TITLE PAGE
THE IMPACT OF VALUE ADDED TAX SYSTEM IN NIGERIA
(A CASE STUDY OF FEDERAL INLAND REVENUE LOKOJA TAX OFFICE)
PRESENTED
BY
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AMUPITAN OLUWASEUN CAROLINE
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2011/ND/ACCT/206
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ONARE SUNDAY JOSHUA
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2011/ND/ACCT/207
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|
AUDU RASAN ADEIZA
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2011/ND/ACCT/208
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|
UGBAJE REUBEN
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2011/ND/ACCT/209
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DAUDA LUKMAN SAMSON
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2011/ND/ACCT/210
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A RESEARCH WORK SUBMITTED IN PARTIAL
FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF NATIONAL DIPLOMA (ND) IN
ACCOUNTANCY.
SUBMITTED TO
THE DEPARTMENT OF ACCOUNTANCY SCHOOL OF MANAGEMENT STUDIES, KOGI STATE
POLYTECHNIC LOKOJA.
NOVEMBER, 2013
APPROVAL PAGE
This
project has been carefully read and approved as meeting the partial requirement
for the award of National Diploma in Accountancy, School of Management Studies,
Kogi State Polytechnic, Lokoja.
________________ _______________
Mr.
Okeme Adejoh Date
Project
Supervisor
________________ _______________
Mrs.
R. A. Haruna Date
Head
Of Department
________________ _______________
External
Examiner Date
DEDICATION
This project is
dedicated to the master of the universe, and the giver of all knowledge and
wisdom.
This project work is also dedicated to our
family.
ACKNOWLEDGEMENT
ACKNOWLEDGEMENT
To God be the glory, great
things he hath done, for his lovely kindness, protection, guidance and mercy
made our National Diploma in Accountancy come true.
My profound gratitude goes
to our lovely parent for their encouragement and understanding also spiritual
and financial support over us, we pray God will reward them.
We commend the effort of our
supervisor Mr. Okeme Adejoh for his advice, guidance, correction and tireless
effort; we appreciate his faithful labour on our project work.
Our profound gratitude also
goes to our HOD, Mrs. R.A. Haruna, all the lecturers in the department of
Accountancy.
Above
all, glory is to our Lord and saviour Jesus Christ.
ABSTRACT
ABSTRACT
Value Added Tax (VAT) which
is a consumption tax is established to place the sales tax because it has a
wider base than the sales tax and because it covers not only local goods but
imported goods as well. The federal board of Inland Revenue through its arm known
as the Federal Inland Revenue Services is responsible for the administration of
value added tax (VAT) in Nigeria. It has a directorate headed by a director; it
also has both local and zonal office coordinated by zonal coordinators. The
coordinators are responsible for registering viable persons within their
respective localities. Findings shows that
value added tax (VAT) is the best reviewed so as to create a sense of purpose
for its introduction and as well address these problem that necessitated introduction.
TABLE OF CONTENT
Title Page
Approval Page
Dedication
Acknowledgement
Table of Content
Abstract
CHAPTER ONE
1.0
introduction
1.1 background
of the study
1.2 statement
of the problem
1.3 purpose of
the study
1.4 significance
of the study
1.5 research
question
1.6 scope of
the study
1.7 limitation
of the study
CHAPTER TWO
2.0
review of related
literature
2.1
the concept of taxation
2.2
definition of value tax
2.3
reason for the
establishment of value added tax (VAT)
2.4
objective of value added
tax (VAT)
2.5
advantages of value added
tax (VAT) administration in Nigeria
2.6
Accounting system
2.7
Effect of value added tax
(VAT) on the economy
2.8
Challenges of value added
tax (VAT)
2.9
Value added tax and
national development
CHAPTER THREE
3.0
methodology
3.1
research design and
approach
3.2
area of the study
3.3
research population and
sample
3.4
description of instrument
3.5
administration and
retrieval of instrument
3.6
methods of data analysis
CHAPTER FOUR
4.0
data presentation and
analysis
4.1
summary of the find
analysis
CHAPTER FIVE
5.0
summary conclusion and
recommendation
5.1
summary
5.2
conclusion
5.3
recommendation
5.4
bibliography
Appendix
CHAPTER ONE
1.0
INTRODUCTION
1.1
BACKGROUND OF
THE STUDY
The idea of
the introduction of VAT in Nigeria came from report of the study group set up
by the federal government in 1991 to review the entire tax system. VAT was
proposed and committees were set up to carry out feasibility studies on its
implementation in January 1993, government agreed to introduction VAT by the
middle of the year. It was later shifted to 1st September, 1993 by
which time the relevant legislation would have been made and proper ground work
done.
VAT is a
replacement of the existing sale tax, which has been in operation under federal
government, legislated decree NO7 of 1986 but is operated on the basis of
residence.
The new value added tax was thought to
serve as income redistribution strategy skewed in favour of the poor masses.
Since VAT is payable only on luxurious items, it may serve as a way of making
the much pay for his conspicuous living in a largely poor and depressed
society.
In a similar development, proceeds from
VAT are expected to be shared on the basis of 80% to state and 20% to the
federal government. At such, money realized from value added tax should go into
the provision of basic social amenities such as better roads, transportation
poor rural and urban squatters.
In most cases, many Nigerians
expenditure goes on such basic necessities such as food, transport, shelter,
education and health. Improving the lost of the poor masses would then mean
that diverting all the taxes on conspicuous consumption realized from valued
added tax to support these basic necessities of life. Government duty is to
ensure a good socially legitimized for it not to attract social upheaval and
the disintegration of the bonds of decent society.
1.2
STATEMENT OF
THE PROBLEM (ARIWODOLA 1998).
