EFFECTS AND ADMINISTRATION OF VALUE ADDED TAX IN THE NIGERIA ECONOMY. (A STUDY OF FEDERAL BOARD OF INLAND REVENUE)
Many countries of the world today have been striving very hard to achieve rapid overall development through the optimum assessment and tax administration in Nigeria to ensure collection and expanded revenue base. New forms of taxes are selectively being introduced in this era particularly by the underdeveloped nations to boast their revenue and incapacity with the aim of improving the socio-economic development of their countries. One of such modern forms of taxation is the VAT introduced on 1993 into the Nigerian tax system as a replacement of sale tax. The purpose of this research is therefore hinged on the Effects and the Administration of Value Added tax in the Nigeria Economy by the Federal Board of Inland revenue. The research started with an outline of the research objective, the review of related literature of the study and hypothesis are formulated with the aim of finding solutions to the research problems identified. The data for the research was obtained largely from primary and secondary sources. The research revealed through the hypothesis tested, that VAT is a significant sources of revenue to the government and that it contributes to the development of the country. Consequently, some problems standing in the way of VAT are highlighted, but with an assertion that the future for VAT is after all bright. The research draws a conclusion and advances to recommendations for improving the optimal machinery of VAT to ensure its sustained contribution to the Nigeria economy.
TABLE OF CONTENTS
TITLE PAGE i
APPROVAL PAGE ii
TABLE OF CONTENTS viii
LIST OF TABLES xi
CHAPTER ONE 1
1.1 BACKGROUND OF THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 4
1.3 OBJECTIVES OF THE STUDY 5
1.4 RESEARCH QUESTIONS 5
1.5 HYPOTHESES 6
1.6 SCOPE AND SIGNIFICANCE OF THE STUDY 7
1.7 RESEARCH HYPOTHESES 7
1.8. LIMITATIONS OF THE STUDY 8
CHAPTER TWO 10
REVIEW OF RELATED LITERATURE 10
2.1 CONCEPTUAL FRAMEWORK 10
2.2 THEORETICAL FOUNDATION OF STUDY 12
2.3 CHARACTERISTICS OF VALUE ADDED TAX 15
2.4 VALUE ADDED TAX ADMINISTRATION AND ACCOUNTING 18
2.5 THEORY ISSUES IN VAT 19
2.6 PROBLEMS AND PROSPECTS OF VAT 21
2.7 TYPES OF VALUE ADDED TAX 22
2.8 VAT REGISTRATION AND OBLIGATIONS OF REGISTERED PERSONS IN NIGERIA. 23
2.9 RIGHTS OF REGISTERED PERSONS 27
2.10 VAT TECHNICAL COMMITTEE COMPOSITION 27
2.11 DISTRIBUTION OF VAT AMONG THE THREE TIERS OF GOVERNMENT 28
2.12 ARGUMENTS FOR AND AGAINST VAT 28
2.13 COMPUTATION OF VALUE ADDED TAX 30
2.14 EMPIRICAL REVIEW 30
CHAPTER THREE 34
RESEARCH METHODOLOGY 34
3.1 RESEARCH DESIGN 34
3.2 AREA OF STUDY 34
3.2.1 SOURCES OF DATA 36
3.3 DATA COLLECTION TECHNIQUES 38
3.4 POPULATION THE STUDY 39
3.5 SAMPLE SIZE 39
3.6 METHOD OF ADMINISTRATION OF THE RESEARCH INSTRUMENT 40
3.7 VALIDATION OF RESEARCH INSTRUMENT 40
3.8 RELIABILITY OF RESEARCH INSTRUMENT 40
3.9 METHOD OF DATA ANALYSIS 41
CHAPTER FOUR 42
DATA PRESENTATION, ANALYSIS AND INTERPRETATION 42
4.1 DATA PRESENTATION 42
4.2 DATA ANALYSIS 43
4.3 TEST OF HYPOTHESES 45
4.4 INTERPRETATION OF RESULTS 49
CHAPTER FIVE 51
SUMMARY OF FINDINGS 51
5.1 DISCUSSION 51
5.2. SUMMARY OF FINDINGS 52
CHAPTER SIX 55
CONCLUSION AND RECOMMENDATION 55
6.1 CONCLUSION 55
6.2 RECOMMENDATIONS 56
According to Journal of Economic and International Finance vol. 3(8), 492-503, August 2011, Nigeria is a developing country and emerging economy whose exports are mainly crude oil. Her other natural resources asserted by Economic watch (2011) include: Natural gas, tin, iron ore, coal, limestone, lead, zinc and arable land. Her land mass covers about 923,768sqkm and she has a population of about 149,229,090.
