Appraisal Of The Effectiveness Of Value Added Tax Administration In Nigeria

The purpose of this project is to determine to identify strategies for administrative implementation of the variables amongst others. Also to identify and appraise administration of VAT in Nigeria, highlight the loopholes and suggest solution.

From the research carried out, the stuffy reveals that Value Added Tax is an important element in the life of any nation and also that the revenue generated by the government is not only beneficial to them as so many Nigerians thinks but also to the people as it is been used for the effective administration of the country. The research also reveals that the payment of value added tax dues by so many people is always seen with hatred and as much, the practice of tax evasion and avoidance have a negative effect on tax generation.

Finally, the study reveals that if more revenue can be generated through taxation, it will lead to an effective administration by the government putting into consideration a true government who is ready to serve the people.

Above all this research work recommends that in order for an efficient and effective tax generation and administration, the government should try to put in place provision of more staffs and good welfare for them so as to perform their jobs effectively. It also recommends that a good habit of administration should be inculcated by the government in order to gear the citizens to pay tax.

Introduction

1.1 Background of the Study

For a country to exist in harmony, the government of such country must live up to its public economic and social obligation by providing economic and social amenities reduced or subsidized commercial rate.

To do so, this will normally involve huge expenditure and therefore, will also require revenue source.

Additionally, government at various levels will need to settle operational costs to be able to offer the aforementioned social amenities; one of the various sources of fund available to any government for revenue is Taxation. This could either be in form of direct or indirect tax or both.

Ojo (1998) described taxation as "the concept and the science of imposing tax on the citizen".

Summerfield (1986) described Revenue as referring to a monetary quality earning to a monetary quality during a given time period regardless of the amount collected.

One of the forms of indirect tax is Value Added Tax (VAT) hereafter referred to VAT.

The introduction of VAT in Nigeria virtue of Decree No 102 of 1993 which took effect from 1st January 1994 mark the phasing out of the Sales Tax which has been in force since 1986 by virtue of the ales Decree No 7 of 1986.

VAT was adopted in Nigeria because the federal as well as the state government need additional resources for development. This revenue can only come from increase in taxation and productive effort. The need of the government for more revenue cannot e over-emphasized particularly as revenue from crude oil which is the most important source of oil in the international market continues to influence, making it necessary for government to explore pother source of review.

Similarly, revenue available from oil and present non-oil sources mainly conventional and traditional taxes were not sufficient to meet public needs, as expenditure continue to rise in an era of increased socio and economic problems, particularly the pressure from population.

1.2 Objectives of Study

The purpose of embarking on these research works are:

To collect addition on the subject and develop a mechanism for improving on existing level of knowledge and

To identify strategies for administrative implementation of the variables amongst others.

Identify and appraise administration of VAT in Nigeria, highlight the loopholes and suggest solution.

Highlight the effect of VAT on revenue generation of the country.

To consolidate and modernize the tax system n order to provide a basis for strong revenue growth and flexible fiscal management.

To provide incentives for export production

To distribute the burden of taxation more evenly across different goods and services through a broader coverage, so as to avoid multiple taxation.

Identify problems faced by VAT administrator and how they can be abated.

Suggest ways of making the operation and administration of VAT better than what it is now.

To develop an approach to reduce the consumption of luxuries and curb the increase in the consumption of non-essential. The approach by implication would tax non-consumption goods relatively higher and minimize impact on essential goods and services used by low income earners and formulate a program of work for the accomplishment of the assignment.

1.3 Relevance of Study

The principal reasons that prompted the introduction an implementation of VAT I Nigeria are enumerated under the historical background of VAT in Nigeria. VAT was set out to meet some targets, according to E.I. Ijewere, chairman Modified VAT (MVAT) committee. VAT is a tax imposed on value, which the supplier or tax seller of a goods or services adds to the public sectors.

In addition, the information circular 9304 of the FIRS advanced some reasons justifying the replacement of sales tax with the Value Added Tax rationales put forward by FIRS are as follows:

VAT is equipped to ensure voluntary compliance because of the multistage collection and credit mechanism involved.

