = Observed frequencies
E = Expected frequency
= Summation sign
90
iii. Testing the hypothesis
Table 4.3.4. Calculating chi-square for hypothesis 3
(H03)
Responses O E O-E O-E2 O-E2
E
Yes 136 72 64 4096 56.9
No 53 28 25 625 22.32
Total 189 100 79.22
Source: Computed from field survey
Computed chi-square (X2o)= 79.22
Table value = (X20) = 3.84
Table value df = (rn-i) (n-i)
= (2-1) (2-1)
= l x l = 1 = 3.84
iv. The Decision Rule
The decision rule states that at 0.5 level of significance, with
1 degree of freedom, if the computed chi-square value X2 >
X2o, reject null hypothesis (H04) upheld alternate
hypothesis (H4), were X20 is the table value of 3.84.
v. Take decision
The chi-square shows that the calculated value of 79.22 is
greater than the table value 3.84 at 1 degree of freedom and
at a probability level of 0.5. So the (H04) null hypothesis is
rejected and the alternate hypothesis upheld, that ―there are
91
challenges confronting the implementation and
administration of vat in Nigeria.
92
REFERENCES
Alugbo, C. C. (2005). A practical guide to project writing.
Credo publication, Owerri Imo State Nigeria.
Asika N.(2006): Research Methodology in the Behavioural
Sciences. Longman Nigeria Plc, Ikeja-Lagos.
Nwabuokei P. 0. (1986): Fundamental of statstics. chumez
Nigeria enterprises Agbani Road, Enugu.
Onodugo V. A., Ugwuonah G. E; and Ebinne C. (2010),
Social Science Research, Principle, Methods and
Applications. Evidence Publishers Enugu, Nigeria.
93
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATION
5.1 Introduction
This chapter centers on research findings and the
conclusions that were drawn base on the findings. It also
made recommendation on the topic of discourse. The impact
of Value Added Tax on Nigeria economy.
5.2 Summary of Findings
The government of Nigeria in it‘s quest to increase revenue
mobilization decided to change the tax structure in order to
ensure efficiency, effectiveness in the administration of tax,
and reduce over dependency in oil as the only major source
of revenue. The sales tax were replaced by VAT in December,
1993 with the introduction of Decree 102 of 1993 which
marks the phasing out for the sales tax decree 107 of 1986,
on the grounds that the previous system encouraged tax
evasion, had a narrow base of revenue generation and
deferred the payment of tax. In view of the above assertion,
there is the need for the researcher to look into the impact of
VAT in Nigeria economy and whether the introduction of
94
VAT has any positive or negative impact on the economy.
The study revealed the following.
VAT has economic impact on consumption patterns of
Nigeria.
VAT has positive impact in Nigeria economy.
Payment of VAT has improved the prospects of
business, organization and industries in Nigeria.
The introduction of VAT has‘ been confronted with a lot
of challenges.
The decision by the government to replace the former
sales tax with Value Added Tax has been a worthwhile
one.
Though VAT has been known to be defective in some
areas it has been able to serve the purpose for which. It
was introduced to a considerable length.
It has been pointed out in the analysis that, though
there has been a tremendous increase in government
revenue with the introduction of VAT which help
improve government commitment to community
development, the ‗VAT staffs well motivated according
to the findings to increase efficiency and effectiveness
in tax collection hence their ability to go extra miles,
however the accounting system put in place by the
government to audit the accounts prepared by
corporate institutions that collect taxes on behalf of
government are very weak, hence there are false
95
declarations of sales figure that prevent full disclosure
of VAT revenue.
5.3 Conclusion
Having critically examined the research questions, tested the
hypotheses, and the research findings, the following
conclusion was made based on the information gathered.
VAT has actually improved the economic development
of the country with much implication on the revenue
generation of Nigeria. This can be seem from the
projected revenue in the year of it‘s commencement
1994. out of 11 billion naira that was projected, VAT
generated N13,677 billion in the first half of 1994,
which is about 24% above the estimated income, for
the period. Again, over N7.791 billion was realized from
VAT on imports and N5,886 billion on non-import. VAT
as stated in 1996 budget. speeches overshot the 1995
estimates by yielding over N2 1 billion. Also the five
hundred and eighty nine (589) local governments in
Nigeria in 1995 got VAT revenue of N6 1 million while
Federal Capital territory earned about 7.01 billion from
VAT in the first three months of 2005.
Payment of VAT has improved the prospects of
business organizations and industries in Nigeria to an
extent, which we are all witness today for instance,
there has been an improvement in power supply
96
recently and stability in the prices of petroleum and
allied products.
These has been a lot of motivation to VAT staffs to
increase their efficiency, this could be seen from their
special salary structure different from other
government ministry or parastatals like them. That is
the federal Inland Revenue service (FIRS).
Finally, Despite the Positive side of the introduction of
VAT, there are still the views of the opposition which to
an extent portrays the policy in a negative form or
perspectives.