According to Tran (2008), emerging economies are nations that have large territories and populations, and they are undertaking extraordinary development projects that call for new infrastructures, such as power — generation plants and telecommunication systems. These countries have pursued economic policies leading to faster growth and expanding trade and investments with the rest of the world.
These infrastructural developments demand a lot of resources and funding. By assertion of Access Bank (2011), Value-Added-Tax (VAT) is one of the ways of funding infrastructural developments. And to proceed further in this work are unfolding of detailed information on VAT.
Governments the world over have devised various means of obtaining and paying for the resources needed to meet their ever increasing responsibilities. In civilized societies, requisition of financial resources by funds raised from several sources such as borrowing, sale of goods and services et cetera and taxation is the oldest and the most significant source of fund to the Government. Taxation is considered significant to Government because it is one of the most useful tools for achieving the objectives of economic stabilization.
According to Nwadighoha (2007), tax is a compulsory levy imposed by a public authority on incomes, consumption and production of goods and services. Such levies are for example, made on personal income (consisting of salaries, business profit, interest income, dividends, royalties etc) company profits, petroleum profits, capital gains and capital transfers.
This definition points tOwards three characteristics of tax, viz:
- It is a compulsory contribution imposed by the government on the people residing in the country. Since it is a compulsory levy, any person who refuses to pay tax is liable to punishment
- Tax is a payment made by taxpayers which is used by the government for the benefit of all the citizens. The state uses the revenue collected from taxes for providing hospitals, schools, and public utility services, etc. which benefits all people.
- Tax is not levies in return for any specific services rendered by the Government to the taxpayer. An individual cannot ask for any special benefit from the state in return for the tax paid by him, it implies that the tax payer cannot claim something equivalent to the tax paid (quid proquo) from the Government. (Nwadighoha, 20007).
VAT was introduced in Nigeria for the first time by the enactment of Decree 102 of 1993, which came into effect on 1st January 1994. This was the legal instrument that brought VAT into existence and the effective date for its commencement and implementation of VAT at this date. What was in place was Sales Tax which was immediately repealed and VAT largely expanded the tax network i.e. Federal, State and Local Government participation in its collection and sharing of revenue.
Value Added Tax is a multi stage tax imposed or levied and collected on transactions at all the various stages of sales and distribution of such goods and services designated for VAT purposes.
In accounting, Value Added Tax refers to the incremental value, which a producer employing labour adds to his raw materials, from the extractive stage, to processing stage (work in- progress) to its completion as a finished product or purchases prior to the processed goods and services. VAT is the tax levied on the value added as written above. It is a consumption tax. Like all indirect taxes the burden of this tax is passed on to the final consumer who eventually pays the tax. The rate of tax is 5%. Value Added Tax is a consumption that has been embraced by many countries worldwide. Because it is a consumption tax, it is relatively difficult to evade. The yield from VAT is a fairly accurate measurement of the growth of an economy since purchasing power which determines the yield increases with economic growth.
Existing literature elsewhere has shown that VAT is a high revenue yielding tax especially when it covers retail level. It is based on this premise that the researcher wants to show the effects and Administration of Value Added Tax.
The attitude of Nigerians towards taxation is worrisome as many prefer not to pay tax if given the opportunity. The economy continues to lose huge amount of revenue through the unwholesome practice to tax, avoidance and tax evasion. This loss of revenue can change the fortune of many economies; particularly, developing countries like Nigeria.
This problem has been lingering for so long which urgent attention and solution is over due to the cost of collecting tax in Nigeria. Both social and economic cost is too high to the extent that if left unchecked the cost may soon outweigh the benefit or value derived from such operation and that will not the appropriate for the system.
In Nigeria, VAT is one of the instruments the federal government introduced to generate additional revenue. Yet, most prominent Nigerians and interest groups had spoken against its introduction. It would appear that VAT is froth with some problems. For this purpose, this research work shall examine the effect and administration of Value Added Tax in Nigerian economy.