Tax collection at the point of importation is easier under VAT than under sales tax where the imported goods are levied at the point of retail after leaving the ports.

VAT has higher revenue yielding potential than the retail sales tax.

VAT is inherently more comprehensive because it is better equipped to tax services than the sales tax.

The use of invoice under VAT provides self-police mechanism, as VAT payers demands invoice so that they can make valid credit or refund claims

The use of invoices creates a well-defined audit trail, which the tax authority can follow.

It is also easier to integrate VAT audit with some tax audit since VAT is comprehensive and restricted to the retail stage as the sales tax.

This study would serve as a research work that would further enlighten the level of subject scope especially vatable resource on the importance and usefulness of VAT.

1.4 Significance of Study

Taxation is a vehicle of economic and administrative development in an economy and VAT has provided to be a very useful tool of economic and fiscal measure in Nigeria. If VAT system is improved, it will be a great boost to the government revenue and the economy at large.

The study will provide explanation and reasons for introduction of VAT in Nigeria it will identify differences in the administration and implementation of VAT, it will offer suggestion to problems faced by the administrators.

1.5 Scope of Study

Examination of the effect of Value Added Tax on final consumer, companies involved and the economy as a whole.

Interviewing, questionnaire as well as a literature review.

Suggestion of strategies for successful implementation of Value Added Tax.

List of product, service and companies affected by the policy of Value Added Tax.

1.6 Statement of Problem

The introduction of Value Added Tax (VAT) requires a lot of preparation and enlightenment on part of government because of complexity of the tax and the need for co-operation of taxpayers. However the followings are the major problems confronting the implementation, registration and collection of VAT in Nigeria.

Lack of proper education on the subject matter

Inadequate of records kept by businesses.

Inadequate preparation and lack of understanding of how VAT works and what government intends to do with the revenue tends to make the tax unpopular.

Increase in the price of goods and services that can result in inflation, growing unemployment and under-utilization of industrial capacity.

Lack of confidence in the capacity of government judiciously allocated fiscal resources.

1.7 Research Hypotheses

Five hypotheses will be tested to show the level of significance of estimated parameters and the suitability or otherwise of formulated models.

The various hypotheses are:

H0: That Value Added Tax administration and implementation has no significant effect in government source of revenue.
H1: That Value Added Tax administration and implement has significant effect in government source of revenue.

H0: That Value Added Taxation in Nigeria does not constitute double taxation on goods and services.
H1: That Value Added Tax double taxation on goods and services.

H0: That the incidence of state creation in Nigeria cannot positively affect the realization and administration of Value Added Tax (VAT).
H1: That the incidence of state creation in Nigeria can positively affect the realization and administration of Value Added Tax.

H0: That there is no relationship between appraisal of the effectiveness on VAT and Gross Domestic Product.
H1: That there is relationship between appraisal of the effectiveness on VAT and Gross Domestic Product.

H0: That Value Added Taxation should be abolished.
H1: That Value Added Taxation should not be abolished in Nigeria.

1.8 Research Questions

In the course of this study, some questions came under consideration, these questions include:

How effective is the administration of VAT system in Nigeria?

What are the effects of Value Added Tax on economy?

Does VAT not constitute double taxation on consumers?

What benefits accrue to tax payer?

What steps can be taken to ensure that the full potentials of VAT are realized?

What are the likely prospects of VAT?

How does VAT influence consumer behaviour?

1.9 Limitation of Study

It is obvious that hardly can there be any administrative research work like this, without limitations, has monopoly of knowledge, and the facts that human beings are rational. Since, the material for carrying out this research work may not provide conclusion answers to all the issues relating to administrative level of operation.

Difficulties in getting relevant information, textbooks and relevant journals to the studies are another inhibits factor. The available time and financial resources also contributed but not significantly to the limitations of this research and therefore, this inquiry many not exhaust all that is necessary for maximum exposure.

