CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND OF THE STUDY
Tax is a fundamental source and a pillar of revenue generation in every nation of the world especially in the western world (Azubike, 2009). A tax system represents one of the most effective means of mobilizing a nation’s internal resources and it lends itself to creating an environment conducive to the promotion of economic growth for the three-tiered tax structure between the federal, state and local governments, each of which has different tax jurisdictions (Odusola, 2013; Nzotta, 2007). The need for taxation among others therefore, is to provide material source of revenue for government in discharging its ever growing obligations and commitments to its citizenry. An eicient tax system ensures the mobilization of the untapped abundant internal resources and it also stimulates an environment conducive to the promotion of growth of a nation. It was first introduced by France in 1954, and has now been embraced by well over seventy countries. These include the entire Organization for Economic Co-operation and Development (OECD) countries, Japan, Canada, the state of Michigan in the USA and many African Countries (Olatunji, 2009). Some major oil producing countries are not let out from the list of countries that have introduced this tax system. According to Tait (2011) and Adereti, et al. (2011), VAT has been in effect in Ecuador and Mexico since at least it accounted for 12.35% and 19.71% of total government revenues in these countries respectively. Indonesia introduced VAT and by 1988; the ratio of VAT revenue to GDP had increased to 4.5% (Adereti, et al., 2011; Bogetic and Hassan, 2011). In Sub Saharan Africa, VAT has been introduced in Benin Republic, Cote d’Ivoire, Guinea, Kenya, Madagascar, Mauritius, Senegal, Togo, and Nigeria (Onwucheka and Aruwa, 2014; Adereti, et al., 2011). The main reasons for the rapid spread of this form of taxation were, first, the early adoption of it in the European Union and, second, the key role played in spreading the world to developing and transitional economies by the International Monetary Fund in particular and by international agencies and advisors more generally (Bird, 2014). VAT is generally a tax on the supply of goods and services which are ultimately borne by the final consumer but are collected at each stage of production and distribution chain. With VAT, government reasoned, it will be virtually impossible to evade tax.
