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EXAMINATION OF THE INTRODUCTION OF VALUE-ADDED TAX (VAT) AS A SYSTEM OF TAXATION IN NIGERIA

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CHAPTER ONE

1.1 INTRODUCTION
Some years back, the agricultural sector was playing an important role
in the Nigerian economy both in generating revenue and in the physical
impact. This was before oil started its own impact on the economy. The
impact created by the oil sector began to be more relevant within a short
period of time. Other sectors of the economy became secondary in terms of
their relevance. The sectors were neglected in favour of oil.
Oil thus became the leading factor and the leading product in term of
revenue generation and foreign exchange contribution. The condition of the
economy became vulnerable to the condition of the world oil market from
1970 till date. The fluctuation of oil price in the world market has adverse
effect on the Nigeria economy. This is by diversifying the revenue generated
based on the higher economy.

The financial requirements of the government have been increasing
over the years in facilitating the accomplishment of government functions.
Worthy of mention in this connection is the effective way of revenue
generation and collection by the government. The idea of introducing value
added tax (VAT) was therefore considered and the Federal government
finally approved its introduction. Value added tax is therefore expected to
increase and be effective, contribute towards enhancing the revenue
generation base of the government. The system is expected to minimize or
eliminate the corrupt practices associated with revenue assessment and
collection.

The importance of revenue in any country and of course, Nigeria
cannot be overemphasized. Revenue has been the bedrock of government
performance. The history of revenue in Nigeria dated to the pre-colonial era
when tax and levies were paid to the fathers or lords as the case may be, to
Oba’s, Kings, Emirs. The tax or levies were being paid in cash or in kind
during the pre-colonial era. It was used to support the sustenance of the
colonial administration. It has even been used to mobilize farmers into cash
crop production mainly for the colonial export through the use of the cash
taxes. Even after independence, tax has played an important role in
generating revenue for the government. It is used for the running of the
affairs of the post independence government in Nigeria.
Furthermore, it has also been used to achieve other policies such as
the protection of the infant industries, income re-distribution, checking and
controlling the consumption of some certain goods. Etc. it is therefore very
much likely that it will continue to play a very important role in Nigeria
economy.

Following the difficulties, irregularities, complaints associated with
the assessment and collection of the said tax, operation committee was set up
by the Federal government in 1991 to review the entire tax system in
operation. The committee recommended the idea of introducing value added
tax (VAT) in the country and another committee was set up to undertake the
feasibility study and make recommendation on its implementation after
which the Federal government finally approved the introduction of value
added tax in Nigeria tax system with effect from 1st September 1993 and
was incorporated into the 1994 budget.

1.2 STATEMENT OF PROBLEM
This research is carried out to find out the position of value added tax
on the overall Nigeria on taxation system. It is to find out the impact or role
both in terms of generating revenue for the government and controlling
irregularities widely believed to be associated with the said tax. It is also set
to find out beyond Technical level practical problems associated with it and
to make recommendation at the end of the study.

1.3 OBJECTIVES OF THE STUDY
The objective of this study is to examine the introduction of the value
added tax (VAT) as a system of taxation in Nigeria and also to look at the
relationship between Value Added Tax and generation of revenue through
other forms of taxations. It is also the objective of this study to find out the
problem associated with the administration of VAT since its introduction
and also to give recommendation on how to make VAT very effective and
responsible to the needs of Nigerians. The study also intended to find out the
advantages of Value Added Tax (VAT) in term of generating revenue in
Ogun state.

1.4 SIGNIFICANCE OF THE STUDY
The significance of the study is that government is in need of money
to execute its increasing project by introducing VAT to replace the sole tax.
The study is aimed at enhancing the effective implementation and
achievement of the objective, as such; VAT collection should be encouraged
and supported.

This study is very important, as the value added tax is a new or a
modified system, which has a lot of significance. The public needs to be
educated on its operations. The study will bring the understanding between
the government, the populace (the tax payers) and the tax authorities
together. Proper knowledge of the Values Added Tax would bring increase
return to the government as a result of the compliance by the payer and
proper record keeping by the officials.