The Federal Inland
Revenue Service is faced with a lot of problem, enhancing the poor performance
of VAT operation, ranging from the structure of leadership which is normally
referred to as dimension of organization climate. Taking a look at the study of
this nature; the impact of VAT system in Nigeria, one is likely to come up with
some identifiable obstacles and problems. The subject vat is noted to be
associated with the problem of creating high cost of living currently in
Nigeria because the rate, 5% up lifts the cost of production which adversely
results to fall in the value of Naira (much money chasing few goods and
services). It is also noted that there might be problems regarding response by
people in relating to the effect of value added tax (VAT) because some may not
likely respond to question relating to VAT rather they may choose to be natural.
This creates an extra problem about the knowledge of fact relating to VAT more
so, touching the instance of avoidance and evasion, VAT is said to encompass
avoidance which is lawful or legal by any means of say manipulating accounting
figures in an attempt to pay less or using the influence of employers to pay
what ought not be paid. Looking at the area of evasion which is of criminal
nature, people are noted to dodge from paying tax which is an income generation
process for the government moreso, the writer also wishes to encourage the
government to make sure unflinching support are articulately given to more
advertisement of VAT for public awareness.
1.3
PURPOSE OF THE
STUDY
Taxation is a central
fact in government revenue earning and consequently development process. It is
one of the major contribution to government revenue and development programme
depends on the accumulation of government revenue.
THIS STUDY INTENDS TO EXPLORE THE FOLLOWING AREAS
WITH REGARDS TO VAT.
1.
To established and evaluate the objective of
value added tax in Nigeria.
2.
To identify the administrative strength of VAT by
the Federal Inland Revenue Services (FIRS) this is now known as the Integrated
Tax Office (ITO).
3.
To access its prospects for the future by looking
into the period of its existence with regards to its positive attributes.
4.
To make suggestion on how to Improve value added
tax in Nigeria system.
1.4
SIGNIFICANCE
OF THE STUDY
The merit
deducible from the study of this kind takes a greater dimension of the economy
since purchasing power (which determines yields) increase with economic growth.
Following this
closely is the fact that an ordinary person who is ignorant of the system is
kept informed of the tax adoption and the likely consequences he is to face in
the event of its evasion it also send a red signal to any VAT officer who may
decide to be fraudulent in its implementation.
It will also help VAT payer to be aware
that revenue realized from VAT is an extra ordinary income to petroleum revenue
purposely meant for providing infrastructural facilities to Nigeria citizens.
The study equally shows that VAT encourages export production and declaring to
interested parties in such field an incentive to go into such study that some
products are exempted from VAT like book, and other educational materials. This
is to encourage investment in such fields and in effect providing education in
Nigeria.
1.5
RESEARCH
QUESTION
A research question
is a list of question which the research passes across to the audience to the
audience to enable him arrive at a conclusion.
1.
Is VAT relevant to Nigeria economy?
2.
Can Nigeria economy function without VAT?
3.
Is VAT the only source of Nigeria income?
4.
VAT contribution is 60% to the development of
Nigeria economy how?
5.
Can the impact of VAT be removed from Nigeria?
6.
Is VAT the life blood of the Nigeria economy?
7.
Can the benefit or the impact of VAT be over
emphasized in Nigeria economy?
1.6
SCOPE OF THE
STUDY
This project
work attempts to look into the impact of value added tax system in Nigeria as a
whole. In preparing the tax, the researchers have accomplished the following
objectives.
1.
The meaning VAT.
2.
The operation VAT
3.
The categories of goods and services covered by
VAT
4.
The expected revenue likely to accrue government
as a result of it adoption and implementation.
5.
The problem and prospects likely to be encounter
in the implementation.
1.7
LIMITATION OF
THE STUDY
Value added
tax (VAT) is indeed in fairly now develop in the Nigeria tax system perhaps,
these explains why reference materials on it are very scanty.
These are some
associated elements of affection that negates the extent at which this research
should have been done.
Some of such
elements among others are as follows:-
1.
Time factor.
2.
Financial constraint.
CHAPTER TWO
2.1
INTRODUCTION
2.0
The federal government of Nigeria first raised
the issue of value added tax. Following appointed by the government to carry
out feasibility studies and its implementation is 1993 saw the birth of VAT.
Before VAT,
what was in existence was sales tax up until August 1993 unit September when
VAT had to replace existing sale tax.
Proceeds from value added tax shared in
ratio 8:2 that is 80% to state government goes to the federal government goes
to the federal government. By nature of value added tax, it is a consumable
tax; hence, it is relatively easy to administer while very difficult to dodge.
2.0 REVIEW OF RELATED LITERATURE
According to
Agyie (1983), few studies have been no aspect of value added tax. Much of these
studies however; were carried out elsewhere. Value added tax fundamentally was
designed to perform a crucial role in Nigeria tax system. As Okeke (2000) point
out.
Value added tax is a from of direct
taxation as it is a tax is a form of direct taxation as it is a tax on
consumption. It is a device of bring more taxable persons written the tax net
it is also a more equitable way of addressing the disparity in sharing the tax
burden between the rich, the fairly well to do and the down trodden masses in
the society.
As through
understanding of the relationship between consumption and societal strata of
the society would have contradicted. Okeke’s ideology of VAT addressing the
disparity in sharing tax burden between the various segments of the society.
As Ikhemuche (2002) has so cogently
noted the uniform rate of VAT on both luxurious and necessities translated to a
regressive tax principle, which consumption taxes are very prone to. The higher
the income the less the percentage spent on consumption and consequently the
less the percentage paid on consumption tax.
VAT as a tax
not on the total value of the goods been sold but only on the value added tax
to it by the last seller. The seller, therefore, is liable to pay a tax not on
its gross value, but net value, that is the gross value minus the value of
inputs. As is Hatia, (2001) point out.
However, recently economic analysts have
been move to study its effect on price level. It was discovered that since its
introduction, VAT has induced a high rate of inflation, which is beginning to
tighten its grips over the economy according to money matter”(2002).
The consequence of this is that, the
ordinary Nigerians do not see any sense of purpose in its adoption. More
recently, Hard Eye newspaper (2003) published that member of the Ghana union
Traders Association (GUTA) demanded for the suspension of the country’s
introduction of value added tax with the claim that its introduction has
reduced trading profit and principally resulted to higher price.
