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THE ANALYSIS OF THE IMPACT OF
VALUE ADDED TAX ON REVENUE GENERATION IN NIGERIA (2000 – 2009)
ABSTRACT
This project work “The
Analysis of the Impact of Value Added Tax in Revenue Generation in Nigeria
(2000 – 2009)” was necessitated by the need to assess the performance
of Value Added Tax and ascertain it impact on revenue generation in Nigeria.
It focused on the effect of VAT
on vatable persons especially as it relates to the demand and sales of it
product, its profitability, contribution to the total revenue generated by the
Federal Government, the entire economy and finally a comparison of the observed
effect relative to what the desired effect should be.
Chapter one of this study will
serve as introduction and other steps the research has adopted in the cause of
carrying her investigation such are: background of the study, statement of
problem, objective of the study, research question, hypotheses, scope,
significance, limitation of the study and definition of terms.
Chapter two reviewed some related
literatures; the need is for the researcher to see the view of other writers on
the topic under study. It made up of theoretical and empirical review of
related literature.
Chapter three deals on research
design and methodology used in collecting data such as design, area of study,
population of study etc
Chapter four treated presentation
and analysis of data.
Chapter five sees for summary of
findings, conclusion and recommendation.
TABLE OF CONTENT
CHAPTER
ONE:
1.0
Introduction
1.1
Background of the Study
1.2
Statement of Problem
1.3
Objective of the Study
1.4
Research Questions
1.5
Hypothesis
1.6
Scope of the Study
1.7
Significance of the Study
1.8
Limitation of the Study
1.9
Definition of Terms
References
CHAPTER TWO
2.0
Review of Related Literature
2.1
Theoretical Review of Related Literature
2.1.1 History of
Value Added Tax
2.1.2 Meaning and
Reasons for VAT
2.1.3 Nature of Value
Added Tax
2.1.4 Operation of
Value Added Tax
2.1.5 Administration
of VAT in Nigeria
2.1.6 Registration of
VAT
2.1.6.1
VAT Registration Number
2.1.6.2
VAT Returns and Remittance
2.1.7
Assessment of VAT
2.1.8
Type, Rate and Method of Calculation VAT
2.1.8.1
Types of VAT
2.1.8.2
Rates of VAT
2.1.8.3
Methods of Calculating VAT
2.1.9
VAT and other Form of Tax
2.1.10
Merits and Demerit of VAT
2.1.10.1
Merits of VAT
2.1.10.2
Demerits of VAT
2.1.11
Detailed List of Items and Services
Exempted from VAT
2.2
Empirical Review Related Literature
References
CHAPTER THREE
3.0
Design and Method
3.1
Research Design
3.2
Area of Study
3.3
Population of Study
3.4
Sources of Data
3.5
Sampling Method
3.6
Research Instrumentation
3.7
Validity and Reliability of Research Instrument
3.8
Methods of Investigation
References
CHAPTER FOUR
4.0
Presentation and Analysis of Data
4.1
Presentation and Analysis of Result
4.2
Test of Hypotheses
CHAPTER FIVE
5.0
Summary of Finding, Conclusion and Recommendation
5.1
Summary of Findings
5.2
Conclusion
5.3
Recommendation
Bibliography
Appendix I
Appendix II
CHAPTER ONE
1.0
INTRODUCTION
1.1
BACKGROUND
OF THE STUDY
Prior to
1993, only very little was known of Value Added Tax (VAT) in Nigeria. The idea
of VAT started with the acceptance of the recommendation of Dr Sylvester Ugoh
led study group on Indirect Taxation in November 1991. The decision to accept
the recommendation was made public in the 1992 Budget speech. (Okpe, 2001). In
addition, according to Obianwuna (2005), the Federal Government set up two
study groups in 1991, one was set up by the Federal Ministry of Finance and
Economic Development to study and recommendation on the reform needed in direct
taxes in Nigeria. The Federal Ministry of Budget and Planning set up the other
group on indirect taxation. As the group recommended the introduction of VAT in
Nigeria, this made the Federal Government to set up a committee who will carry
out a feasibility study on its implication in Nigeria. This committee gave the
general guideline for the establishment of a Value Added Tax in Nigeria and its
administration was given to the Federal Inland Revenue Services, which was
already charged with the responsibility of administering most other taxes in
Nigeria.
