VALUE ADDED TAX AS A MEANS OF GENERATING REVENUE FOR THE GOVERNMENT

ABSTRACT

          The research work is
carried out specifically to appreciate value Added Tax as an important source
of revenue to the government in Nigeria and its importance to the development
of business organization. The research work analyze the purpose, problems, significance
and also the questions relating to the importance of value Added Tax as a
source of revenue to the government in Nigeria. In view of this, the research
work is discussed under five chapters. Chapter one, focuses on the general
introduction of the topic under view, stating the questions and hypothesis.
Chapter two deals with the review of the related literature, philosophy and the
history of VAT in Nigeria, along with some specific government
responsibilities, and also general appraisal of VAT administration in Nigeria,
scope, nature and operational character. Chapter three is about research
methodology, to see the important of Value Added Tax as a source of revenue to
the government in Nigeria, the research design is used, data collection
instrument and sampling techniques. Chapter four deals with classification of
responses, the information gathered from questionnaires and how such
information are tested using hypothesis. Chapter five focused on the summary of
findings, conclusion, scope and limitations and finally recommendations..

CHAPTER ONE

1.0 INTRODUCTION

          Taxation
is an important factor in Economic planning and also an agent for social
change. It is perhaps the last to understand and most unappreciated instrument
among other government policies by the citizens, yet they expect government to
provide some services. This must probably owing to the fact that most people,
particularly in developing countries like Nigeria, have very little knowledge
of how the machineries of government operate.

          Thus,
the taxman is seen by an average Nigeria as a monster always ready
to prey on its victims, or a plague that must be avoided at all cost.

          Benjamin
Franklin, Philosopher, observed that “in this world nothing is certain but
death and taxes.”

          The
certainty of taxes have been established long in Nigeria. Before the arrival of the
Colonial Masters, Nigeria
had been paying taxes in kind by giving farm products to their rulers and
rendering free services such as clearing the bush, digging pit toilets, well
e.t.c., for the benefits of the community as a whole.

          Income
tax was first introduced in Nigeria
in 1904 by the Late Lord Lugard, various types of taxes there after come into
being through subsequences government.

          Despite
the fact that there are other sources government could generate revenue to
fashion a society everyone can be proud of.

          Taxes
are not new in Nigeria
but Value Added Tax (VAT) is the most recent form of tax known to Nigerians.

          The
idea of introducing VAT in Nigeria
came from the report of the study groups set up the Federal Government in 1991,
review the entire fan system VAT was proposed and a committee was set up by
carrying out feasibility studies on its implementation. In January 1993,
government agreed to introduce VAT by the middle of the year, it was later
shifted to 1st September 1993, by which time the relevance legislature (Decree
No 102 of 1993) would have been made and proper ground work done. VAT, which
replaces sales tax in Nigeria,
is administered by the Federal Inland Revenue Services (F.I.R.S) through VAT
directorate in close co-operation with the Nigeria custom services (NcS) and
the State Inland Revenue Services (S.I.R.S).

          The
rationale behind replacing sales tax with the VAT is in formed by a number of
factors and consideration notable:

i.        The
base of sales tax in Nigeria
s operate under Decree No 7 of narrow. It covers only nine categories of goods
plus sales and services in Registered hotels, motels and similar
establishments. The narrow base of the tax which negated the fundamental
principles of consumption tax which by nature is expected to cut across all
consumable goods and services, VAT base is border and included most
professional services and banking transaction which are profit generating
sectors.

ii.       Only
locally manufacturer good were aimed by the sales tax Decree 1986, although
this might not have been the intention of the law. Vat is neutral in this
regard. Under VAT, a considerable part of the tax to be realised is form
imported goods. This means that under the new VAT, locally manufactured goods
will not be placed at a disadvantages relative to imports.

iii.      Since
VAT is based in general consumption behaviour of the people, the expected high
yield from it will boost from the payer of the tax. In the light of the
foregoing, a seminar of this among the people to the effect that government
derives the bulk revenue required for meeting its obligation to the people
through taxation.