An interview with Borishade, (2000) with
the Nigeria economic described VAT as a fraudulent means of exploiting the
masses. In his words, he stated. That “with VAT” the economy problem of the
marginalized masses would further be compounded under the present run away
inflation.
The above
opinion was clarified when Okeke in the same interview stressed that to tax raw
materials and intermediate goods is to make consumers pay VAT on both value and
cost of goods and the consequence of such tax policy the association warned
would impose undue hardship on consumers through price increase. Most writers
on vat agree on the fact that VAT has rich potential of generating revenue for
the government.
However, if taxation is imposed on
citizen in order to enable the government service the needs of the household
consumption. It is in the light of this that Okeke said “man is not opposed to
VAT” but we are worried that adequate preparation has not been made to remove
initial problems that will result in high cost of goods and services.
Value added tax is regarded as purchase
tax. It is imposed on the sale of goods service and therefore can be regarded
to as consumption tax. It is paid only by those who consume the vatable goods
and service. VAT is a type of tax paid by fund consumers on good and services
consumed.
2.1
THE CONCEPT OF
TAXATION (MONEY MATTER 2002)
According to
money matter, tax is a consumption or compulsory levy which government imposes
on the citizens in order to obtain revenue to finance the activities. Tax may
be divided into three areas of study. They are tax policy, tax law and tax
administration.
Tax policy is
an aspect of public finance and it is concerned with the examination of the
nature and behaviour of various taxes and the nature and the implication they
may have on public policy. Tax law is the legal instrument by which the
government imposes tax on the citizens, while Tax administration is the
interpretation and application of the tax law.
Taxation is
the legal demand made by the federal government or the state government for its
citizens to pay money on income, goods and services.
Hugh Datsu, in his classical work titled
“principles of the public finance” defines taxation as “a compulsory
contribution imposed by a public authority irrespectively of the exact amount
of services rendered to tax payers in return and not imposed as a penalty for
legal offenders.”
Mr D.U, Osagiede, a senior lecturer in
the department of public administration, Ahmadu Bello University Zaria, in his
lecture note defines tax a “the demand made by government of a country a
compulsory payment of money by the citizens of the country.”
He also
defines tax as “compulsory contribution extracted by government from private
individuals and group for meeting the cost public services.” Taxation is the
oldest and one of the most important areas of financial management. A onetime
American president, Benjamin Fraklin, once said, “in this world, nothing is
certain but death and taxes.” In a less complex society in which government has
few duties and responsibilities, the financial needs of the government are
minimal.
However, as society become complex, the
needs of the people become greater and the government assumes greater
responsibilities and the financial needs of the government become greater.
Consequently, tax increase and their effect on the economy become more
important.
In the past,
war years, government has utilized taxation as an instrument of regulating the
general economy. Since income tax provides a large source of national revenue,
its effect on inflation, unemployment, social and economic objective has become
a prime consideration in enacting tax law.
However, taxes are basically direct and
indirect. Wills defines tax and differentiated tax by asking a question who
pays tax? If I am assessed and I pay it, then it is direct. If I am assessed
and another fellow pays it, then it is indirect. Direct taxes are taxes that
are charged directly on individual’s income, gains or profit or on corporation.
For instance, personal income tax, company income tax, capital gain or capital
transfer taxes are examples of direct taxes. While indirect taxes are mostly
paid individual by final consumers of goods and services. Examples are stamp
duties, import duties, excise duties e.t.c.
Taxation has two main objectives:-
1.
Primarily to raise revenue to finance government
expenditure.
2.
To influence activities in the economy as a
whole. Tax policy provides a mechanism for influencing consumer demand and for
providing incentive for production, investment and savings. It is a key factor
for promoting the government overall economic and social objectives for taxes
are use to:-
a.
Achieve economic growth.
b.
Fight inflation, depression and inflation.
c.
Achieve equitable distribution of income and
wealth.
d.
Allocate resources in a socially desirable
manner.
e.
Discourage the consumption of certain goods.
f.
Encourage and protect new industries within the
country.
g.
Ensure that the balance of payment of the country
is in a health position.
Taxation in
Nigeria is as old as Nigeria itself. With the advent of the colonialists and
the subsequent colonial rule, different taxes and their ordinance were
introduced in Nigeria in 1904 by the then government of late Lord Lugard, when
community tax become operative in Northern Nigeria especially in the Sokoto
caliphate.
2.4
DEFINITION OF
VALUE ADDED TAX (ADEYEMO 2002)
According to
Adeyemo (2002) value added tax is a multistage tax levied and collected on
transaction at all stages of sales and distribution. In accounting, value added
refers to the incremental value, which a producer employment of labour added to
his raw materials or purchase prior to selling the proceeds; goods and
services.
Value added is
of two types:-
Output vat which refers to the changes
on sales of goods and services paid to the Federal Inland Revenue Service
department (which is Known as the integrates tax office) “ITO”
After
deduction and input VAT on the other hand means the value added tax paid on
goods and services by a vatable person.
Vatable person
are individuals, importers, companies and suppliers involved in dealing on
goods and services, which are liable to VAT in line with decree number 102 of
1993. each vatable person is expected to register with the local VAT office of
Federal Inland Revenue Service (Integrated Tax Office) as tax agent for the
collection of VAT from user of vatable goods and service and remission of such
to local VAT office of the Inland Revenue in accordance with “FIRS” information
circular NO 9304 (1993).
“VAT is a type
of tax paid by consumer on goods and services”
2.4
REASON FOR THE
ESTABLISHMENT OF VAT IN NIGERIA
According to
OSITA (2001) the dividing revenue at the disposal of federal, states and local
government vis-Ã -vis the populace have called for the need for government to
explore other avenues to broaden their revenue base. Apart form the reason
adduced above, some other reasonable reasons can be offered as explanation why
Nigeria choose to introduce VAT.
Some of these are :-
a.
