Advantage Of Value Added Tax In Terms Of Revenue Generation
Value Added Tax (VAT) offers several advantages in terms of revenue generation for governments. Firstly, VAT operates at each stage of production and distribution, allowing for a broad tax base that encompasses various economic activities. This broad base helps to ensure a steady stream of revenue as it captures consumption at multiple points in the supply chain. Secondly, VAT is generally designed to be a self-policing system, reducing the likelihood of tax evasion compared to other forms of taxation. Its built-in mechanisms for invoice tracking and collection make it harder for businesses to evade taxes, thus contributing to more reliable revenue collection. Moreover, VAT can be adjusted flexibly to adapt to changing economic conditions, making it a versatile tool for revenue management. Overall, VAT stands as an effective means of revenue generation due to its broad coverage, self-regulatory nature, and adaptability to economic shifts.
The study was focused on the importance of value added tax in terms of revenue generation. A core study of federal Inland Revenue service Enugu office. Data were collected from primary and secondary, questionnaire was also included.
Report evidence indicated that the importance of value added tax in terms of revenue generation and the introduction of the added tax (VAT) and generation of revenue though other forms of taxation. It also has to find one, the problem associated with VAT administration since its introduction.
The recommendation giving to make VAT very effective are; That government should give firm economy to exercise full power in terms of tax collection and also VAT process should be put in a separate account to used for the provision of basic necessities such as food water etc. this is to reduce he suffering of the Nigeria citizens.
Title page
Dedication
Acknowledgement
Abstract
Table of content
CHAPTER ONE:
1.1 Statement of problems
1.2 Objective of study
1.3 Significance of study
1.4 Statement of the hypothesis
1.5 Scope of the study
1.6 Limitations of this study
1.7 Definition of terms
CHAPTER TWO:
2.1 Review related to literature
2.2 Definition
2.3 The nature of vat and the administration policy
2.4 Adaptation of vat in Nigeria
2.4 Vat as a replacement of sole tax
2.6 Implementation of vat in Nigeria
2.7 Legislation of vat
CHAPTER THREE:
3.1 Research methodology
3.2 Source of data
3.2 Method of data collection
3.3 Method of data analysis
3.4 Justification of methods
CHAPTER FOUR
4.1 Data presentation and analysis
4.2 Test of hypothesis
4.3 Data analysis
4.4 Data interpretation
CHAPTER FIVE:
5.1 Summaries, conclusion and recommendation
5.2 Findings
5.3 Conclusion
5.4 Biography
5.5 Questionnaires and appendix
INTRODUCTION
Some years back, the agricultural sector was playing an important role in the Nigeria economy both in generating revenue and in the physical impact. This was before oil started its own impact on the economy. The impact created by the oil sector begging to be more relevant within a short period of time. Other sectors of the economy become secondary in terms of their relevance’s. The sectors were neglected in the favour of oil.
Oil thus becomes the leading factor and the leading product in term of revenue generating and foreign exchange contribution. The condition of the economy became vulnerable to the condition of the word oil market form 1970 till date. The fluctuation of price in the world of oil market in the Nigeria economy. This is by diversifying the revenue generated based on the higher economy.
In addition to the above mention situation, the Nigeria state was increasingly acquires ring national responsibilities along with the traditional role of the government. The financial requirement of the government has been increased over the years in facilitating the accomplishment of government functions. Worthy of mention is this connection in the effective way of revenue generation and collection by the government against responsible for the task. The idea of introducing value added tax (VAT) was therefore considered and the federal government finally approved its introduction. Value added tax is therefore expected to increase and be effective, contribute towards enhancing the revenue generation based on the government. The system is expected to minis of eliminate the corrupt practices associated with revenue assessment and collection.
The important of revenue in any country and of course Nigeria cannot be overemphasized. Revenue has been the bedrock of government performance. The history of revenue in Nigeria dated to the pre-colonial era when tax and levies were paid to the fathers or lord as the case may be to Oba’s, Kings, Emirs. The tax or levies were to be paid in cash or in kind during the pre-colonial era. It was used to support the sustenance of the colonial administration. It has even been used to mobilize farmers into cash crop production mainly for the colonial export through the use of the cash taxes. Even after independency, tax has played in important role in generating revenue for the government.
It as used for the running of the affairs of the post independence government in Nigeria.
Furthermore, it has also been used to archive other policies such as the protection of the infant industries, income re-distribution, checking and controlling the consumption of some certain goods. Etc. it is therefore very much likely that it will continue to play a very important role in Nigeria economy.
Following the difficulties. Irregularities, complains associated with the assessment and collection of the said tax, operation committee was set up by the federal government in 1991 to review the entire tax system in operation. The committee recommended the idea of introducing value added tax (VAT) in the country and another committee was set up to undertake the feasibility study and make recommendation on its implementation after which he federal government finally approved the introduction of value added tax in Nigeria tax system with effect from 1st September 1993 and was incorporated in the 1994 budget.
STATEMENT OF PROBLEM
This research is made to find out the position of value added tax on the overall Nigeria on taxation system. It is the find out the impact or role both in terms of generating revenue for the government and controlling irregularities wildly believed to be associated with the said tax. It is also set to find out beyond Techniquecal level practical problems associated with it and to make recommendation at the end of the study.