This however, leaves room for other researchers whom may want to investigate further.

Summary, Conclusion and Recommendations

5.1 Summary

This project work has been written to explore the effective revenue generation from VAT in Nigeria, the choice of vat over sales tax and the operational problems that attended its introduction in Nigeria were reviewed.

The project also examines the need for full or widespread recognition and understanding not only of the consumption tax (VAT) but its principles and the rudimentary knowledge of its mechanism or operation. Therefore, the concept of VAT in Nigeria was given prominence of VAT on financial management and uses of value added tax information was all explored. In addition the report analyzed the various parameters responsible for less than optimum approach and significant contribution of VAT as a source of government revenues. The stated objectives of this work was observed to be constrained by lack of available data.

The reasons being that the taxpayer in Niger are very reluctant to honor their tax obligation. It was equally observed that taxpayers are not habitual to tax payment.

The projects therefore, analyze VAT and explain the reason for effective VAT administration, it"s important and usefulness in Nigeria.

Also, this project is meant to be summative that is to condense the Nigeria tax experience into a useful instrument for the administrators, public finance scholars and government wishing to adopt VAT or to reform the VAT system. Based on these, the following findings and recommendations represent the outcome of this research exercise.

5.2 Findings

Taxable public within the concept of this study did not receive taxation as conceived by planning authorities. It was severely criticize because majorities of the populace were indicted, even then those educated ones had false conception on the fiscal policy and considered it inadequate to pay prescribed role.

It was equally found that there are scantly infrastructure facilities to effectively fertilize the programme. This include lack of good roads, inadequate infrastructure for tax education, unreliable of the communication system, insufficient health facilities and lack of access to developmental financial infrastructure, particularly as concerning the structural and promotional needs. The insufficient provision of such necessities has led to the sub-effective operations of VAT in Nigeria.

It was equally recognized that increase in tax rates was accountable got increasing obstacle on (I) employment and other industrial activities.

The above notwithstanding, the analysis equally observed that many tax payer were habitual to fraudulent declaration such as under declaration of sources of income, irregular competition of documents. All these activity affected optimum realization of VAT target.

A comparative analysis various elements of tax, such as VAT, was sales tax and excise duty revealed that VAT was more complex to operate particularly as it recorded highly significant level of evasion.

It was discovered from this research work that various methods adopted to achieve tax evasion tendencies include (I) outright ignorance on the part of the society (ii) inadequate legal framework and (iii) sub-effective infrastructural base tax education, unreliable of the communication system, insufficient health facilities and lack of access to developmental financial infrastructure, particularly as concerning the structural and promotional needs. The insufficient provision of such necessities has led to the sub-effective operations of VAT in Nigeria.

It was equally recognized that increase in tax rates was accountable got increasing obstacle on (I) employment and other industrial activities.

The above notwithstanding, the analysis equally observed that many tax payer were habitual to fraudulent declaration such as under declaration of sources of income, irregular competition of documents. All these activity affected optimum realization of VAT target.

A comparative analysis various elements of tax, such as VAT, was sales tax and excise duty revealed that VAT was more complex to operate particularly as it recorded highly significant level of evasion.

It was discovered from this research work that various methods adopted to achieve tax evasion tendencies include (I) outright ignorance on the part of the society (ii) inadequate legal framework and (iii) sub-effective infrastructural base

The absence of periodic performance evaluation of the fiscal system was equally observable and considered responsible for the impossibility of the authorities to inject some control or corrective measures many a time.
viii. In line with the (i-viii), there is need for corrective measures to boost the work force performance in order to boast the morale or motivate the work force for better performance. This in-effect will bring about higher revenue base which the efficient administration of the tax system can equally be rescued from jeopardy.

The study reveals that, in developing countries like Nigeria, tax collection is associated with problems like, illiteracy, poverty, ignorance and low degree of compliance coupled with inefficient collection machinery. The VAT operation not being an exemption or contributed significantly of many fiscal policies in Nigeria.