The base of the sales tax as operated under
decree 7 of 1986 is narrow it covers only nine categories of goods plus sales
and services in registered hotels, motels and similar establishment. Are narrow
base of the tax negates the fundamental principle of consumption tax which by
nature is expected to cut across consumable goods and services. Value added tax
is broader and includes most professional services and banking transaction
which are high profit generating sector.
b.
Only locally manufactured goods were targeted by
the sales tax decree of 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 realized is from imported goods. This means that under the new VAT,
locally manufactured goods will not be placed at a disadvantage relative to
imports.
c.
Since VAT is based on the general consumption
pattern of the people, the expected high yield from it would boat the fortunes
of the three tires of government with minimum resistance from tax payers.
d.
The study group took this view that VAT would be
more effective than sales tax in ensuring compliance, owing to its multi stage
collection features; its inclusion of imports in tax base and the more complete
audit trail that the tax proves equally account for its introduction.
e.
While a single point retail sales tax efficient
at a relatively low rate, it is increasingly difficult to collect as the rate
rises, particularly from retailers, who tend to collude with their clients to
defraud.
f.
The audit and invoice monitoring is poorer
economy.
1.
It has generated enough revenue for the
government when compared with the abolished sales tax system of the past.
2.
The revenue accruing to the national offer has
helped in boasting the provision of infrastructure facilities as well as
providing substantial sum for the servicing of the national debt.
3.
It has tremendously helped through its adoption
in facilitating guide development in the area of agriculture, education and
pharmaceutical opportunities.
4.
From the records of the revenue derived from VAT
from its first two years of its introduction it become obvious that VAT has
generated enough revenue for the providing of infrastructural facilities and
servicing of debt of Nigeria.
A
staggering amount of N8.6 billion
within the first year of VAT operation and N21
billion realized in the second year of its introduction were all testimonies to
the potentialities of VAT ability to revamp the economy. Through the generation
of this huge sum, the tax has effectively assisted the three levels of
government in the mobilization and restriction of scare resources to needy
sectors the marginal price increase accessional by the introduction VAT to the
tune of 5% tax imposition on consumable goods and service have awaken many
taxable persons to the need fro discretion in their expenditure and saving
patterns.
Another impact of VAT in our economy is that
the stage government were strictly commanded by the federal government to
expand whatever is accountable to them from VAT on capital project that have
direct bearing to lives and well being of the citizens. It is hoped that the
policy will enable tax payers to identify specific public goods financed with
VAT proceeds.
In 1996, a total of N20billion was estimated to be collected from VAT. Under this
scenario, the federal government will receive N7.76billion,
state governments N8.8billion and local
government N5.5billion.
A
look at the revenue profile of these taxes shows that in five years before the
“VAT” was launched; “FIRS” has not been able to fulfill its statutory
obligations on the fiscal system in terms of non-oil taxes. In view of the
substantial amount of revenue accruing from VAT to state and local government,
the practice of mounting roadblocks for collection of levies on high way has
not only diminished but totally stopped in some states. For example, in Kogi
State, a decree to check this obnoxious practice of extorting money from the
road users was enacted in 1996 this will now facilitate inter-State and
inter-government trade. The federal government has the fire (5) zone VAT
tribunal to adjudicate VAT dispute promptly.
Also additional twenty-four (24) VAT local offices opened in large local
government areas outside state capital. This is to bring tax services nearer to
the people and enhancing voluntary compliance as a way of broadening the tax
base.
Another benefit of VAT is that it provides
incentives of investors who are interested in
under the sales tax than under VAT because there are no checks with
other invoice under VAT because under the sales tax as available under tax
g.
Tax collected the point of importation is easier
under VAT than under sales tax when imported goods are taxed at the point.
2.4
THE OBJECTIVE
OF VAT
According to
agyei (1983) VAT is primarily meant for tax imposed on value which supplier of
goods or services added to the goods or services before selling it. It has been
known to be the best way round in improving the revenue base of the federal
government when taking a critical look at the adverse effect of the existing
sale tax. In furtherance of the tax reform, the federal government set up a
study group on indirect taxation in 1991. This committee was set up with the
objectives of achieving among other the following:-
1.
Shift taxation towards consumption rather than
saving.
2.
Prove incentive for export production.
3.
Provide incentive for reduce dependence on
petroleum oil revenue.
4.
Maintain a fairly even tax incidence across
various lines, stages and elements of taxation on imported goods.
5.
To elongate the tax base by bringing in those who
ordinarily cannot be reached through direct taxation.
6.
To reduce consumption of luxuries.
7.
To curb increase in the consumption of
non-essentials.
8.
VAT has become a major source of revenue base for
states whose dividing resources have become a cause for concern since
developmental project have continued to suffer untold hi-cyosus recent tunes.
9.
Operation of VAT has become a major ingredient of
taxation system world-wide and country not complying with it is not absorbed in
the technological break-through occasioned by the new tax law.
2.5
ADVANTAGES/IMPACT
OF VAT: IMPACT OF VAT SYSTEM ON NIGERIA ECONOMY.
This phenomenon
id expressed in terms of the effect the tax system (VAT) has on the economy of
Nigeria. An appraisal of the operation of the Value Added Tax (VAT) in Nigeria
is, therefore, expected to unravel the extent to which it has assisted the
state to pursue its objectives. Having it at back of one’s mind the general
assessment of development countries. Tax system are weak and less productive,
appraising the VAT operation become a very necessary exercise.
POSITIVE IMPACT
There is no gain saying that since the
inception of VAT as a method of tax system in Nigeria, noticeable change has
been observed to have taken place interim of revenue generation and national
development across the country. VAT has significantly placed a tremendous role
in the promotion of the nation development in one way or the other below are
some of the impacts of “VAT” implementation on the national going into the
field of exports production as export under the new tax dispensation has Zero
VAT.
Finally, the yield from VAT is a fair
accurate measurement of the growth of the economic growth. The distributed
revenue from VAT is used by the state and local government in restructuring the
economy therefore showing that the VAT has created a serious impact on the
economic development in Nigeria.