1.1     Statement
of the Problem

          The
introduction of Value Added Tax into Nigeria tax system was greatly
antagonised by its critics, more and more organisations are being a registered
person. Every organisation that trades in goods and services for a
consideration is obliged to register with the FIRS VAT Directorate. The
registration covers all the business activities of the organisation. The
following are some of the problems encountered in the introduction of Value
Added Tax:

i.        Inaccurate
computation of Value Added Tax figures.

ii.       Incompliance
of infant industries with Value Added Tax Directorate.

iii.      Illiteracy
of some rural areas about Value Added Tax.

iv.      Lack of
information on VAT to new industries.

v.       Incomplete
information in the tax invoice of a customer:

          With
these problems, the VAT directorate found it rather difficult to balance the
final account which provides information to other VAT officials. Therefore,
there is need for the introduction of Value Added Tax for the progress of
modern business organisation.

1.2     Objective
of the Study

          The
broad objectives of this project work are summarised as follows:

§  To improve the
effectiveness of VAT in reducing over dependence on oil sector by the nation

§  To determine the
importance of VAT as a source of revenue to the government in Nigeria

§  To ascertain whether
the federal Inland Revenue Services can help the profit tempo in the nearest
future

§  To rectify the
existing lapses in VAT administration so as to minimise the level of tax
evasion.

§  To  determine the efficiency of Federal Inland
Revenue Services in effective administration of Value Added Tax in Nigeria

§  To ascertain the
extent to which VAT can provide revenue to finance basis infrastructure for
industrial development

1.3     Significances
of the Study

          This
research work would serve as a reference to interested parties that is;
student, researcher and so on.

          It
would also add to the body of knowledge. This would enhance better
understanding of the importance of Value Added Tax as a source of revenue to
Government in Nigeria.

          Other
corporate or manufacturing organisations, the government and also the
individual would understand more about the following:

i.        How VAT
has been able to give a desire impact by generating revenue, which is the
beginning of reduction of over dependence on oil revenue.

ii.       How to
evaluate the work of the F.I.R.S and necessary suggestion about how to keep up
with this great achievement in the Nation Fiscal Policy.

1.4     Research
Hypothesis

          Hypothesis
is a tentative statement about the relationship among variables which is
testable.

HO     :         (Null Hypothesis)

HO     :         There is no positive correlation
between the operation of Vat                             introduction and its acceptance by the
industries.

Hii      :         (ALTERNATIVE HYPOTHESIS)

Hi      :         There is a positive correlation between
the operation of VAT                             and its acceptance by the industries.

1.5     Scope of
the Study

          The
research for this study has involved definition of the subject matter.
Researcher has endeavour to reveal its urgent report, its work among business
organisation, benefits it entail and its surrounding.

1.6     Limitation
of the Study

          The
scope of study is limited by the following:

1.       Availability
of accurate data due to inadequacy of most available of data being
approximated. And for audited as far as privacy imposed for logistics reasons
by the case study in her vital document and in information.

2.       Time
Factor: The time for the commencement and completion of this project work
allows only for a proper but concise account of the subject matter such as
contained in the write ups.

1.9     Conceptual
Definition of Key Words

1.       Value
Added Tax:  This is defined in
the statement of  Standard Account Practice
(SSAP) No 5 issued in the United Kingdom in April 11974 “as a tax on the supply
of goods and services which is eventually borne by the final consumer collected
at each stage of the production and distribution chain.

2.       With
Holding Tax: “This is an advance payment of income tax and the purpose
is to bring the prospective tax-payer to the tax-net, thereby widering the
income tax base.” That is, is used to track down tax payers and the incomes,
which may otherwise not be reported by them.

3.       Vatable
Person: This is a person who trade on vatable goods and services for a
consumption.

4.       Vatable
Goods and Services: These terms refer to goods and services that will
attract VAT at five percent (5%) on their consumption.

5.       Output
Vat: This is the VAT that is due on Vatable supplies. It is derived
multiplying the tax value of the aggregate supply by the tax rate.

6.       Input
Vat: This is charged on business purchases and expenses according to
section 10 2 of Vat Decree 1993. This include good and services supplied in Nigeria
or imported.

7.       Vat
Account: This is the summary of the output tax in a normal ledger
account form.

8.       Zero
Rating: This term is used to indicate that the supply of good and
services in a taxable supply but that the tax is charged at a zero or nil rate.

9.       Taxable
Activity: This includes any activity other than those in the exempted
list, conducted as a business, vocation trade and profession.