It is observed that VAT has been generated is accepted. Its burden is considered tolerable and negotiable if revenue generated is well utilized to provide basic needs of the populace and increase the standard of living that has ever been deteriorated.

We identified that there was significant achievement in the level of awareness and understanding of VAT. This has increased over the years by its acceptability, penalties, and by judging its increased level of compliance within a very short time of its introduction. But the public understanding of VAT penalties and its rudiments still need a boast.

The study reveal that VAT has succeeded as a fiscal tool for generating and redistribution of income from private sector and thus proved the critics wrong.

VAT has proved to be an important fiscal toll in generating effective. It has done so, not only by the level of revenue generated but by the scuffle on sharing ratio it has caused between the federal, state and local government. In the first two years of operation, the ration was re-adjusted thrice to bring to bearing various parameters of allocation and administrative interest.

Revenue generation through tax was recorded, as been one of the major ways that government used to fund its expenditure. Naturally, capacity to collect taxes lies in the administrative competence taxes collecting organs of the government as well as its structure. But unfortunately, the necessary ingredients to support efficient tax administrative in developing countrieshave been eroded. The appealing decisions of officials are not well spelt in the documents that were reviewed. All the concerned VAT able population perceived the law as not been fair and just. This is a big discovering strategy capable of not only affecting the adjustment of on going policies on effective Value Added in Nigeria, but for man y other developing countries.

Most irregularities identified, such as offences, documentation measurability of penalty are either too severe, or of no effect.

There was no evidence of markets associations responsible for effective implementation of VAT particularly with the need to avoid or minimize distortion by fraudulent operators. Finally, in the course of study, it was found that the physical infrastructure was ill developed, supportive was a none starter.

Thus only one area VAT office, little zonal offices and local VAT offices in Lagos state. This has led to the cause of low revenue generation in the state.

5.3 Recommendations

For the purpose of this research work, the nature of effective revenue generation from Value Added Tax was well appraised and analyzed. The finding from the on going was generally presented in a 20-point presentation ptogtamme.

However, the recommendation for effective resolution to most of the outcome of the findings cannot be generalized, hence, the various elements likely to constitute an array of effective relationship have been grouped into four segments namely; the basic, supportive, promotional, and regulatory analysis.

The recommendation that follows this four adapts this structure for easy of policy identification. They are:

The requirement for basic infrastructural development foe effective VAT in Nigeria and other developing countries.

The need for increasing the supportive facilities necessary for effective linkage between basic, promotional, and regulatory system.

The development of all necessary promotional organization

The control and regulatory mechanism for effective policy implementation, policy monitoring, target examination and feedback process.

The requirement for Basic Infrastructure includes:

The success or failure of any tax depends largely on the extent of how it is properly managed. Therefore, the government should like into consideration the needs for proper and widespread education and information through the mass media in order To debunk the false conception on the fiscal policy and knock-off the button.

It is recommended that the government made available and in sufficient quantity good roads, adequate infrastructure for tax education of the postal system, sufficient health facilities and access to the mass media on fiscal programme in the country. Since the level of development of these requisite social investments to a larger extent determine the capacity of government to raise revenue from a mass-market tax such as VAT.

Policy planners should take into consideration the problem of tax collection in developing countries. Such problems as ignorance, poverty illiteracy, inefficient collection machinery, low degree of compliance and the likes. All these should represent policy main focus and part of the premise for policy formulation.

It is recommended that improvement should be made on fiscal tools for revenues generation in both the private and public sectors, even though the study that shown VAT as a success tools for generating revenue and redistribution of income from private sector.

It was equally recommended that efficient health facilities, additional VAT offices, additional zonal VAT offices, creation of district VAT offices and more technical committee should be the FIRS priority.

There is also need to increase the number agencies on law, increased number of agencies on efficiency of VAT and optimum operation of legal department in order to enhance effective and efficient administration of VAT mechanism in Nigeria.

It is recommended that additional area VAT office, additional zonal Vat offices and more local VAT offices should be created for effective revenue generation in the state.

