CHAPTER
ONE
1.1
Background of the Study
Tax
is a compulsory levy imposed by government on individuals and companies for the
various legitimate function of the state (Olaoye, 2008). Tax is a necessary
ingredient for civilization. The history of man has shown that man has to pay
tax in one form or the other that is either in cash or in kind, initially to
his chieftain and later on a form of organized government (Ojo, 2003).
Revenue has been defined by various scholars at different time. It
lacks universal accepted definition. According to Webster New International
Dictionary [Third edition] revenue could be defined as „the annual or
periodically yield of taxes, exercise as‟ the other sources of income that a
nation state or public sector collect or receives into their treasury for public
use‟. This means that it is a public income of whatever kind. Dixon [2000] sees
revenue as „the total amount obtained from the sale of a merchandise services
to customers‟. According to Procter [2005] this revenue is an income. Fayemi
[2001] sees it as „ All tolls, taxes, impress, rates, fees, duties, fine,
penalties, fortunes and all other receipt of government from whatever source
arising over a period either one year or six months.
Flesher and Flesher [2007] define revenues as „an increase in
owners‟ equity resulting from the performance of a service or sale of
something‟ this definition is anchored on the concept of equity which may
increase due to sale of goods or provision of services in other words there are
two sides revenue ; something received and given.
Walgenbach, Glison [2006] defined revenues as the increase in
owners‟ equity a firm earns by providing goods or services for its customers‟.
This definition can be regarded as an advancement of the formal in that brought
in the concept of customer, the former definitions stated that goods and
services will be provided but the definitions stated by Walgenbach et al made
it clear that the goods and services have to be provided to a „customer‟. An
issue that is so far from the above two definitions are connotes revenue
because it [cavity] has to be earned and it may increase or decrease in line
with one performance cone. Further, Land [2008] provides a simple definition of
revenue to read „the amount received by the firm in exchange for the revenue
given up.
Recently the revenue that accrues to
state government is derived from two broad sources, via: the external sources
and the internal sources. The increasing cost of running government coupled
with dwindling revenue has left various state governments in Nigeria with
formulating strategies to improve the revenue base. More so, the near collapse
of the National Economy has created serious financial stress for all tiers of
government. Hardest hit are the state governments all of whom have experienced
unusual reduction in their share of the National Revenue from the Federation
Account. Despite the numerous sources of revenue available to the various tiers
of government as specified in the Nigeria 1999 Constitution, since the 1970s
till now, over 80% of the annual revenue of the 3 tiers of government come from
petroleum. However, the serious decline in the price of oil in recent years has
led to a decrease in the funds available for distribution to the states. The
need for state and state governments to generate adequate revenue from internal
sources has therefore become a matter of extreme urgency and importance.
The Federal government appointed
Consultants/ Monitoring agents on Value Added Tax (VAT) and Withholding Tax
(WHT) in the Oil Industry. Professional Import Duties Administrators (PIDA) was
appointed in1996 by the federal government for the collection of import duties
side by side with certain custom officials. Some State governments also
appointed consultants to boost revenue generation in their states.
This development attracted diverse comments among various interest
groups and individuals. These various comments have been most often biased
depending on which interest they represent. For instance, while the revenue
officials see the tax consultants as usurping their powers, to the taxpayers
the modes of operation of the consultants was a nightmare. Similarly, while
company executives and even some chartered accountants particularly of the big
firms abhor this practice, smaller firms of chartered accountants and Tax
practitioners, on the one hand, applaud it.
It
is clear that government expenditures via infrastructural establishment, road
construction, energy and power generations, health facility, to mention just a
few, lead to creation of an atmosphere conducive for capital formation (CF) and
or gross domestic investment (GDI) which invariably will raise economic growth
and development and eradicate poverty (Uremadu, 2008; Ogamba Revenue generated through tax is a major
source of government revenue all over the world. A critical challenge of tax
administration in the 21st century is how to advance the frontiers of professionalism,
accountability and awareness of the general public on the imperatives and
benefits of taxation in our personal and business lives which include:
promoting economic activity; facilitating savings and investment; and generating
strategic competitive advantage (Kiabel and Nwokah, 2009). Government use tax proceeds
to render their traditional functions, such as the provision of public goods,
maintenance of law and order, defense against external aggression, regulation
of trade and business to ensure social and economic maintenance (Azubike,
2009).2003;
Dienning, 1981). Thus, taxation can be used as a principal tool for generating
revenue for the government which it uses to prosecute various expenditure
programs targeted at raising the living standard of its people.
Government needs money to build schools and hospitals, to maintain
law and order, to construct and maintain roads, and so forth. Through tax
activities of government the required revenue or developmental funds could be
raised, as a matter of fact.
Globally,
government is saddled with the responsibility of providing some basic
infrastructures for her citizens. Among these are the provisions of Schools,
Hospitals, construction Roads, Bridges, Railway lines, Airports and seaports.
More so is the security of the life and properties of the citizens in the
country against foreign and or state aggression. Miller and Oats (2009) noted
that due to the inefficiency of the private market, the provision of public
goods such as security of life and property which the public might not be
prepared to pay for directly, are left in the hands of the government rather
than the private market.
James
and Nobes (2008) observed that even without payment, the consumption of “pure
public goods cannot be to the total exclusion or in isolation of certain
individual. Government therefore, makes it free for all and sundry. A very good
example is in the area of security e.g. Police, Arm Force etc. Their services
cover all the citizens without specific charges to the people.
Revenue generated through tax is a major
source of government revenue all over the
world. A critical challenge of tax
administration in the 21st century is how to advance the frontiers of professionalism,
accountability and awareness of the general public on the imperatives and
benefits of taxation in our personal and business lives which include:
promoting economic activity; facilitating savings and investment; and
generating strategic competitive advantage (Kiabel and Nwokah, 2009).