The
introduction of VAT in Nigeria through Decree 102 of 1993 makes the phasing out
of the Sales Tax Decree No. 7 of 1986. The decree took effect from 1st December
1993 but by administration arrangement invoicing for the purpose did not
commence until 1st January 1994, (Okpe 2004).
Value
Added Tax (VAT) was introduced in Nigeria in 1993 at a flat rate of 5% on all
the vatable goods and services. The rate was increased to 10% by the Federal
Ministry of Finance with effect from May 2007. However, following a series of
meeting between representatives of the Federal Government of Nigeria (FGW) and
the Nigeria Labour Congress (NCE) / Trade Union Congress (TUC), the FGW revoked
the increase in the VAT rate. The proceed of the VAT system are to be share in
the following proportions: 20% and 80% for the Federal Government and State
Government respectively. In the same vein, the state share from VAT proceeds
was distributed according to the following; State of Origin 30%,
Consumption/Destination 30% and Equality of State 40%. (FIRS 2008).
According
to Okpe 2001, the introduction of VAT became necessary because government
expenditure was steadily over-shooting revenue, resulting in the wide deficit
financing. In addition, records show that between 1960 – 1971, income from
indirect taxes in Nigeria constituted the single most important of government
revenue. However, with the oil boom of the 1970’s, it contributions declined.
It came down from 85% in 1970 to 12% and 13% in 1980 and 1990 respectively. The
share of direct taxes rose from 23% in 1970 to 60% in 1980 but came to 45% in
1990.
Similarly,
the revenue variable from oil and present non-oil source mainly taxes are not
sufficient to meet public needs as expenditure continuous to rise because to
pressing and economic needs.
Therefore,
if government must have additional revenue to meet up with growing public
expenditures, it can only come from taxes by increasing both individual and
company taxes, which under the present circumstance is neither feasible nor
advisable. Unfortunately, in Nigeria only a small proportion of the population
mostly civil servants pay income tax because of tax evasion and the avoidance
by a greater proportion of business class. So increasing it is not likely to
increase government revenue significantly.
Therefore,
a tax increase on a broad based consumption rather than income tax will be
suitable as more people will be able to pay. VAT is a consumption tax, which is
the broad based. All the essential goods and services were exempted to reduce
its burden on the poor and it is relatively easier to pay because it is included
in the selling price.
The
government believes that the propensity to consume is higher than the
propensity save and tax is therefore meant to influence the consumption habit
of people and it is directed especially to high income earners.
1.2 STATEMENT
OF THE PROBLEM
Value
Added Tax has been administered in Nigeria for many years now. The public
(vatable persons and organisations) have expressed their dissatisfaction for
the system. Even the issue of cost of administration has been seriously questioned.
The researcher embarks on an in-depth study of its administration, assessment
and implementation with particular reference to the cost of administration
vis-a-vise the yield. This is meant to help the policy makers and government
appraise substantially and ascertain how effective it is for the revenue
generation. The researcher established the general impact of the tax on the
overall economy especially as it affects the poor or low-income group. This
will enable government to make some adjustments in policy formulations. Also,
the researcher will find out how Value Added Tax (VAT) will achieve those
things other related forms of taxation could not achieve.
1.3 OBJECTIVES
OF THE STUDY
The objectives of the study are:
i.
To ascertain
the effectiveness of the VAT personnel and machinery for assessment,
administration and implementation of VAT in Nigeria.
ii.
To find
out the nature of the effect of VAT on vatable goods and services.
iii.
To
ascertain whether VAT is really burned to the Nigerian economy.
iv.
To find
out whether VAT contributes significantly to the total revenue generated by the
Federal Government for economic development.
1.4 RESEARCH
QUESTIONS
The
following research questions were formulated by the researcher for the conduct
of this project.
i.
How
effective are VAT personnel and machinery for assessment, administration and
implementation of VAT in Nigeria?
ii.
What are
the nature of the effect of VAT on vatable goods and services?
v.