Increment in supportive facilities includes:

For successful of fiscal policy, it is recommended that reduction should be made in tax rates so with policy, it is recommended that reduction should be made in tax rates so that political goal of stronger economy that will increase productivity, new investment opportunities, more jobs, and industries can be attain.

The Value Added Tax must be made simple for understanding and easy compliance. The broad based and aggregate data policy and complexity of the tax information should be simplified for letter understanding.

Realizing the potentials of vat as a source internally generated revenue, it is important that government should make funds adequately available as well as improve the condition of service of the personnel administrating VAT.

It is recommended that for effective and successful VAT collection administration of VAT collecting organs of the government and other machinery"s needed for effective tax administration in Nigeria should be explored.

The FIRS should put up mechanism that incorporates various market associations in the successful implementation of VAT to avoid or minimize distortion by fraudulent operators.

The government should make available insurance company and stable policy for administrative and effective operation of Value Added Tax in Nigeria.

Increase in the productivity of staff training and welfare and development of efficient workforce need to be improved in order to achieve the Vat objectives or target.

Increase in the productivity

The government must also consider the need for constant and effective planning and research, financial institution for loan and advances and employment opportunities through Value Added Tax in the country.

The need for promotional facilities includes:

In the light of the above, if trend of performance is found satisfactorily, then government must develop mechanism to boost the morale or motivate the workforce for better performance, this in effect will bring about increased revenue base while efficient administration of the tax system will therefore be optimized.

It is equally recommended that revenue should be well utilized, so that the burden for the populace and improvement in standard of living should also be made available and efficient for administrative realization of vatable parameters

It is also recommended that VAT should be administrated judiciously in order to stimulate aggregate consumption for evenly distribution of income.

The state government should mount convincing public awareness about the important of tax payment, particularly VAT, in this regards other public relation agencies, advertising practitioners, may be employed but within reasonable overhead cost.

The government should also recognized the need for widespread information through the news media, reliable postal system and adequate infrastructure in order to create awareness to the general public on the important of Value Added Tax as a source of government revenue.

The Regulatory Infrastructural Facilities for Administration Value Added

Tax income:

It is equally recommended that proper records be kept for efficient documentation and information management system. This is necessary in order to developed and manage the mass media likely to be resulting from administration VAT administration.

The government should set up or regulatory control agency that are capable and determined to eliminate possibility of tax evasion.

There is need for periodic performance evaluation of fiscal system so as to enable the authorities inject some control or collective measures if found necessary.

It is very important that a clear means of applying decisions of officials are spelt out in the VAT law. The law should not only be fair by all concerned. When a law is perceived to be fair voluntary compliance presents fewer problem and administration of elements in inevitable.

Offences should not be restricted to specifies and penalties are equally possible kill the gooes that are suppose to lay the golden eggs. Important elements are: (i) regularity with which offenders are caught, (ii) the diligence with which they are persecuted, and (iii) determinant of prospective offender. All these can better be achieved when tax payers has a low expectation of avoiding detection of any evasive activities

There is need to crate a system of checks, which will prevent VAT able authority from misappropriate the monies so collected.

Policy Implication

The above 20-point findings and 30-point recommendation were restructured into specific policy elements foe effective and administrative realization of VAT objective and financial targets.

In this regard the various issues in the ongoing were remodeled and led to the followings:

Possible amalgamative elements of the project

Incompatible positions within the study and

Identification of possible loophole that can be amended within the limit of administration of policy and the to minimize cost of implementation. For various relationships between (i), (ii) and (iii) se model frame work titled "Optimum Revenue Generation Capacity of VAT.

Model Parameters

The recommendations are presented into specific and simplified model. This model is divided into two frameworks of proximate and ultimate or second order conditions, and are sometimes refers to as the sufficient conditions.

The proximate or first ordered conditions are: divided into four namely, (1) public structures, (2) supportive structures, (3) promotional structures and (4) the regulatory structures and policy control.