ADVANTAGE OF VAT
According to money matters (2002) the
advantages occasioned by the introduction of VAT in Nigeria can be summarized
thus:
a.
VAT provides government with a sure and
dependable source of revenue because it can be ascertained or reckoned easily
and evasion or avoidance cannot take place easily.
b.
The increase in revenue from these sources can be
used to reduce balance of payment deficit and probably reduce the country’s
debt burden.
c.
The VAT rate of 5% is flexible and can be increased
or reviewed upward to meet revenue shortfall of the government whenever it is
desirable to do so.
d.
Since expert is zero rates, the competition of
the country’s goods in the international markets will be improved.
e.
VAT has succeeded in shifting the incidence of
taxation from income to expenditure.
f.
There is economy in collection, which is cannon
under tax and taxing procedures. It has very little cost in term of collection
compared to the yield.
g.
Few or non at all of the revenue official may go
to the field for collection since remittance by registered person is directed
to a designated point of collection.
h.
The revenue from VAT does not fluctuate with
trend in economic activities.
Also,
the wide coverage of VAT normally result in increased revenue for the
government. The retailer, the self-employed and small-scale who usually evades
tax will be brought into the tax system. VAT can aptly be described as a low
rate with high yield. The value added tax system is more readily accepted by
the public because it is embedded in the selling prices of goods and services.
It is unseen by the customer and falls on everyone who consume the taxable
items. VAT rate is neutral on all types of consumption since products of all
business; service of banks, insurance e.t.c will carry the same flat rate of
tax. In addition, profitable and marginable business will be taxed the
administration and policy of VAT in Nigeria. There is also VAT directorate
handed by a director, based in the federal capitals and they are to be
coordinated by the zonal co-ordinates at FIRS who will report directly to the
VAT directorate on matters relating to VAT.
The administration and management of VAT
in Nigeria is vested on the FBIR, which implement its day-to-day functions
through the executive “Agency known as the Federal Inland Revenue Service
(FIRS). In turn, the FIRS has to appoint the Nigeria custom service (NCS) to
called on its behalf the VAT on imports at all Nigerian boarders ports.
Although value added tax is centrally
administered by federal government by using the existing tax machinery of the
Federal Inland Revenue Service in close co-operation with the Nigeria custom
Service (SIRS) the not proceeds from the new tax accrue solely to the
government often making an allowance of 20% to cover the cost of
administration.
However, tax is supposed to be administer
according to the tax exports, while evasion should be reduced to the burriest
minimum, this is no so, says the Nigeria economist problems, which countries on
the European economic community are going through.
2.6
VAT ACCOUNTING
SYSTEM BY AGYEI (1983)
Vatable
persons are required to keep records and books of all transaction operations,
imports and other activities sufficient enough to calculate the correct amount
of Value Added Tax (VAT) payable. In effect, all registered person are to keep
books and records must be readily available for VAT inspection. Such
accountings records must includes among others are the following:-
a.
The cashbook.
b.
Sales/purchase daybook.
c.
Ledger account.
d.
Trail balance.
e.
Profit and loss account.
f. Balance sheet.
Decree 102 of
1993sets out the procedures for VAT registration in Nigeria as followings:-
a.
The VAT legislation mandate all manufacturers,
wholesalers, importers, supplier of taxable goods and service (FIRS) as
“registered” agent for VAT administration.
b.
Prospective registrants are expected to obtain
and complete the VAT form 001 and return it to the nearest local VAT office
where permanent VAT registration number is give to each registration number is
given to each registered person.
c.
A registration certificate which should be
conspicuously displayed in the place of business is later issued to the
registered person as evidence of registration.
d.
Where the taxable activity of an entity is
carried on in branches or division or depots and suppliers are made from such
outlet each outlet must separately register to VAT.
According to
the decree, the rate of tax on taxable goods and services is five percent (5%)
flate on their value. Zero rating relates to situation where VAT is charged at
zero percent (0%) multiple rating relates to situation where there are
different Vat rates for various categories for goods and services.
VAT records
are kept for up to six year including
- Detail of all input and output VAT together with invoices (copies of invoice issued).
- Detail of credit given or receive together with credit notes (copies of invoice issued).
- Details of errors or corrections.
- Detail of self suppliers
- A detail VAT ledger account.
- All other documentation relating to purchases and sale such as daybooks.
The tax invoice contains information such as:-
a.
Tax payer identification number (MTN).
b.
Name, address and VAT registration Number.
c.
Types of supply.
d.
A brief description of the goods and services
involved.
e.
The rate of VAT.
f.
The rate of any cash discount offered.
g.
Quality of goods or extend of services.
h.
The total VAT payable.
A
close analysis of the records of a typical wholesale that buys vatable products
from the manufacturers and sells to the retailers will who all that is useful
for vat accounting.
2.9
EFFECT OF VAT
ON THE ECONOMY
According to
matta (2002) despite the success recorded by VAT within the six years of its
operation, it has equally brought some adverse effect on the people and the
economy of the nation. One of the objectives of a good tax system is to reduce
inequality in income. A progressive tax system is to redistribute income from
the rich to the poor by taxing the rich more than the poor.
Value added
tax also has its own negative effect on the workers it help to shoot up the
price of good and services leading to high cost of living and eroded workers
purchasing power giving rise to demand
for improved condition of service by workers. Happily enough, the
administration condition of service by workers. Through Gen Abdulsalam Abubakar
responded quickly to the yearning and aspiration of workers by reviewing their
salaries upward. The present by also reviewing workers salary upward. The
exercise has to its credit of upward review of workers salaries by one hundred
and fifty percent (150%).
Finally, the
effect equally brought about discouragement in investment by some intending
investors. The adverse effect this stand has on government is that tax to be
collected on goods from final consumers is blocked.
