VALUE ADDED TAX (VAT) AS A SOURCE OF REVENUE IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Tax is a compulsory levy imposed on the citizens, organizations, cooperatives and all business organizations by the government to enable the (Government) provide essential services to its citizens. “VAT is a Tax on the supply of goods and services which is eventually borne by the final consumer but collected at each stage of the production and distribution chain”. From the above definition, VAT, is not only a consumption tax but also an indirect tax. It replaces sales Tax. Value Added Tax (VAT) as a major source of revenue to government is enjoyed by the VAT payer and the citizens through the provision of social infrastructure, amenities, job creation and payments of civil servants’ salaries etc.Taxes are being used by Government: To encourage exportation To protect local and infant industries To discourage consumption of certain goods e.g. Alcohol, cigarette e.t.c. As a fiscal policy by controlling inflation The yield from VAT is a fairly accurate measurement o the growth of an economy since purchasing (which determines yield) increases economic growth.
1.2 STATEMENT OF GENERAL PROBLEM
In order to achieve some of its social and economic objectives, tax has to be collected. This is not a simple task especially in Nigeria where voluntary compliance is lacking. In fact the assessments may not pose much problem but tax collections constitute a real bane to the achievement of targets. Some among the international problems are:-Unavailability of adequately/trained and professionality qualified personnel on VAT assessments and collections. This has resulted to under-assessment and uncollected tax. VAT returns are not well examined by VAT officials in order to fish out evasion and since assessment is the blood stream of collection, the collection has always been abysmally low. Compromising of government revenue by officials:- Since government has refused to look into the welfare of the officials of Federal Inland Revenue Service, coupled with lack of adequate incentive bonus (derived from collection surplus), they easily compromise certain things that are detrimental to the realization of government revenue from the taxes especially when they are given some money to overlook the irregularities associated of various offences under VAT laws.
The need for overseas training for officials. Even though the Federal Inland Revenue Services has a Training Branch that organizes training for all categories of staff, such training is not enough. Officials need to travel out to other countries that have better experience on tax matters, particularly VAT, in order to improve on their knowledge of assessment and collection procedure.Inadequate facilities for VAT operations:- there is the problem of inadequate facilities such as transportation for VAT inspectors who are required to be visiting the premises of every VAT able person from time to time etc. Some of the external problems include: Locating a taxpayer’s correspondence address is somehow difficult as most of them change their addresses at the post of inception as well as move office without contacting the offices.Non-cooperation between officials of the Federal Inland Revenue Service and taxpayers. Most taxpayers are of the view that since government just collect taxes without providing equitable welfare service to its citizenry, coupled with the fact that even the taxes collected are normally misappropriate by top government officials, hence their non-regard for tax. In fact, research shows that quarries from officials or quarries from tax authorities are not answered by taxpayers. They only show up when they are in need of Tax Clearance Certificates. It is in view of the above shortcoming that the researcher was prompted to write this project.
1.3 OBJECTIVES OF THE STUDY
The main aim of the research work is to study ways of improving revenue generation to the government. Value Added Tax (VAT) is one of the most important sources of revenue to the government. It is the wish of the researcher to focus on the need to employ all means of generating more revenue through enforcing and encouraging compliance as well as discouraging or punishing all forms of tax avoidance and evasion in accordance with the provisions of Decree No. 102, part V, paragraph 21-33. Other objectives include:
i. To analyse the problem inherent in the administration of VAT in Nigeria.
ii. To analyse the ways of providing incentives or relief to companies to encourage them.
iii. To analyse the ways of providing incentives or welfare package for the officials of Federal Inland Revenue Service (FIRS)
iv. To analyse the ways of providing incentives or welfare package for the officials of Federal Inland Revenue Service (FIRS)
v. To anslyse what manner in which VATable persons default, avoid or evade tax
vi. To educate taxpayers on the allowance or relief available to them and also on the provision of the tax laws.
vii. To make recommendations
1.4 SIGNIFICANCE OF THE STUDY
The study is expected to dwell into all forms of VAT administration, setup, synergy in order to: Assist policy makers to identify pit-falls in the administrative mechanism of the tax with a view to correcting the pit falls. Assess the collection strategies adopted in the first years of the tax administration will be revealed from the actual collections of revenue for the period 1994 and 1995 i.e. the period of the study. Seek ways and means of improving collection of the VAT proceeds from VAT payers. Add knowledge to student(s) and Nigerians at large who will lay their hands when conducting similar research.
1.5 SCOPE OF THE STUDY
VAT as a veritable source of revenue to the government is not restricted to an area of Nigeria. Hence the scope of this study is expected to cover the entire country; and examine the extent to which the revenue is accrued to the government between 1994 and 1995.
1.6 HYPOTHESIS
Nigeria needs a lot of revenue to execute government projects and Value Added Tax (VAT) as a new tax regime was introduced for that purpose. The hypothesis will test whether or not taxpayers are well acquainted with the various operational laws as enshrined in Vat Degree No. 102 of 1993. This will also go along way to test whether or not the Vat Officials are themselves technically and professionally conversant with the said Degree.
1.7 LIMITATION OF THE STUDY
This study is to assess the extent to which VAT has been a source of revenue to government in Nigeria. Hence it is the entire VAT collection for 1994 and 1995 that is the focus of this study. This study is limited by the fact that one cannot go round all the states to authenticate the result of revenue collection for the period under review. The inadequacy of material and literature of VAT in Nigeria is a limiting factor itself. Since tax first came on board on 1st January, 1994. The government syndrome of “Secrecy” is limiting the extent to which the project intend to evaluate. However, notwithstanding the aforementioned, considerable efforts is been put to ensure a reliable and fair presentation of the study.