ABSTRACT
The study examined the impact of value added tax on the internally generated revenue of Lagos State for a 6-year period ranging between 2011 and 2016. The study established that VAT is a consumption tax on economic operations including imports. VAT, being an indirect tax, attracts a flat rate of 5% and is collected on behalf of the government by businesses and organizations who have registered with the Federal Inland Revenue Services (FIRS) for VAT services. The study adopts secondary data, precisely panel data. The data are sourced from the Lagos state internal revenue services. The variables of interest are computed from the financial statements of selected internal revenue services. The analysis of data was carried out by the descriptive and inferential statistics are employed to analyze the data. In furtherance, the multiple linear regression analysis is adopted to estimate the coefficient of parameter estimates in the models specified. Data on the variables were obtained from the Lagos State Bureau of Statistics and Lagos State Board of Revenue. IGR was contextualized as the summation of Ministries, Department and Agencies (MDAs) Revenue, Pay-as-you-earn (PAYE), road taxes, direct assessment and other taxes. A model was specified in which IGR is expressed as a function of VAT. The model was estimated by the use of simple linear regression analysis. The results revealed that VAT has significant positive impact on IGR in Lagos State. A billion naira increase in VAT is expected to increase Lagos State’s IGR approximately by N7.39 billion. Furthermore, it was found that about 92.6% variation in IGR is explained by VAT. The study concludes that value added tax contributed enormously to internal generated revenue of Lagos State government between 2011 and 2016. To this end, the study suggested amongst others that Lagos State government should enact fiscal laws and legislations and strengthen existing ones in line with macroeconomic objectives of economic growth, full employment, financial independence and price stability; Tax agencies and authorities in Lagos State should establish cordial relationship with relevant professional tax bodies; Lagos State government should pursue policies that will enhance industrial development; Deliberate policies of internal control should be put in place by the Lagos State Board of Inland Revenue.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Countries introduced a Value Added Tax (VAT) because they are dissatisfied with their existing tax structure. This dissatisfaction falls broadly into one, or possibly all, of four categories: (1) the existing sales taxes are unsatisfactory; (2) a customs union requires discriminatory border taxes to be abolished; (3) a reduction in other taxation is sought; or (4) the evolution of the tax system has not kept pace with the development of the economy (Tait, 1988). If VAT had a birth certificate, the place and year of birth would read ‘France’, ‘1954’ respectively. The VAT created in France in 1954 was a Value Added type of consumption tax on goods, levied at the production stage. In 1968 however, this tax was merged with the existing turnover tax on services and a local tax on retail sales into a single, comprehensive levy extending through the retail stage.(Owens, 1996) The Value Added Tax (VAT) was introduced in Nigeria in 1993 by the Federal Military Government. Since then, the Value Added Tax Decree had been amended more than half a dozen times, the latest being the Value Added Tax (Amendment) Act of 2007. Some of the amendments have introduced significant changes which are yet to be reflected in the body of existing literature. The idea of introducing VAT was recommended by Dr Sylvester Ugoh, who led a Study Group on Indirect Taxation in November 1991.
The decision to accept the recommendation was made public in the 1992 budget speech. (okpe, 2001) In addition, according to Obianwuna (2005), the Federal Government set up two study groups in 1991, one was set up by the Federal Ministry of Finance and Economic Development to study and give recommendation on the reform needed in direct taxes in Nigeria. The Federal Ministry of Budget and Planning set up the other group on indirect taxation. As the group recommended the introduction of VAT in Nigeria, this made the Federal Government to set up a committee who will carry out a feasibility study on its implication in Nigeria. This committee gave the general guideline for the establishment of VAT in Nigeria and its administration was given to the Federal Inland Revenue Services, which was already charged with the responsibility of administering most other taxes in Nigeria. The Sales Tax was under jurisdiction of the States and generally poorly administered with marginal contribution in terms of revenue. After extensive deliberation and consultation, VAT was introduced on 24th August 1993 as a federal tax by the Value Added Tax Decree 102 in Abuja by the President and Commander-in-chief of Nigeria. The Nigerian Federal Government enacted the VAT Amendment Act in 2007; this act empowered the Federal Government to fix the rate of value added taxes to be imposed in Nigeria. The rate was increased from 5% to 10%. However, discussions regarding the possibility of a 50% reductions in the rate are on. The Value Added Taxes are one of the major sources of financing in a number of economically developing countries across the world; this is also similar in Nigeria as well.
1.2 Statement of the Problem
Value added tax as a consumption tax has a wider coverage since the cause of adverse variance can be adequately controlled under proper administration (Onaolapo, Aworemi, & Ajala, 2013). The revenue generated from consumption taxes can help to boost the financial base of any economy. This however involves exploiting the potential and adopting the type of consumption tax that will recognize the tax payers as utility minimizing individuals and safeguarding their evading behaviour. With the introduction of Value added tax, there is increase in revenue base of federal government of Nigeria, because the problem of tax avoidance and tax evasion are reduced. (Okoli, & Afolayan, 2015). Also VAT has shifted the burden of tax toward consumption rather than savings hence encourages investment. With the increment in investment, this leads to increase in the level of national income. VAT in addition to the above contributes to increase in the standard of living of the citizens. This is because the proceeds from VAT are used to provide public goods like roads, bridges, schools and hospitals, which will be of equal benefit to both the rich and the poor. It has also generated employment for many Nigerians.
Poor VAT administration as identified by Olaoye (2009) was one of the problems confronting VAT in Nigeria. Tax authorities perform only the technical functions without performing the needed management functions, taken the complexity of tax administration into consideration, there are bound to be ineffectiveness of tax administration. Basically, the performance of only technical functions leads to false declaration, refusal to complete tax return forms, fraud, inflation of deductible expenses, smuggling, default, illegal bunkering, etc. The dishonest practices by some tax officials also pose a serious threat to the effective tax administration in Nigeria especially when such practices are capable of having demoralizing effects on honest tax payers. Hence, this study set out to examine the effect of value added tax o internally generated revenue of Lagos State.