2.9
CHALLENGES OF
VALUE ADDED TAX
The change of
values added tax (VAT) in Nigeria. It hypothesizes on the tax laws and
fraudulent practices, VAT fraud and effect on the government revenue, whistle
blowers and effect on fraud detent, prevention and eradication. Based on
primary data from questionnaire and personal interviews, the chi-square
analysis was employed. It was find that tax laws relating to VAT facilitate
fraud, frauds on VAT negative effects on the government revenue and that the
introduction. The changes in the value added tax is enormous. The United
Kingdom, which introduced VAT in 1973 is still graphing with the problems of
evasion.
Looking objective at the Administration
of VAT so far, a lot of anomalies could be identified. Perhaps, the biggest
loopholes in the administration of VAT come from its haphazard implementation.
In the media interview with the former chairman of FIRS Naiyeju said, VAT for
now is not applicable to small stores, market woman and hawkers. This group of
people he said will be incorporated later.
2.9
VALUE ADDED
TAX AND NATIONAL DEVELOPMENT
The national
development across the country VAT has tremendous role in the promotion of the
national development in one way or the other.
a.
It has generated enough revenue for the
government when compared with the abolished sales tax system of the past.
b.
The revenue accruing to the national coffer has
helped in boasting the provision of infrastructure facilities as well as
providing substantial sum for the servicing of national debt.
c.
It has tremendously helped through it. Adoption
in facilitating guide development in the area of agriculture, education and
pharmaceutical opportunities.
d.
From the records of the revenue derived from VAT
its first two years of its introduction it become obvious that VAT has
generated enough revenue fro providing of infrastructural facilities and
servicing of debt of Nigeria.
A staggering
amount of N8.6billion within the first
year of VAT’s operation and N21billion
realized in the second year its introduction were all testimonies to the
potentialities of VAT’s ability to revamp the economy.
The
federal government has the five(5) zonal VAT tribunal to adjudicate VAT
disputes promptly. Also additional twenty-four(24) VAT local offices opened in
large local government areas outside state capital.
3.0 METHODOLOGY
The aim of this chapter is to show the
method employed and instrument used in collecting data and the method of
processing data. Personal interview was granted by the people. Question were
asked on some areas and answer were also given. Observations were made in
respect of the likely problems the researcher might face in the course of this
study.
3.1 RESEARCH
DESIGN AND APPROACH
For the purpose of this research work
based on the topic the impact of value added tax system in Nigeria, the researcher
has carefully identified the statement of the problem and grade effective plans
for gathering the necessary data needed for the study.
The researcher also adopted the study
research method to obtain data which consist of a combination of technique such
as questionnaire, oral interview and researcher personal observation of the
respondents.
3.2 AREA OF THE
STUDY
The area of the study is the entire
stakeholders including the payers collectors and those that impose VAT on
various goods and services, it is however obvious from the foregoing statement
that it is practical impossible to cover the whole area due to limited amount
of time on the cost involved.
The
following area of the study on value added tax:-
a.
Research should be carried
out on how government determines the rate of VAT to reveal various stakeholders
involved in the determination of the rate.
b.
The computerization in the
administration of VAT such that better return will be reported on VAT.
c.
Further research needs to
carried out on how to educate member of the public on the issue of VAT
regarding the rate in vatable goods and services.
d.
More, since VAT was
introduce to replace the sale tax further research can be carried out to find
weather there is a better way of charging tax on vatable goods and service i.e another type of tax to replace VAT.
3.3 RESEARCH POPULATION
AND SAMPLE
In carrying out this research work
population samples were chosen for the purpose of collecting data so that
analysis leading to a valid conclusion can be carried out.
The researcher intends to cover a
population size of fifty (50) people or persons. But due to financial
constraints, the sample size of thirty (30) out of the total population of
persons was randomly selected due to the heterogeneous nature of the
population.
SAMPLE PROCEDURES
The researcher adopted a simple random
sampling method. This is a method which selects sample so that each possible
sample has an equal probability of being picked. 1.6 probabilities should be
greater than 0.
The reason for selecting this method of
sampling procedure is to enable the researcher sample a considerable number of
people with different views and opinions.
3.4 DESCRIPTION OF
INSTRUMENTS
The instrument used in collection of
data this researcher made use of interviews questionnaire and empirical
observations. This was done by distribution and administration questionnaires
to various people. The use of interview guide was also adopted and this was of
great help because it provides avenue for researcher to have detailed
discussions with various people.
SECONDARY DATA
The secondary data used in this project was mainly
through the reviews of relevant documents from the libraries such as textbook,
journals, lecture notes and other selection was based on the fact that it
suites the nature of the topic of study.
3.5 ADMINISTRATION AND
RETRIEVAL OF INSTRUMENT
The questionnaire was administered on
the randomly selected sample of the population federal inland revenue service
Lokoja tax office. Fifty (50) copies of the questionnaire was issued out twenty
five (25) of it was returned and (25) act returned out of the twenty five (25)
returned one is not property filled. Since the questionnaire is A and B, the A
part is for the management. Only one copy is issued to the management, which
was properly filled and returned.
3.6 METHOD OF DATA
ANALYSIS
Questionnaire were distributed,
collected and analysis according to the response to each of the question.
Secondly, answer from the interview also
analysis according to the responses from each question. The responses were
later shown through the use of tables. Thus all the data collected were
analysed using the chi-square method.
CHAPTER FOUR
4.0 DATA PRESENTATION AND
ANALYSIS
The data were collected through
questionnaire oral interview and personal observation. On the whole,
questionnaires were given to people of various categorise.
Thirty (30) questionnaire were
administered, but only twenty five (25) were returned and the researcher considered
this an adequate sample size for the purpose of the researcher.
In this chapter, tables and percentage
are also used to present the result and indicate the degree of response in each
case the percentage formula will be.
N
X 100
TN 1
Where :-
N= number of response.
TN = Total
number of response
Question
1:
Is VAT relevant to Nigeria economy.
Table
4.1.1
Respondent catorized according to their
response on the relevant of VAT in Nigeria economy.
|
Reaction/alternative
|
No of respondents
|
Percentage
|
|
Yes
|
23
|
72
|
|
No
|
2
|
8
|
|
No idea
|
-
|
-
|
|
Total
|
25
|
100
|
From
the above table, the number of yes respondent is 23 while that of No is 2 with
92 and 8 percent respectively. This shows that VAT is relevant to Nigeria economy.
