CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The importance of taxation lies in it’s ability to generate revenue for government, influence the consumption pattern of the people, regulated the economy such as income, employment, purchasing power, prices and other parameters present in the economy. The basic philosophy of taxation is embedded in the reason for the existence of the government. To explain this, human beings are not self sufficient in the society and hence certain crucial collective services or public goods in a community such as defence, roads, justice, law and order, education and health facilities etc are provided by the government.
In modern times, government has to provide these goods and services and as a result has to be financed. From economic literature, texture is the oldest instrument of financing the public sector. The citizens, in sacrificing their resources to the state, expect the government to reciprocate such gesture by expending public revenue tin such a manner that enhance the citizen’s welfare. This has prompted some scholars to relax this issue in the aspects; what was termed “the principle of taxation and the principle of expenditure”. Adedeji 91969, p.7).
1.2 STATEMENT OF PROBLEMS
This study is primarily concerned with the problem of perennial dwindling government revenue and the place of VAT. The Nigerian tax system has been racked over the years by high incidence of fraud and has lacked transparency and accountability. These have deprived the government of accrued revenues. This loss of revenue by government have led to fiscal imbalances and continued poor tax administration before VAT in Nigeria. For instance, the period, 1970 to 1992 was characterized by fiscal deficits in government’s operations, thus implying that the budget for each of the successive years ended up in a deficit. This according to Akpakpan (1994:62) “Shows that the government has consistently pumping money into the economy ……. Where the government is trying to get the economy out of a depression, but given what we know about government spending in the country, it cannot be said that is was the objective.
From the above, there is no doubt that the economy was depressed for the period 1970 to 1992. This is evident in the low profit level of directly productive outfits, low investment, low output an low sales among other things. We may say in practice therefore, that government revenue is unable to sufficiently cover its expenditure because of the following reasons:
Ø The size of its revenue base
Ø The inefficient management of its existing sources of revenue; and
Ø The prevailing taxes evasion
Ø A study of the contribution of VAT to the Nigerian Economy and its impact on government revenue given the government policy of diversifying its revenue base and reduce her dependence on oil investment. This necessitated the need for a tax reform, which led to the birth of the Valued Added tax system, all these led to the introduction of VAT and VAT as has shown is successful. Bearing in mind the problems that prompted this study and the complexity in making an unbiased conclusion, this study will seek to provide answers to the following questions:
i. What the impacts of broad based VAT on gross domestic product of Nigeria?
ii. What are the effects of VAT on the total revenue of Nigeria?
iii. What are the effects of VAT on Nigerian net income?
1.3 OBJECTIVES OF THE STUDY
The broad adjectives for this study is to analyses the economic impact of VAT on government revenue generation in Nigeria.
Specifically this research intends to find out the impact of broad based.
1. To determine the impact of broad based VAT on gross domestic product of Nigeria.
2. To evaluate the effect of total revenue on gross domestic product of Nigeria.
3. To examine the effect of Nigerian net income on gross domestic product of Nigeria.
1.4 HYPOTHESIS OF THE STUDY
Ho1: VAT has no significant impact on gross domestic product of Nigeria.
Ho2: Total revenue does not have any impact on gross domestic product of Nigeria.
Ho3: Net income does not affect the gross domestic product of Nigeria.
