CHAPTER ONE
INTRODUCTION
From the
federal government unlike the individuals and organization collect their
revenue from various sources which includes taxes, fees, fines, licenses,
earnings, and sales, rent on the federal government property, interest,
repayments and dividend and individual reimbursement, profit and gains from
sales and sources from public economic and commercial activities and statutory
and non-statutory allocation from the federal government.
The purpose of
this study is to consider in details the effect of value added tax.
Value added tax is a consumption tax, payable on all taxable
goods and services supplied and consumed by individuals or group of individual.
It is a tax imposed on the value, which is added to goods and services as they
pass the various stages involved in a business up to the final consumers.
It is collected
by registered person and payable to the relevant tax authority. The value added
tax rate is 7.5% at a flat rate.
1.1 BACKGROUND
OF THE STUDY
Taxation is all embracing subject which
affects the lives of nearly everybody. Benjamin Franklin, a statement and a
philosopher, claims that “in this world, nothing is certain but death and tax”.
The government of every country engages
in several activities which required the expenditure of finds in order for it
to be able to undertake most of these activities, it raises fund via taxes.
More than decades now, the Nigeria
economy is being flooded with tax evasion, non-effective ways to tax collection
by the federal, state and local government and the cancelation of tax drive.
The international monetary fund (IMF) and World Bank are two agencies of the
United Nations Organization which are closely identified with the establishment
and country operation and monitoring of Structural Adjustment Programme (SAP)
in Nigeria has since (1987) been advising that the tax system in Nigeria needed
to be refunded, so as to make the government less dependent on revenue derived
from petroleum.
The federal government to replace the
existing sales tax as a means of raising additional non-oil revenue locally
through national levied tax; the revenue therefore is collected and retained
the stage government.
In furtherance of the tax reform, the
federal government also set up two tax study group in 1996, one was set up by
the federal ministry of finance and economic development to study and make
recommendations on the performance needed in the direct tax, while the other
group is on direct taxation; was set up by the federal ministry of budget and
planning and it was this committee that gave a general guideline for the
establishment of value added tax (VAT) in Nigeria.
1.2 STATEMENT
OF PROBLEMS
Sales tax has been in place in the
economy before the need of substituting it with the value added tax (VAT)
arose. Although its effect was foreseen before its introduction, the problem
then became how it could be introduced in order to achieve this effect; two
groups were set up one by the federal ministry of finance and the other one by
the federal ministry of budget and planning. After these groups have submitted
their reports, a committee recommendation was approved by the government and
value added tax (VAT) was officially introduced into Nigeria economy on 1st
December, 1993 that value added tax decree N0. 12 of 1993 was no longer news
that has been in operation in Nigeria, but the question now is that are there
effect attached to its introduction and implementation in Nigeria? This and
other issues relating to value added tax that arose the researcher interest in
this area of research work.
1.3 OBJECTIVES
OF THE STUDY
The study aimed
mainly at evaluating Tax payers perception on value added tax system in Nigeria.
The specific objectives of the study include:
i.
To examine the influence of revenue generated through VAT on
wealth creation.
ii.
To examine the effect of revenue generated through VAT on the
overall tax revenue of Nigeria.
1.4
RESEARCH QUESTIONS
In line with the
objectives of the study, the following questions were raised:
i.
To what extent does revenue generated through VAT influence
wealth creation in Nigeria?
ii.
What is the effect of revenue generated through VAT on the
overall tax revenue in Nigeria?
1.5
SIGNIFICANCE
OF THE STUDY
The study will
assist the government in policy formulation as it relates to Value Added Tax
and monetary policies. It will help to strengthen the operation of the relevant
government agencies such as Federal Board of Inland revenue, Central Bank of
Nigeria, Joint tax Board and others. This study will bring government attention
to other sources of revenue apart overdependence on revenue from petroleum.
1.6 SCOPE
OF THE STUDY
The study will be
restricted to the aspect of Value Added Tax that falls under the jurisdiction
of the Federal Board of Inland Revenue (FBIR), Federal Inland revenue Service
(FIRS). The study covers the tax revenue generated by the Federal government
through VAT and the Gross Domestic Product for the period between 2001– 2010.
1.7 LIMITATION
OF THE STUDY
The part of the
study deals with the constraints which the researcher encountered within the
course of the study that tried to hinder the smooth access to information
required, this probably for fear of revealing government secretes on the part
of the respondent. This attitude must change if research works are expected to
be thoroughly conducted.
Another
constraint is financial problem, as the researcher has to travel to the board
of Inland Revenue several times to collect information and gather data. All
these made production cost expensive, hence, it was difficulty and too the
mercy of God for it to be completed. Time was also a limiting factor militating
against a detailed study.
However, the
above mentioned constraints did not in any, affect the research work.
1.8 DEFINITION
OF TERMS
Therefore, find it necessary to define some of the terms
that were used in this write-up in order to ease understanding of the project
work.
Non-vatable items: These are goods and services that are
exempted from value added tax of basic food items and medical services.
Vatableperson:These are the persons who trade in vatable
goods and service for a consideration.
Value added tax account: this is the account kept by the vatable
person recording the amount received from the purchase of the vatable goods and
services
Value audit and investigation: This is an institution on a regular
basis by the headquarters (VAP) officers and the value it involves checking
both the added tax (VAT) payers records and ensures strict compliance with law
and accountability of value added tax (VAT) collected.
Federal Inland RevenueService (FIRS): This is the body empowered by the
government to implement value added tax. This body is under the federal ministry
of finance, it is also named as Federal Board of Inland Revenue.
Indirect tax: This is tax which the burden can be
shifted by the manufacturers to the wholesalers, retailers and finally the
consumers in other words, it is a tax which its incidence is borne by the final
consumers.
Defaulters: These tax drives are conducted by the
zonal co-coordinators. There taxes stimulate collection of value added tax from
defaulters, and enforce prompt remittance to value added tax payable.
Input value added tax: This input value added tax is charged
on purchases by business ventures as well as their expenses. These factors
include goods and services supplied in Nigeria or imported.
Output value added tax: This is the value added tax imposed on
vatable suppliers, it therefore means an amount expected to by pay on supplies
made and in arriving at this output value added tax, value of the aggregate
supply by the tax rate.
Zero rate: This is the percentage that is changed
on exported and exempted goods and services, such as books and educational
materials and services rendered by the Community Bank, the rate is zero (0)%.
Agent: This is a person, an organization or
business undertaken which collects and renders returns to the Federal Inland
Revenue Service.
Incidence of tax: This is the burden borne by the tax
payer(s) is value added tax. It is borne by the final consumers.
Multi-stage tax: This is the system which involves both
the output and input value added tax of various stages from the manufacturer to
the final consumer. The amount paid by the consumer at various stages
constituted the final amount paid by the consumer.
Zonal offices: There are four zonal officers
nationwide, these officers co-ordinate the activities of the local value added
tax offices under their jurisdiction zone.
Local value added tax offices: This is an arm of the federal Inland
Revenue service which carries out the real implementation of value added tax
(VAT). A local office is situated in each state capital and at present, each
local government area nationwide shall soon have it situated in its
headquarters.