Question
2:
Can
Nigeria economy survive without VAT?
Table 4.1.2
Respondents
categorized according to their response that can Nigeria survive without VAT?
|
Reaction/alternative
|
No of respondents
|
Percentage
|
|
Yes
|
17
|
68
|
|
No
|
8
|
32
|
|
No idea
|
-
|
-
|
|
Total
|
25
|
100
|
Form
the above, the numbers of yes respondent is 17 while that of No is 8 with the
percentage value of 68 and percentage respectively indicating that Nigeria
economy can survive without VAT.
Question
3:-
Is vat the
life blood of Nigeria economy?
Table
4.1.3
|
Reaction/alternative
|
No of respondents
|
Percentage
|
|
Yes
|
6
|
24
|
|
No
|
19
|
76
|
|
No idea
|
-
|
-
|
|
Total
|
25
|
100
|
Total
4.1.3 above shows that 76% of the response hold the view that VAT is not the life blood of Nigeria economy.
Form the above table, the number of yes
response are 6 while that of No19 with the percentage value of 24 and 76
respectively.
Question
4:-
Do you
agree that the impact of VAT can be removed from Nigeria?
Table
4.1.4
|
Reaction/alternative
|
No of respondents
|
Percentage
|
|
Strongly Agree
|
8
|
32
|
|
Agree
|
2
|
8
|
|
Strongly Disagree
|
12
|
84
|
|
Disagree
|
3
|
12
|
|
Total
|
25
|
136
|
Table
4.1.4 above show that 40% of the respondents strongly disagree that the impact
of VAT can be removed from Nigeria.
Question 5:-
Can it benefit or the impact of VAT be
removed over emphasized in Nigeria?
Table 4.1.5
|
Reaction/alternative
|
No of respondents
|
Percentage
|
|
Strongly Agree
|
8
|
32
|
|
Agree
|
2
|
8
|
|
Strongly Disagree
|
12
|
84
|
|
Disagree
|
3
|
12
|
|
Total
|
25
|
136
|
The table above
shows that about 48% of the respondents strongly disagree that the benefit of
the impact of VAT be over emphasized in Nigeria.
Question 6:-
Do you agree that the proceeds from VAT have
been used effectively?
|
Reaction/alternative
|
No of respondents
|
Percentage
|
|
Strongly Agree
|
20
|
80
|
|
Agree
|
3
|
12
|
|
Strongly Disagree
|
2
|
8
|
|
Disagree
|
-
|
-
|
|
Total
|
25
|
100
|
Table 4.1.6 above shows that about 80% of
the respondents strongly agreed that the proceeds from VAT have been used
effectively.
Question 7:-
If you answer to question 6 is A, comment?
Answer:
The
respondent strongly agree that the proceed from VAT have been used effectively
and comment that the proceeds realized from VAT are used for projects.
Question 8:
If
your answer to question 6 is C comment:
Answer
Table 4.1.6 above show that 8% of the
respondent strongly disagree that the proceeds from VAT have not been used
effectively. They comment that they disagree because of misappropriations of
the money realized. They also comment that most of the proceeds go into private
pockets.
Question
9:-
Do
you operate on both taxation and non-taxable goods?
Table
4.1.7
|
Reaction/alternative
|
No of respondents
|
Percentage
|
|
Yes
|
5
|
20
|
|
No
|
20
|
80
|
|
No idea
|
-
|
-
|
|
Total
|
25
|
100
|
The table above shows that the number of yes respondent
is 5 and that of No is 20 and with the percentage value of 20 and 80
respectively which indicates that most of the people do not operate on both
taxable and non-taxable goods but on vatable goods and services.
4.2 SUMMARY OF THE
FINDING ANALYSIS
Having aimed out the above analysis on the information gotten from the respondent in which questionnaire
designed in this research work were sent to have examine critically, it is no
doubt that tax evasion and avoidance experience in taxation system has a great
import on the revenue of the government. How it become obvious and
indispensable that tax evasion and avoidance of not checked has a drastic
affection the government revenue which may go a long way in curtailing the
government from carrying out her responsibility.
Equally, a critical analysis of 50% flat
rate of VAT shows that the application of that rate is not justifiable this
stems from that fact that levy is imposed on everybody irrespective of the area
one is dealing in the goods and services with the exception of those goods and
services that are law, exempted from VAT.
CHAPTER FIVE
5.0 SUMMARY CONCLUSION AND RECOMMENDATION
5.1 SUMMARY
To this research work, it was discovered
that in Nigeria the need for government to raise enough revenue to meet her
responsibilities to citizenry has necessitated the introduction of various
forms of taxation in addition to revenue accruing from oil and other sources.
One of such taxes is Value Added Tax (VAT) which is the main focus of this
research work.
VAT has therefore been defined as tax on
consumption chargeable on the supply of goods and service throughout the country
as well. It is a tax on supply of goods and service which is eventually borne
by the final consumers, but collected at each stage of the production and
distribution chain according to the value added at each stage or chain. This
tax is brine by the final consumers because it is included in the price paid is
at flat rate of 5%.
The purpose of VAT is to replace the
existing sales tax which has been in operation since 1986 in Nigeria under
decree No7 of 1986 are boarder than include most professional services and
banking transaction which are high revenue generating sectors.
The first country to impose VAT in its
comprehensive form is Brazil in 1957. In a nutshell, this project has examined the
role of VAT as a supplementary source of government revenue. We also discussed
its general objectives, advantages, negative and positive impact VAT has no
economic development of Nigeria. The choice of VAT over sales tax and the operational
problems that attended its introduction and implementation in Nigeria has been
critically reviewed.
