THE EFFECT OF VALUE ADDED TAX ON REVENUE GENERATION OF GOVERNMENT

CHAPTER ONE

INTRODUCTION

Value Added Tax is a consumption tax, which came to existence on first December, 1993, by decree number 102 of 1993 while its actual implementation commenced on first January, 1994. It is a transition from Lagos state sales tax. The tax was introduced sequel to the report of the 1991 study group on the review of indirect taxes in Nigeria under the chairmanship of Dr. Sylvester U. Ugoh.

The study group conducted a feasible study of the new tax, which after consideration was approved by the government.

The introduction of value Added Tax in Nigeria marked the phasing out of the sales tax, which has been in force in Nigeria since 1986. Sales tax can be defined as tax imposed on the floe of goods and services in production. A characteristics of this tax is that it deals with goods and services rather than the personnel circumstances of individual. Sales tax originated in Nigeria in 1982 when the Lagos State Government introduced sales tax on a number of goods and services.

This was successful in terms of revenue generation, because of this many other states introduced it in other to foster growth and development in the society. The role of the government in Nigeria mixed economy include:

·                    Provision of the legal framework and a social environment conductive to the effectiveness of the price system.

·                    Creation and maintenance of social and economic infrastructure.

·                    Redistribution of income

·                    Reallocation of resources

·                    Provision of macro economic objective

In other for the government to accomplish this tax, it requires substantial revenue which will be derived from the value added tax.

1.1    BACKGROUND OF THE STUDY 

The match towards value added tax in Nigeria started with the acceptance of the recommendation of the study group on Nigeria Tax system and Administration in Nov. 1991.

Consequently the decision was made public in the 1992 budget speech. This resulted in the setting up of the modified value added tax (MVAT) committee on 1st June 1992 as recommended by the study group. Government on its own wisdom as informed by administered by the FIRS which already is charged with the serious responsibility of administering most other taxes including petroleum profit tax (PPT).

Value Added Tax is a tax imposed on the value that is added to goods and services as they pass through the registered person in the course of their taxable activities up to the final consumer. The net effect is that the final consumers pays vat while the registered person’s role in the process is to collect the tax for the Federal Board of Inland Revenue FBIR. It is important to consider some details, some elements in the definition of VAT, as this will explain the trouble that the VAT Directorate of FBIR must go into in the identification and registration of taxable persons.

1.2    STATEMENT OF PROBLEM

Various problem bedevil the introduction of VAT because of the poor Administration and implementation of VAT is subjected to:

This often rises doubt about the effectiveness of VAT other problems include:

·                    Why is the provision for establishing and administering of VAT inconsistence?

·                    What are the legal backings on authority to pay tax?

·                    How can the administration of VAT be managed?

·                    How realistic is the cost of training and development of administration of VAT?

·                    How is tax management involve in the administration of VAT?

·                    Is there any deficiency in the tax system in Nigeria?

·                    Why are Government policies not consistent?

·                    What are the causes of delay on the part of government agencies in carrying out government legislation?

·                    How can indiscipline, corruption and mismanagement or government fund be minimized?

1.3       OBJECTIVE OF THE STUDY

This research project focuses on the effect of value Added Tax on revenue generation of government and underlisted points are the objective to carry out this research.

·                    To analyse the basis purpose of tax.

·                    To make a careful consideration of the implementation of VAT.

·                    To examine the method of calculating VAT returns.

·                    To find out and state the causes of deficiency in VAT.

·                    To substantiate the introduction of VAT

·                    To acquire more knowledge on the effect of VAT.

·                    To investigate ways to minimize tax evasion and avoidance.

Value Added Tax being a new nomenclature in the Nigeria tax system, the study aims at analyzing the procedure established for its collection.

1.4    RELEVANCE  OF THE STUDY

The smooth implementation of VAT and effective and efficient collection of the tax, hang primarily on a sound system of operation designed especially for the constant review in order to make appropriate where necessary to reduce or eliminate any problem noticed.

Being a new tax system, there is also the need to look beyond now and into the future to ascertain the relevance of the new form of tax to the Nigeria society.

The study is also important for the following reasons:

·                    It will create a general awareness amongst populace.

·                    It helps to determine whether implementation operating vat is a worthwhile venture.

·                    It will serve as a documentation in the Nigeria vat system.

·                    It will ratify weakness in the procedure already established.

·                    It will assist decision making in policy formulations that is in respect to tax matters especially VAT.

1.5    SCOPE AND LIMITATIONS OF THE STUDY

The scope of the study.

The study centers only on the effect of VAT operation in Nigeria associated with it, the potential of VAT in government revenue.

The population of the sampled are restricted to Lagos, the researcher however is of the opinion that Lagos being the commercial never centre in Nigeria in a good representation of what obtain in Nigeria.

Relevant data records and information were received from Federal Board of internal revenue (FBIR). Other sources of data are the response given by the people in the sample population.

The research work also been designed exclusively to cover three main categories of people. They are the relevant federal board o internal revenue, tax pay and the government.

LIMITATIONS OF THE STUDY                                                  

In the process of carrying out this research study, there are some limited factors envisaged in the course of this project work.

The following are the underlisted factors:

·                    Finance

·                    Inadequate time to thoroughly carryout the study.

·                    Conferred access to require information.

·                    Scanty statistics.

1.6    DEFINITIONS OF TERMS 

1)           Taxation: means of raising money through tax.

2)           Tax: compulsory levy enforced by governments on corporate bodies and individuals to raise revenue.

3)           Direct tax: Tax whole incidence full on the tax payer.

4)           Tax Authority: The body empowered by law to administer tax.

5)           Tax incidence: Tax burden that is final consumer that bears the burden in indirect tax.

6)           Vat: Value added tax paid on spending.

7)           Ratable: Any goods and services on which tax is payable.

8)           Ratable person: Any person (individual or corporate).

9)           Indirect tax: Tax whose incident is usually transferred by the initial suffered of the tax to another person.

10)       Input vat: Vat paid by the ratable person on goods ad services purchased by or supplied to him.

11)       Output vat: Vat receive by the ratable persons on goods and services sold or supplied by him.

12)       Revenue: Another name for income generation from a source.