5.4 Recommendations
On the basis of the findings that have been established and
the conclusion drawn from the study, following
recommendation are necessary.
The government should adequately make provision for
retrieving the proceeds of VAT from companies and
other agents of collection.
From the above, it is expected that in a given tax
system such as VAT an effective tax administration
would yield maximum revenue with a minimum cost.
This however depends on the quality of the machines
for tax administration which include manpower
devoted to tax collection and assessment, the
97
equipment and VAT Decree. When the people come to
understand VAT better and it‘s benefit, the economic
compliance would be greater and therefore compliance
cost would be smaller on the other hand, when the
voluntary compliance is great, the VAT administration
would be easier and giving the tax structures, the
greater revenue yield.
Seminars and workshops so far organized on this issue
are narrow in its scope and design. These should be
functional VAT offices in every council area to
coordinate a vigorous campaign to educate people and
seek their cooperation. This will no doubt erode the
negative attitude that some of the consumer‘s have
developed towards, VAT.
VAT has a good chance of working in Nigeria. If it
receives the cooperation of tax collectors, if however,
people continue to evade tax colluding with tax
collectors as witnessed on sales tax, no meaningful
achievement would be made.
Again, enforcement of penalties and addition returns
assessment provision could go a long way in enhancing
VAT collection.
Fast disposition of tax cases will help administration
machinery.
98
A good tax system most ensure that tax laws which
include VAT laws must satisfy the basic principles of
taxation.
The list of VAT exemption items should be clearly
defined in simple language. This should be properly
articulated to ensure those goods that are vatable and
those goods that must be exempted.
Suggestions for Further Research
It has been said, time and again, that knowledge is
accumulative and none is an inland to itself. (Onodugo et al
2010). It is on this note that the researcher acknowledge the
fact that inspite of the efforts made, there are still vital areas
that the study could not get into due to the constraint of
time, resources and other hindering factors. It was
suggested that the study could be carried out in the other
part of the country since the researcher focused on only a
state in Nigeria.
Further researchers should look out the relationship
between Value Added Tax and revenue generation in
Nigeria.
Further study should also look critically at the negative
impact and implication of value added tax in our
economic body policy.
99
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Aguolu O. (1999) Taxation and Tax Management in Nigeria,
Enugu, Meridian Associates.
Alugbo C. C. (2002) A practical guide to project writing credo
publications owerri, Imo estate.
Alugbo, C. C. (2005). A practical guide to project writing.
Credo publication, Owerri Imo State Nigeria.
Asika N. (2006) Research Methodology in the Behaviour
Sciences. Longman Nigeria Plc, Ikeja Lagos.
Baridan, D. M. (2001) Research Method in Administrative
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Chima, B. 0. and Udensi C. E. (1996) Government &
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Precision Printers and Publishers, Achara Layout
Enugu.
Clifford, J. C. (1965) ―VAT, the British System Explained‖
pp. 44-47 London Pitman.
Dangnha Koti - (2007) ―Indirect Taxation‖. Saleua Press.
Evidence Publishers Enugu, Nigeria.
Ezejelue A. C. (2001) Primer on International Accounting.
Educational Books and Investment Limited. Port
Harcourt - Rivers State.
Gupta, R. N. (2006) Business Organization and Management.
Rain Nager, New Delhi Management
100
Naiyeju, K. (1996) Value Added Tax, the facts of a positive
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101
APPENDIX A
School of Post Graduate Studies,
Faculty of Business Administration,
Department of Accountancy,
University of Nigeria,
Enugu Campus
18/ 1/20 12
Sir/Madam,
QUESTIONNAIRE FOR COMPLETION
I am a Post-graduate student of the above named Institution
carrying out a research work on ―The Impact of Value Added
Tax (VAT) on Nigeria Economy‖, as part of the requirement
for the award of master‘s degree in Business Administration
(MBA- Accountancy).
Please, could you spare a few minutes of your time to
respond briefly and as precisely as possible to the questions
poised on the attached questionnaire.
All information elicited through this medium, will be held in
strict confidence and used for the research purpose alone.
Thank you for your- co-operation,
Yours faithfully,
IGWEONYIA OBIAGELI.V
102
INSTRUCTION
Please kindly supply the following information required by
ticking (v) the box that appears best or suitable to you. All
information given will be held in confidence.
(Background Information)
1. Gender: Male Female
2. Age group: 20-29 30-39
40-49 50- above
3. Educational qualification
GCE/SSCE OND/NCE
HND/BSC MBA/M.Sc/PhD & above
SECTION B
The concept of VAT
4. Type of Business Activity
Manufacturing
Wholesale
Retailing
Service provider
Consumer/consuming
Others
5. Do you understand the concept of VAT
Yes No
6. What category is VAT classified
Tax on consumption
Tax on income
103
Tax on inputs
Tax on export/import
Others
7. The implementation ___________
Strongly agree Agree Undecided
Strongly disagree Disagree
8. Do you think that collection of VAT in Nigeria is very
effective.