How
is nature of the effect of VAT on vatable goods and services?
iii.
How is
VAT a burden to the Nigerian economy?
iv.
How
significantly does VAT contribute to the total revenue generated by the Federal
Government for economic development?
1.5
HYPOTHESES
These
hypotheses are formulated to enable the research test if VAT has any impact on
revenue generation in Nigeria.
i.
Ho:.
The personnel and machinery for VAT are not effect in assessment,
administration and implementation of VAT in Nigeria.
Hi:
The personnel and machinery for VAT is effect in assessment,
administration and implementation of VAT
in Nigeria.
ii.
Ho:
Vat does not adversely affect the sales of company’s goods and services.
Hi:
VAT adversely affects the sales of company’s goods and services.
iii.
Ho:
VAT is not really a burden to the Nigerian economy.
Hi:
VAT is really a burden to the Nigerian economy.
iv.
Ho:
VAT does not contribute significantly to the total revenue generated by the
Federal Government for economic development.
Hi:
VAT contributes significantly to the total revenue generated by the Federal
Government for economic development.
1.6
SCOPE OF THE STUDY
The study
was carried out to study the analysis of the impact of Value Added Tax on
revenue generation in Nigeria for the period of 2000 to 2009. The researcher
inquired in the factors related to the success of VAT in Nigeria. The
researcher in addition review other related tax systems and their impact in
economic development, received substantially relevant literatures that related
to the research.
1.7
SIGNIFICANCE OF THE STUDY
The
significance of this study can be viewed from two major standpoints;
1.7.1
Practical Significance
This kind
of study will assist in broadening understanding of the following groups with
the following reasons.
a.
To
Government: The result from this study is expected to enable the government of
Nigeria to know the loophole7s that exist in the administration Value Added Tax
(VAT) and to determine how effective and efficient the revenue generation
machinery of VAT is and make appropriate adjustment where necessary.
b.
Also to
the government, the study will afford them the opportunity to assess people’s
feeling about the tax system and its implementation.
c.
To the
taxpayer and administrators; the study is expected to be empirical material
aimed at enlightening both the taxpayer and administrators on the objectives of
Value Added Tax.
d.
To the
citizens of Nigeria; it will reveal to them the impact of VAT has had on the
revenue generation in this country.
e.
The study
will reveal to the taxpayer the vatable goods and services and their rate.
f.
The study
will reveal to the taxpayer the basic types of VAT in Nigeria and how they are
administered and the method of calculating VAT
1.7.2
Academic Significance
In the
academic arena, this study will prove to be significant in the following ways.
a.
It will
contribute to the enrichment of the literature on Value Added Tax.
b.
It will
make the students and lectures to know the origin of VAT in Nigeria.
c.
It will
throw more light on how to analyse VAT and to relate VAT with other forms of
Taxations.
d.
It will
serve as a resource material for further work on Value Added Tax or Taxation
generally.
e.
The study
will serve as a body of reserved knowledge to refer to by researchers.
1.9
DEFINITIONS OF TERMS
For
the purpose of this research, the following terms should be understood as
define here under.
i.
Value Added Tax
A tax on supply of goods and
service, which is eventually borne by the final consumer, but collected at each
stage of production and distribution.
ii.
Vatable Goods and Services
Any goods and service that is
subject to VAT. There are 17 goods and 23 services are vatable.
iii.
Vatable Persons
Any person/business and
organization that is authorized to collect VAT and trades in vatable goods and
services. The organizations collect VAT from customers and remit to VAT office.
iv.
Taxable Period
This is the period within which
VAT is collected and remitted. The taxable period in Nigeria is made before the
21st day of the following the month of collection.
v.
Tax Invoice
The tax invoice is the authority
to make claims on VAT. It is the invoice or receipt given to the purchaser of
vatable goods or services.
vi.
Chi-Square
This is statistical method used
in testing the hypothesis concerning the deviation or difference between
frequencies of a sample.
vii.
Level of Confidence
The level or limit within which
we are confident that the population mean tries is true.
viii.
Degree of Freedom
This is the range within, which
the hypothesis is to be tested.
ix
FIRS - Federal
Inland Revenue Services.
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