1.5 STATEMENT OF THE HYPOTHESIS
An hypothesis is a tentative statement, which can be proved with
empirical evidence. There are two types of hypothesis namely;
Null hypothesis and alternative hypothesis
A null hypothesis is an hypothesis of no effect or no difference while
an alternative is an hypothesis that may be accepted if the statically evidence
is rejected by the sample evidence.
Data are collected, analyzed and interpreted with a view to accepting
or rejecting hypotheses. The data for this research were collected from
Federal Inland Revenue service Ogun office.
We have the hypotheses as follows;
Ho: The measures taken by the Federal Inland Revenue service (FIRS) to
curtail the much pronounced Nigeria factor of competition and irregularities
has not been achieved.
H1: The measure taken by the Federal Inland Revenue service (FIRS) to
curtail the much pronounced Nigeria factor of competition and irregularities
has been achieved.
Ho: Proper planning, assessment, collection and monitoring of the value
added tax has not been achieved.
H2: Proper planning, assessment, collection and monitoring of the value
added tax has been achieved.
Ho: The steps government has taken to compel all corporate bodies and
businesses to fully register with VAT department have been attained.

1.6 SCOPE OF THE STUDY
The scope of the study is to cover the introduction, the
implementation, problems and prospect of VAT and its relationship with
revenue generation in hospitality industry. The time frame is 1993 till date.
In addition to this time, all data and information used were from area office
of the Federal Inland Revenue service Ogun State office.

1.7 LIMITATIONS OF THE STUDY
The study is concentrated on the advantages of value added tax (VAT)
in terms of revenue generation and its operation in Federal Inland Revenue
service Ogun State office. The study was faced with some problem which
limited the research study. Some of the limitation are;
(a) The effect of scanty data:
The issue of scanty data arose where some private organization refuse to
disclose some information on their record keeping on VAT and especially on
returns rendered to the Federal government. This made it very difficult to get
the required information on VAT operation by the organization in respect to
credit system of VAT.
(b) Time:
Due to shortage of time, the study was carried out in Ogun state only.
Time did not allow for wider research in other states of the federation. It was
not easy to collect most of the questionnaire distributed due to the fact that
the people who the questionnaire were given never got it ready at the
appropriate time. They gave appointment for it to be collected. Some even
said that they misplaced the questionnaire.
(c) Interviews:
The interviews with sole trader were not at all that successful because
it was very difficult to make them understand that the purpose of the study is
not to bring them to book for tax purpose.
(d) Unwillingness of Businessmen:
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Another problem or difficulties faced within the course of this
research is unwillingness of businessmen and people in position of such vital
information to release them and some of them saw the researchers as spies or
agent of tax authority.

1.8 DEFINITION OF TERMS
The terms uses in this study are as follows;
i. Value Added Tax: This is the tax imposed on the value of goods and
services in the country either imported or exported which the suppliers of
the goods add to it.
ii. Economy: This means control and management of money on goods
and services in a country.
iii. Goods: The term goods cover all tangible and intangible assets
and commodities that are traded for considerations.
iv. Supply of goods: This includes delivery and transfer of goods arising
from contractual or legal action or transaction though agents.
v. F.I.R.S: Federal Inland Revenue service, it is the operational of arm
Federal board of Inland Revenue.
vi. F.B.I.R: This means Federal board of Inland Revenue.
vii. Legislation: This deals with the aspect of making laws in the system of
taxation.
viii. VAT on input: This is the VAT on the purchase of goods and services
by a notable person.
ix. VAT on OUTPUT: This is the VAT charged on the sale of goods and
services. It is the VAT paid to the F.I.R.S after VAT on the purchase of
such good or supply has been deducted.
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x. Vatable person: This means any person, corporate or otherwise who
trades Vatable goods and services for a consideration.

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