Government use tax proceeds to render their traditional functions, such as the
provision of public goods, maintenance of law and order, defense against
external aggression, regulation of trade and business to ensure social and
economic maintenance (Azubike, 2009).
Nigeria has been one of the most
backward developing countries in terms of harnessing revenue owing to weak
standard of good governance. In recent years, the most worrisome about
Nigeria’s economy is that corruption and mismanagement prevented the strait of
the country’s resources from taxation and other sources into lasting
improvements in self-sustaining economy. Thus despite increasing revenue
generation that supposedly have been plough into productive ventures, the
economy is still characterized with high rate of unemployment of 21.4% and
23.9%, high rate of inflation of 11.8%, and 10.3%, high interest rate of 22.51%
and 22.42%, low capacity utilization of oil industry of 24.33% and 24%, in 2010
and 2011 respectively (CBN, 2012).
Value Added Tax invariably has really
and will continue to a source of revenue generation for both the federal, state
and local government of Nigeria.
1.2
Statement of the Problem
Nigeria
has been one of the most backward developing countries in terms of harnessing
revenue owing to weak standard of good governance. Taxes are imposed on goods
for reasons such as; economic stabilization, revenue generation, regulation and
control of behaviours of components of the economy, and as well as narrowing
the gap between the rich and the poor. But taxation has not been fully employed
to as a means to generate revenue for the nation. The little generated from
taxation has not been properly managed for the socio-economic growth of
Nigeria. Hence, this has made individuals and even organizations evade tax.
This
research work is focused on the benefits and role of Value Added Tax on the
issue of revenue generation in Nigeria. It will also look into the practical
problems associated with it and as such make recommendations at the end of the
study on how it can be tapped.
1.3 Objective of Study
The
examination of the introduction of Value Added Tax (VAT) as well as its effect
on revenue generation as a form of taxation in Nigeria will be looked into. The
study shall also analyze the challenges related with the administration of VAT
since its introduction into the Nigerian system; and invariably give
recommendation on how VAT can positively influence socio-economic development. Therefore
the objectives of this study is:
1.
To
study when Value Added Tax was introduced into the Nigerian System.
2.
To
determine the effect of Value Added Tax on the issue of Revenue generation for
the country.
3.
To
evaluate the possible challenges encountered during the administration of Value
Added Tax in terms of revenue generation in the country.
1.4 Research
Questions
1. Why was Value Added Tax introduced
into the Nigerian system?
2. What are the effects of Value Added
Tax on the generation of revenue in the country?
3. Are there challenges in the
administration of Value Added Tax to generate revenue?
1.5 Significance of the study
The
significance of this study is for the government to continue practicing the
administration of Value Added Tax since it is in need of funds to execute its
increasing projects. Since VAT has replaced sole taxation, some of the
difficulties in the old system would greatly reduce. This study is very important,
as the value added tax is a new or a modified system, which has a lot of
significance. The public needs to be educated on its operation. The study will bridge
the gap between the government, the populaces (the tax payer) and the tax
authorities together.
Proper
knowledge of the Values Added Tax would bring increase return to the government
as a result of the compliance by the payer and proper record keeping by the
officials.
The
study will also serve as a background study in the evaluation of VAT both for
the government and further studies for students and lecturers alike.
1.6 Statement of hypothesis
A
hypothesis is an arrangement or tentative generated, which can be proved with
empirical evidence. There are two type of hypothesis namely; Null hypothesis
and alternative hypothesis. A null hypothesis is a hypothesis of no effect or
no difference while an alternative is a hypothesis that may be accepted if the
statically evidence is rejected by the sample evidence.
Data
are collected, analyze and interpreted with a view to accepting or rejecting
hypothesis. The data collected will be from personnels with the use of
questionnaires.
We
have the hypothesis as follows;
: the measures taken by the federal Inland Revenue service
(FIRS) to curtail the much pronounce Nigeria factor of competition and
irregularities has not been achieved.
: the measure taken by the federal inland revenue service
(FIRS) to curtail the much pronounce Nigeria factor of competition and irregularities
has been achieved.
: Proper planning assessment, collection and monitoring of
the value added tax has not been achieved.
: Proper planning assessment, collection and monitoring of
the value added tax has been achieved.
:
The steps government has taking to
compel all cooperate bodies’ border and business in it to fully register with
VAT department has been attained.
: The
steps government has taking to compel all cooperate bodies border and business
in it to fully register with VAT department has not been attained.
1.7 Scope
and limitation of study
The scope of the study is to
extensively study the introduction, the implementation, problem and prospect of
VAT and its relationship with revenue generation in Nigeria. The line frame
will cover from its introduction in 1993 till date.
The research work is limited by the time span
within which the researcher is required to complete this work. Finance was another constraint to
the study. The financial problem, make the researcher not to travel far to get
all necessary data for the work. Limited material was another constraint to the
completion of the work.
Another limitation problem of the study was
the attitude of respondents. Some of the respondents were reluctant to disclose
information to the researcher which would have led to more accurate assessment
of the situation.
1.8 Clarification of key
concepts
Tax:
a compulsory contribution to state
revenue, levied by the government on workers’ income and business profits, or added
to the cost of some goods, services, and transactions.
Value
Added Tax: a tax on the amount by which the value
of an article has been increased at each stage of its production or
distribution.
Revenue:
income,
especially when of an organization and of a substantial nature.
Revenue
Generation: is a process by which
company plans to market and sell its products/services in order to generate income.
Vatable
Goods: All goods manufactured/assembled in
or imported into Nigeria, except those specifically exempted under the law.