CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

All economies whether developed or developing require some degree of government

intervention with a view to facilitating economic growth and development in their

domains. This is particularly so as certain essential goods and services such as education

security electricity water and health facilities among others are mostly provided by the

government. However in providing these goods and services government has to source

funds (revenue) from various sources including taxation Ogundele (1996). New form of

taxes are selectively being introduced particularly by the developing countries so as to

boost their revenue earning capacity with the aim of ensuring rapid economic growth and

development of their countries. The Value Added Tax (VAT) is one of such taxes recently

initiated by governments to raise revenue for smooth government operations.

Value Added Tax (VAT) in Nigeria is a Federal Government tax which is administered

using the existing machinery of the Federal Inland Revenue Services (FIRS). VAT has a

directorate within the frame work of the Federal Inland Revenue Services (FIRS) with

the head office in Abuja. VAT is a consumption tax at each stage of the consumption

chain and is borne by final consumer. It requires a taxable person upon registering with

the Federal Board of Inland Revenue to charge and collect VAT at a flat rate of 5% on all

vatable goods and services. The registration of Value Added Tax (VAT) is to cover all the

business activities of the vatable persons. Therefore all domestic manufacturers

wholesalers distributors importers and suppliers of goods and services in Nigeria are

expected to register for VAT within six months after the commencement of the decree or

six months from the commencement of business whichever is earlier. Vat in Nigeria

were created as replacement or substitution for the sales taxes that were in operation

before. They were imposed on all goods that were manufactured in the country as well as

goods that had been made outside the country and were selling there. Value Added Tax

(VAT) seems to be the best among other types of taxes. It is against this background that

we are going to analyze VAT and to see the impact it has on the nation‘s economy.

1.2 STATEMENT OF THE PROBLEM

Value Added Tax has become important source of revenue to the Nigerian Government

(both Federal and state level). The Federal government of Nigeria intends increasing

percentage of VAT imposed on goods and services because of its relevance to income

base and economic growth and development through a shift from direct tax regime to

indirect tax regime anchored on consumption in accordance with best global practice to

achieve stable non-oil revenue flow and to lower companies income and personal income

tax. But the citizens' perceptions are different (such as: too much burden on the final

consumers inflation and a rise in fuel pump price to mention). This popular opinion of

majority of Nigerian citizens has made it pertinent to carry out a research to examine the

impact of VAT on the economic development of Nigeria. Thus there is need to

understand with empirical facts the impact of VAT on the economic development of

Nigeria from year 2000 to 2017.

1.3 OBJECTIVE OF THE STUDY

The main objective of this study is to ascertain whether Value Added Tax has impact on

economic development of Nigeria. Specific objectives include:

i. To identify the effect of Value Added Tax on the Nigerian economy;

ii. To ascertain the influence of Value Added Tax on government capital

expenditure;

iii. To examine the impact of Value Added Tax on the prospective business firms

organizations and industries in Nigeria;

iv. To identify the potential problems confronting the implementation and

administration of value Added Tax in Nigeria.

1.4 RESEARCH QUESTIONS

In carrying out this research certain questions need to be answered and these questions

are: As a follow up to the objectives of this study are the following research questions:

1. Does Value Added Tax have any positive impact on the Nigerian economy?

2. Does Value Added Tax have influence on government capital expenditure?

3. To what extent has Value Added tax improve the performance of business firms

organizations and industries in Nigeria?

4. Are there problems confronting the implementation and administration of Value

Added Tax in Nigeria?

1.5 RESEARCH HYPOTHESES

The researcher would like to test the following hypotheses which would serve as a guide

toward the realization of the aims and objectives of this research work and is going to be

in Null form:

Ho1: Value Added Tax does not have positive impact on the Nigerian economy

Ho2: Value Added Tax does not have any influence on government capital

expenditure

Ho3: Payment of (VAT) has not improved the prospects of business organizations and

industries in Nigeria.

Ho4: There are no challenges confronting the implementation and administration of

Value Added Tax in Nigeria

1.6 SCOPE OF THE STUDY

The research is particularly interested in the effect of Value Added Tax on Nigerian

economy with reference to the Federal Inland Revenue Service (FIRS) Abuja. The data

collected was restricted to FIRS business registered and non-registered consumers and

wholesalers within Abuja hence the findings of the study was generalized to cover VAT

activities within Abuja.

1.7 SIGNIFICANCE OF THE STUDY

This study will be of great importance to the government by highlighting the effect of

VAT on the economic development of Nigeria. This study will also help in shaping and

providing a better understanding to citizenries on how VAT is charged and its

contribution to the economy. More so it will help other researchers to carry out further

research from this.

1.8 LIMITATION OF THE STUDY

The researcher encountered a lot of hindrance and problems in the course of carrying out

this research work. Among the major problems are the difficulties in getting and

gathering information and others which include the following:

1.FINANCE: Due to the nature of office and business within the scope the

researcher spends a lot of money on visiting travelling from one location to

another from one office to the other and even had to repeat a visit more than three

times to seek for information all these involves money considering the financial

constraint of the researcher and limited resources available to him.

2.SOURCES OF INFORMATION: Many registered and non-registered business

owners were reluctant to give out or provide information about the research since

they believe that tax payment is something very confidential and therefore could

not open up to the researcher.

3.INADEQUATE RECORD KEEPING: Some of the respondents visited were

unable to present complete and comprehensive records of their business. While

some were not keeping proper records of their business activities and as such

could not give adequate and correct information on the effect of vat on their

businesses rippling on the economy of Nigeria.

4.TIME: Time constraint has been another vital limitation and obstacle towards

effective realization of the main objectives of this study. Time was really not on

my side since I have to combine the little time left with my academic work and

preparation

1.9 DEFINITION OF TERMS

Vatable Person (Registered Person): This refers to a manufacturer wholesaler

an importer and a supplier of taxable goods and services. As a taxable person he

is a person registered under section 8 of the Decree.

Company: Company here as defined under the Companies and Allied Matter

Decree 1990 and a cooperate body that may be formed under any other written

law and include any association whether incorporate in or outside the country

(Nigeria).

Importer: This means a person who imports taxable goods

VAT: Value Added Tax

FIRS: Federal Inland Revenue Service

Invoice: This means any document issued as an evidence of demand for payment.

Manufacturer: Means any person who engages in the manufacturing of goods. It

also includes a person who has manufactured for him or on his behalf by other

goods made to his specification or design.

Manufacturing: Means the process by which a commodity is finally produced

including assembling packaging bottling repackaging mixing blending

grinding cutting bending twisting and pining any other similar activity.

Tax Period: Means one calendar month commencing from beginning of the

month to the end of that month etc.

IMF: International Monetary Fund it is an international organization

headquartered in Washington D.C of 189 countries working to foster global

monetary cooperation secure financial stability facilitate international trade

promote high employment and sustainable economic growth and reduce poverty

around the world.

NBS: National Bureau of Statistics it is in charge of statistics and economic

accounting in Nigeria.