5.2 CONCLUSION
It is too early to access the efficiency
of VAT and its impact on the nation’s economy; and given the fact that it is a
highly complex system of taxation, if may take a while before the fiscal
importance of tax be appreciated. It is a new source of revenue for state
governments, and with higher rates and better administering in future. It contributes
substantially to the pursue of the states and local governments. This has
helped to increase the finance occurring the two tiers of government, thereby
reducing the budget deficit as well. After all, for the past few years, Nigeria
hitherto deficit has now assumed a new dimension as well now with balance
budget or surplus budget. Indeed, Value Added Tax (VAT) is a discovery that
could help launch Nigeria into economic buoyancy and prosperity. In conclusion,
this specially reserved project has observed that VAT is an efficient way of
imposing tax on goods and services. The researcher strongly believes that for
our economy to improve considerably there has to be an improvement in the ways
of generating revenue through the tax levy of which VAT is one.
With the successful introduction of VAT,
government is now shifting its emphasis from income tax to the evasion and the
same time progressive in nature. In spite of the initial problems. VAT has
gradually been accepted as a viable form of tax in Nigeria. As a replacement of
sales tax, its proceeds exceed that of sales tax proceeds. As tax on
consumption the final burden falls on the consumer or vatable goods and
services. It can therefore be seen that Vat has come to stay and its future prospect
in Nigeria is very high.
5.3 RECOMMENDATION
In
order to ease the regressive burden of tax under VAT, other countries using VAT
tries to make it more progressive by exempting and zero rating items that weigh
heavily on the budget of the poor. I am of the opinion that this method has not
adequately helped the poor. It is recommended here that using wage supplement
to compensate low families will be the best alternative. Also, using VAT
proceeds for public facilities that will benefit the poor may be better.
Based on our person experience in the
course of the research work, the following suggestion are highly recommended
for effective implementation and greater yield from VAT:-
i.
More efforts should be
geared towards enlightenment campaign about VAT to the teeming population of
this country. Hand bills, Radios and Television adverts should be consistently
and aggressively embarked upon so that the populace know in details the
concepts and benefits of VAT.
ii.
Most of the VAT offices
lack sophisticated equipments in the areas of computers. None of the offices is
connected to the internet. Government is therefore advices to speed up efforts
to put in place all the necessary machineries and facilities that would make
the work easier and faster.
iii.
Motivation as a tool to
efficiency should be upheld by the FIRS through the federal government. The
staff associated with VAT collection should be motivated by way the of salary
increase and other monetary incentives.
iv.
Considering the yearly
increase in revenue generated by VAT, it is necessary to carry out a
comprehensive survey of vatable organization so as to be able to determine to
some extent, the expected revenue from Vat every year. This job could be
contracted out to specialist in such field as a professional accountant.
v.
The rate of VAT should, if
possible, be increased gradually to encompass multiple rate of 5%, 10%, 15%
ranging from the items mostly by the low class, middle class and the rich
respectively. If the above recommendations are followed accordingly, revenue
generated through VAT will be strengthened, so that the reliance placed on
petroleum will be reduced.
BIBLIOGRAPHY
Bhatin H.L (2001) Public
Finance. Printed And Published by Vikas Publishing House, POT Ltd.
Tabansi A.C (1994),
Nigeria Taxation For Students A.C Odinega Publishers Ltd 2nd
edition.
Egunjobi A.A (2004)
Economics Made Easy Printed Quality Publishers; Benin, Edo State.
Ajayi J.O (1994)
Paper Presented and published by Graduate Accountant Magazine, University of
Ilorin.
Paul K.T (1989)
Basic Economics for West Africa Printed
and Published in Nigeria by Idodo Umoh Publishers Ltd.
Umoru T.A (2004)
Basic Research Method; Competences and application. Onavi Printing and
Publishing Co Ltd Lokoja.
Federal Inland Revenue
Service Information Circulation No5: 9340, 9305 and 9501.
APPENDIX
Department of Accountancy,
School of Management Studies,
Kogi State Polytechnic,
Lokoja.
14th November, 2013.
Dear Sir/Madam,
This research project is designed on the
topic “THE IMPACT OF VALUE ADDED TAX SYSTEM IN NIGERIA”.
This questionnaire is designed specially
to seek your opinion on the IMPACT OF VAT SYSTEM IN NIGERIA. A case study of
FIRS, Lokoja.
The research is part of the requirement
for the academic execise for the award of National Diploma in Accountancy in
Kogi State Polytechnic.
We wish to assure you that any opinion
expressed on this questionnaire by you shall be treated secret.
Please tick the appropriate box that
agrees with your opinion.
Yours
faithfully,
QUESTIONNAIRE
SECTION A:
this section is for the respondents to give
information about themselves.
1. Education
qualification:
(a)
Primary ( )
(b) Secondary ( ) (c) Tertiary ( )
2. Working
Experience:
(a) 1-10
years ( ) (b) 11-20 years ( ) (c) 21-30 (
) (d) 31 year and above ( )
SECTION B:
1. Is
VAT relevant to Nigeria Economy?
(a) yes
( ) (b)
No ( ) (c)
No idea ( )
2. Can
Nigeria economy survive without VAT?
(a) yes
( ) (b)
No ( ) (c)
No idea ( )
3. Is
VAT the life blood of Nigeria economy?
(a) yes
( ) (b)
No ( ) (c)
No idea ( )
4. Do
you agree that the impact of VAT can be removed from Nigeria?
(a) yes
( ) (b)
No ( ) (c)
No idea ( )
5. Can
the benefit or impact of TAX or VAT be overemphasized in Nigeria economy?
(a) Strongly
agree ( ) (b) agree ( ) (c) strongly disagree ( )
(d)
disagree ( )
6.
Do you agree that the
proceeds from VAT have been used effectively?
(a)
Strongly agree ( ) (b) agree ( ) (c)
strongly disagree ( )
(d)
disagree ( )
7. If
your answer to question 7 is (a) or (d) then comment
__________________________________________________________________________________________________________________
8. Do
you operate on both taxable and non-taxable goods?
g.
yes ( ) (b)
No ( ) (c)
No idea ( )