Model Interpretation

Basic structures are further divided into basic infrastructures requirement for implementation of policy. The proximate variables within the basic system. The efficient health facilities, additional area VAT offices additional district VAT implementation, additional zonal VAT offices, additional district Vat offices, more technical committee, VAT able population, implementation, increase number of agency on VAT operation, administrative operation of legal department, elimination of tax evasion, accountability and corruption free, monitoring research mechanism, government regulatory framework, VAT audit and investigation, tax force, adequate infrastructures for VAT education, reliable postal system, and widespread information through the news media.

While the ultimate variable is the supportive structure which include research development, increase productivity staff training, employment generation financial institution and effective planning, development of efficient workforce and communication staff training and welfare, stable policy and disciplined leadership and insurance companies.

It is however, observed during the course of study that both the proximate and ultimate variable are luterrelated they work hand in hand. It is also observed that the ultimate variables cannot be achieved without the proximate variables. In other word, for the effective and administrative revenue generation in Nigeria, both the proximate and ultimate variables must be taken into consideration.

Finally, for effective administrative and operation of Value Added Tax in Nigeria, both the necessary conditions and the sufficient conditions in the model must be employed. That is, the basic structures, the supportive structure of Value Added Tax Administration and operation must be incorporated in order to achieve effective and administrative revenue generation on VAT in Nigeria.

5.4. Conclusion

In Nigeria, unlike the history of most other countries the introduction of VAT turned around the state of taxation by causing the death of sales tax operations in the state. Consequently, there is today on other form of sales tax in Nigeria in addition to Vat. And the operation of VAT has led to the elimination of block collection of taxes at state and local levels.

It has led to the elimination of multiple taxation from the withholding tax system, and caused marginal decrease in the rates of direct taxes.

This enables taxpayer to pay less tax but contribution administratively to the public revenue base.

Vat as a new source government revenue generation needs more complex administrative mechanism so as to enhance development and good planning process.

Taxation is very important and indispensable in human life; taxation is one of the major ways through which government funds its expenses.

Naturally, capacity to collect taxes lies in the optimum administrative competence of the tax collecting structure. But this is not so in Nigeria, for the ingredients to support efficient tax administration has been eroded. Similarly Vat in Nigeria so far as been a phenomenal source and there is need to recognize this as a fact.

From the findings, of this research, it is evidence that VAT in Nigeria is capable of Planning a pivot position in the next millennium. Infant, it is sufficient to generate administratively led to the findings of the study.

Similarly, for effective administration, mechanism and implementation of the new tax (VAT), it is obvious that in the near future, the revenue and made the economy less dependent of the later revenue, which is even more on consistency and bias in the revenue generated and allocation.

Moreover, there are a lot of rooms for improvement in respect to the development of vat in Nigeria.

The short comings such as lack of deficiency in infrastructures, monitoring, regulatory bodies and professionally qualified manpower"s e.t.c. provides ample opportunities for growth as identified in the model.

Finally, economic and statistical stability of Vat as discovered needed to be improved in order to achieve administrative VAT objectives. It is equally obvious from the model that Nigeria is lacking many variables previously in existence in our system.

The purpose of this study would have being achieved if the current exercise achieve the twin objective of (1) exposing various elements responsible for sub-administrative VAT operation (2) development of significant and maximum corrective measures necessary of policy maximization.

As far as this present research is concerned, the normal Vat system operates sub-administrative without the (1) identification of the second order conditions listed in this exercise (2) operate without due consideration of the significantly role assigned to infrastructural development in modern tax management (3) staff incentives was equally sub-administered. Finally one can conclude that our system would be administered operated with the inclusion of the outcome of these omissions.

Hence this current is expected to keep alive the debate on the concept, problems executions and prospect of Value Added Tax as instrument of tax re-engineering in Nigeria. This is return would amount to finding a medium of mobilizing administrative revenue with least pain to the masses whose income can bear only minimum level of consumption in a country blessed with abundant natural resources.

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