Yes No
9. Do you think that the current VAT rate of 5% is okay?
Yes No
10. Do you agree that education of VAT implementation in
Nigeria?
Strongly agree Agree Undecided
Strongly disagree Disagree
11. What efficient and effective method of communication
should be adopted to educate the population on VAT?
Television
Radio
Print media
Community workshops/seminars
Information van/others
12. Do you think that VAT staffs are motivated enough for
effective VAT collection in Nigeria?
Yes No
13. How often should VAT registered person be audited?
104
Once a month Once in six months
Once every three months Once in a year
14. In your own opinion, has the imposition of VAT
impacted the consumption pattern in Nigeria.
Yes No 15. Do you always insist on VAT invoices whenever you
buy goods or services? (Consumer only) Always
Sometimes Not at all
16. Do you always issue out VAT invoices to your
customers (Retails only)
Yes No
17. In your own assessment do you agree that
the imposition of VAT has improved the prospective
business and industries in Nigeria?
Strongly agree Agree Undecided
Strongly disagree Disagree
18. Is the issuance of VAT invoice to consumers enough for
the collection of the Tax?
Yes No
19. Has the implementation and adiministration of VAT in
Nigeria any challenges at all ?
Yes No
20. Finally in your own opinion , has the adoption of Vat
any positive impact in revenue generation in Nigeria
Yes No
105
APPENDIX B
ORAL INTERVIEW GUIDE
1. What do you understand by the Term VAT (Value
Added Tax).
2. How did you come to know about VAT?
3. What is your opinion about the adoption of VAT in our
economic system?
4. Do you think that VAT is the solution to our tax system
problem?
5. What can you say about the education of VAT in
Nigeria?
6. Can you suggest an effective way of educating the
masses on VAT?
7. Has VAT any economic impact on the consumers in
Nigeria?
8. Does the industries in Nigeria benefit in anyway from
the introduction of VAT?
9. Do you agree or disagree with the system, of VAT
collection in Nigeria?
10.Do you think that VAT can reduce Tax evasion in
Nigeria?
106
APPENDIX C
Manufacturing Firms Visited:
1. Hardis and Dromedas Limited at plot 107 Emene
Industrial Layout, Enugu State.
2. INNOSON Technical Industrial Company Limited at
Eniene Industrial Layout, Enugu State.
3. Alo Aluminum Company at Emene, Enugu State.
4. Emenite limited at Ernene, Enugu State.
5. El-Shaddai Aluminum Company at Emene, Enugu
State.
6. Phinomar Nigeria Limited at Ngwo, Enugu State.
7. Brozar Chemical Limited at No 10 Hill-top Avenue,
Ngwo, Enugu State.
8. Paulson consolidated Enterprise Limited at Ugwuaji,
Enugu.
107
APPENDIX D
List of Some Services Provider Visited
1. Hill-top Motel Enugu, located at Ngwo, Enugu State.
2. Niger Optical Services Limited at Zik Avenue, Uwani in
Enugu State.
3. Melody Hotels at Osadebe Street, New Layout, Enugu
State.
4. Liberation Hotels Limited at Umuaniabor Street,
Garriki Awkunanaw, Enugu State.
5. Emmason Fumigation Services at New Heaven, Enugu
State.
6. Army Joe Laboratories Limited at Ibaim Street, Enugu
State.
7. First Hotels Limited at Osadabe Street, New Layout,
Enugu State.
8. Jec Optical Services Limited at Zik Avenue, Uwani,
Enugu State.
9. ENTRACO Limited, Enugu State.
10. Eastern Shop at Ogui Road, Enugu State.
11. Zodiac Hotels Limited, League Avenue, Enugu State.
108
APPENDIX E
List of Wholesalers
1. Venco Enterprises - Distributor to Nigerian Bottling
Company (9th Mile Corner, Ngwo), Enugu State.
2. Okwute Ventures - Distributor to Innoson Technical
Company, dealer on plastic tanks and other plastic
products.
3. A.G. Igboka & Sons Ltd. - Distributor to P.Z.
Manufacturing Company, Enugu main market.
4. Albertina Nigeria Limited - Distributor to P.Z.
Manufacturing Company in conjunction with Hairer
Thermocool, Zik Avenue.
5. Emmy Holding Nigeria Enterprise, Garriki - Distributor
to Nigerian Breweries Plc.
6. Ezionye Holdings Nigeria Limited, Garriki - Distributor
to Nigerian Bottling Company, (9th Mile Corner, Ngwo),
Enugu State.
7. Benobi and Sons Nigeria Ltd. - Distributor to Innoson
Nigeria Limited. Dealer on plastic products, Emene,
Enugu.
8. LG World at Ogui Road - Dealer on electronics.
9. GODAC & Sons Stores - Dealer on textile material, Rail
Lines Ogbete.
10. Fine Brothers Nig. Ltd. - Dealer on phones and phones
accessories.
109
11. Beny Brother Ltd. - Dealer on electronics, Zik Avenue,
Enugu.