The major objectives of this study is to examine the effect and administration of Value Added Tax in Nigerian Economy, with particular reference to Federal Board of Inland Revenue. Therefore, the specific objectives are as follows:
- To ascertain whether sharp practices in administration between the staff of FBIR and assess consumers contributed to tax evasion.
- To ascertain if there is any variation between financial statement used for AGM and that sent to FBIR for tax administration.
- To ascertain whether loss of confidence in government officials has contributed to tax evasion.
In order to meet up with the above objective, the following questions were formulated:
- To what extent do sharp practices in administration between the staff of FBIR and assess consumers contributed to tax evasion?
- Is there any variation between financial statement used for AGM and that sent to FBIR for tax administration?
- To what extent do loss of confidence in government officials has contributed to tax evasion?
- Is VAT one of a vital instrument of revenue to the government?
In order to answer the above research questions, these hypotheses were formulated:
H0: Sharp practices in administration between the staff of FBIR and assess consumers does not contribute to tax evasion.
Hi: Sharp practices in administration between the staff of FBIR and assess consumers does not contributed to tax evasion.
H0: There are no variations between financial statement used from AGM and that sent to FBIR for tax administration.
Hi: There are variations between financial statement used from AGM and that sent to FBIR for tax administration.
H0: Loss of confidence in government officials has not contributed to tax evasion.
Hi: Loss of confidence in government officials has contributed to tax evasion.
However, the study has its scope limited to the federal board of Inland Revenue Ebonyi State.
The. study significant as it represents a bold attempt into an area of very scanty literature, without prior background knowledge in this premise students of Universities or polytechnics who offer taxation or scholars and academicians would find this research work very useful for further research.
Finally, it is the belief of the researcher that when completed, the result will be useful to the tax payers and the business communities, and the federal, state and Local Government Organizations charged with the duty of administering taxes and levies.
- There are no variation between financial statement use for AGM and that sent to FBIR for tax administration.
- VAT is not an assessment of tax, that is a source of revenue based on accountability system.
- VAT does not impact on the Economic Development of Nigeria
This research study is limited to detailed study of (VAT) and assess its actual contributions towards the economic development of Nigeria.
This could not achieve hundred percent because of absence of revenue. Other limitations include inter- alia.
- TIME CONSTRAINT: This also limits the scope of the study because of the need to hand in the completed work before expiration of deadline.
- FINANCIAL CONSTRAINT: This no doubt played down on the extent of the research work that could have been carried out.
- POOR RECORD: Data keeping posed on very conspicuous limitation in the process of carrying out this research. Lack of detailed from our libraries and statistical offices proved costly data in carrying out this research.
In order to avoid problems of semantics, the following technical terms have been precise as they relate to the context of the research work.
- ASSESSMENT AUTHORITY: This is the body appointed by the board for the purpose of assessing tax payable.
- EFFICIENCY AND EFFECTIVENESS: Horngreen (1984) defines efficiency as an optimum relation between input and output whereas effectiveness is the accomplishment of pre date ruined objective. Tax collected can only be said to be effective when a high proportion is actually collected. Similarly for efficiency and assessment should be less than the revenue accruing from such expenditure.
- FEDERAL INLAND REVENUE SERVICE (FIRS): This is the body set up by Section 5.1 of ITA (1979) and charged with the overall administration of companies income tax act.
- INCOME: There is no statement that defines the word “income” in taxation status. However, for the purpose of this study reference is made to Section 5.4 (2) (6) of income tax management act (ITMA) 1961, which recognizes income as including any amount deemed to be income under the act.
- TAX ARREARS: These are assessment of tax during the preceding period whose payment is received at the current assessment period.
- TAX EVASION: Is a fraudulent, dishonest intentional distortions or concealment of fingers by the tax payer in order to reduce the tax payable. It is a criminal and deceitful was of not paying tax or reducing ones tax liability. These offences are punishable under law. According to Longman Dictionary of Contemporary English Tax evasion are the illegal ways of paying less tax.
EFFECTS AND ADMINISTRATION OF VALUE ADDED TAX IN THE NIGERIA ECONOMY. (A STUDY OF FEDERAL BOARD OF INLAND REVENUE)