ABSTRACT
This study was carried out to analyze the
value added tax (VAT) and its effect in the economy and to identify areas of
shortcomings and to make recommendations for corrective measures. The scope of
the study was limited to Enugu State. Data were collected based on these
objectives:
i.
To asses the response of vatable person
(taxpayer).
ii.
To increase the awareness of vatable public.
iii.
To assess the impact of value added tax on
final consumers.
iv.
To find out if significant correlation exist
between VAT Revenue and GDP Literature reviewed from relevant texts and
journals revealed that VAT has been exceeding its target revenue since
commencement and that state government expenses have been cleared to some
extent with VAT revenue. The study further revealed that VAT revenue is not
tied to a specific capital project and that there is loophole in the VAT Decree
under registration of taxable person. The study also showed that VAT has only
added to the multiple tax system operational in Nigeria. And further revealed
that VAT has the propensity to increase prices, deplete people’s finances and
reduce their purchasing power; contribute to inflation and produce multiplier
effects on all sectors of the economy including health. Furthermore, the study
also revealed that VAT is a better option to other taxes and that tax-payer
render returns promptly to the taxes authority. These finding were examined
using descriptive survey, questionnaire and chi-square to test the hypothesis
formed. A sample size of 40 was selected by simple random sampling. Data was
analyzed and presented using percentages and chi-square, which gave rise to the
findings. Based on the finding, recommendations and suggestions were made.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Value Added Tax (VAT) has become a major
source of revenue in many developing countries. In Sub-Saharan Africa for
example, VAT has been introduced in Benin Republic, Cote d’Ivore, Guineu,
Kenya, Madargascar Mauritius, Niger Republic, Senegal, Togo and lately,
Nigeria. Evidence suggests that in these countries VAT has become an important
contributor to total government tax revenues (Ajakaiye, 2000). Shalizi and
Squire (1988) found out that VAT accounted for about 30% of total tax revenue
in Cote
d’Ivoire, Kenya and Senegal in 1962, the
oil producing countries are not excluded from the list of countries introducing
this tax hurdle. Tait (1989) showed that VAT had been in effect in Ecuador and
Mexico since at least 1973 by 1983 accounted for 12.35% and 19.71% of total
government revenue in these countries respectively, Indonesia introduced VAT in
1983 and by 1988; the ratio of VAT revenue to GDP had risen to 4.5% (Bogetic
and Hassan, 1993).
This impressive performance of VAT in
virtually all countries where it has been introduced, according to Ajakaiye
(2000), clearly influenced the decision to introduce VAT in Nigerian in January
1994. VAT is a consumption tax that is relatively easy to administer and
difficult to evade and it has been embraced by many countries world-wide
(federal Inland Revenue Services, 1993). Evidence so
While the performance of VAT as a source
of revenue in Nigeria is encouraging, it remains difficult to find attempts to
systematically assess the impact of VAT on the economy. Recent research works
on the impact of taxation on the Nigerian economy lumped up all the various
taxes together without isolating VAT, how and in what direction has VAT been
affecting the Nigerian economy proxy by Gross Domestic product (GDP)? Is there
any relationship between the two economic variables?
In the attempt to answer the question posed above we shall in the
interim see what is VAT, who is a vatable person, the law establishing VAT in
Nigeria, the goods and services that are vatable (taxable), the goods and
services exempted from VAT, the economic benefit of VAT, the impact of VAT on
the final consumer etc....
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