AN EVALUATION OF ROLE OF VALUE ADDED TAX AS SOURCE OF INCOME IN NIGERIA
ABSTRACT
This study was intended to evaluation of role of value added tax as a source of income in Nigeria. This study was guided by the following objectives; To evaluate the role of value added tax as a source of income in Nigeria.To examine the level of proper utilization of VAT income generated by Nigeria government. To examine the effect of income generated from value added tax on economic development in Nigeria. The study employed the descriptive and explanatory design; questionnaires in addition to library research were applied in order to collect data. Primary and secondary data sources were used and data was analyzed using the chi square statistical tool at 5% level of significance which was presented in frequency tables and percentage. The respondents under the study were 200 staff of federal inland revenue service, Lagos. The study findings revealed that the impact of VAT on government income is high; Based on the findings from the study, efforts should be made by the Nigerian government and stakeholders in creating an enabling environment for micro finance banks to thrive.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Taxation is the primary source of income to the government. It is a compulsory levy on economic agents of aneconomy by the government (Gbosi, 2006). Though tax has been defined differently by various authorsbut the primary aim of any tax system is to raise funds in the public sector for use in promoting governmentprogrammes. In some instances, however, a tax may exit primarily, or at least very importantly, for regulatorypurposes.Traditionally, taxes are classified into direct and indirect taxes. Direct taxes are those type of taxes in which itsliability is determined with direct reference to the tax paying ability of the taxpayer like, “personal income tax,company income tax, petroleum profit tax, capital transfer tax, capital gains tax, inheritance tax, wealth tax”, etc;while in the case of indirect taxes such an ability to pay is assessed indirectly (Bhatia, 2004). Examples of indirect taxes in Nigeriainclude entertainment tax, and the subject of this study, the Value Added Tax (VAT).
Value Added Tax (VAT) is an indirect tax levied on goods and/or services as a percentage of their value added. Theconsumer pays VAT on purchases in addition to the normal prices; the seller then pays the government the value ofthe VAT collected on sales less VAT they have paid on purchases inputs (Ahabi&Ijewere, 1998).VAT is levied in many countries. It was introduced in the United Kingdom in 1973. It is a kind of tax on the supplyof goods and services, and it is borne by the final consumer but collected at each stage of the production anddistribution chain. Originated from the treaty of Rome signed by the European Union countries in the late 1960’s.VAT is today practiced in more than sixty other countries cutting across Europe, Latin America, Asia, and Africaincluding Nigeria. Most of these countries just like Nigeria switched from sales tax to VAT as a major form ofcollecting revenue (tax) on consumption.Interestingly, it was first introduced in Nigeria on the 1st of January 1994 under Decree 102 of 1993 within the daysof General SaniAbacha as the Military Head of State. VAT is a replacement of the then existing sales tax which had been in operation under the Federal Government Legislated Decree No 7 of 1986; but in operation on the basis of residence (Anyafo, 1998).