OBJECTIVE OF THE STUDY
The objective of this study is to examine the introduction of the value added tax (VAT) as a system of taxation in Nigeria and also to look at the relationship between Value Added Tax and generation of revenue through other forms of taxations. It is also the objective of this study to find out the problem associated with the administration of VAT since its introduction and also to give recommendation on how o make VAT very effective and responsible to the need of the Nigerians. The study also intends to find out the advantages of Value Added Tax (VAT) in term of generating revenue in Enugu state.
SIGNIFICANCE OF THE STUDY
The significance o the study is that government is in need of money to execute its increasing projects. Having introduced VAT to replace the sole taxation, to escape the all the difficulties in the old system. The study is aimed at enhancing the effective implementation and achievement of the objective, as such; VAT should be regarded as worth and should be encouraged and supported.
This study is very important, as the value added tax is a new or a modified system, which has a lot of significance. The public needs to be educated on its operation. The study will bring the outstanding between the government, the populaces (the tax payer) and the tax authorities together
Proper knowledge of the Values Added Tax would bring increase return to the government as a result of the compliance by the payer and proper record keeping by the officials.
STATEMENT OF THE HYPOTHESIS
A hypothesis is an arrangement or tentative generated, which can be proved
with empirical evidence. There are two type of hypothesis namely;
Null hypothesis and alternative hypothesis
A null hypothesis is a hypothesis of no effect or no difference while an alternative
is a hypothesis that may be accepted if the statically evidence is rejected by the
sample evidence.
Data are collected, analyze and interpreted with a view to accepting or rejecting hypothesis. The data collected from this research will be federal Inland Revenue service Enugu office.
We have the hypothesis as follows;
Ho: the measures taking by the federal Inland Revenue service (FIRS) to curtail the much pronounce Nigeria factor of competition and irregularities has nor been archived
Ha: the measure taking by the federal inland revenue service (FIRS) to curtail the much pronounce Nigeria factor of competition and irregularities has been archived
Ho: Proper planning assessment, collection and monitoring of the value added tax has not been archived
Ha: Proper planning assessment, collection and monitoring of the value added tax has been archived.
Ho: the steps government has taking to compel all cooperate bodies border and business in it to fully register with VAT department has been attained.
SCOPE OF THE STUDY
The scope of the study is to cover the introduction, the implementation, problem and prospect of VAT and its relationship with revenue generation in Enugu state. The line frame will cover from its introduction in 1993 till date. In addition to this all data and information to be used will be from area office of the federal Inland Revenue service Enugu office.
LIMITATIONS OF THE STUDY
The study is concentrated on the advantage of value added tax (VAT) in terms of revenue generation and its operation in federal inland service Enugu office value added tax (VAT) as a new introduced system of tax. The study was faced with a problem of its own which limited the research system. Some of the limitation is as follows;
Non-availability of books and journals etc. doe to lack of relevant textbook, journals and magazine, the other relevant articles or publication on the subject matter through which one could easily collect his materials for the literature review in this research work.
b) Its newness:
Due the newness of the value added tax VAT, the taxpayers, the revenue officials are yet to understand fully this new system of tax. This were experience in the course of the study when people were interviewed and their response were similar which reflect lack of understanding.
c) The effect of scanty data:
The issue of scanty data arose were some private organization refuse to disclose some information on their record keeping on Vat and especially on returns rendered to the federal government. This made it very difficult to get the required information on VAT operation by the organization in respect to credit system of VAT
d) Time:
Due top shortage of time, the study was carried out in Enugu state only. Time did not allow for wilder research in other state of the federation. It was not easy to collect most of the questionnaire distributed due to the fact that the people who the questionnaire were given never got it ready at the appropriate time. They gave appointment foe it to be collected. Some even said that they missed the questionnaire.
e) Interviews:
The interview with the sole trader was not easy to obtained because it was very difficult to make them understand the purpose of he study is not to bring them to book for tax purpose.
f) Unwillingness:
Another problem or difficulties face with the course of this research is unwillingness of businessmen and people in position of such vital information to release them and some of then see the researcher as spies or agent of tax board or authority.
DEFINITION OF TERMS
The terms use in this study on the important of value tax are define as follows;
i. Value Added Tax: this is the tax impose on the value of goods and services in the country either imported or exported which the surlier or the sellers of the goods add to it.
ii. Economy: this means control and management of money goods and services in a country.
iii. Goods: the term goods cover all tangible and intangible assets and commodities that are traded for considerations.
iv. Supply of goods: this include delivery and transfer of goods arising from contractual or legal action or transaction though agents.
v. F.I.R.S: Federal Inland Revenue service, it the operation of federal board of Inland Revenue.
vi. F.B.I.R: the means federal board of Inland Revenue.
vii. Legislation: this deal with the aspect of making laws in the system of tax.
viii. VAT on input: this is the VAT on the purchase of goods and service on a notable person.
ix. VAT on OUTPUT: this is the VAT charged on the sale of goods and services it is the VAT paid to the F.I.R.S after vat on the purchase of such good or supply has been deducted.
x. Vatable person: this means any person co-operate or incorporate who trade in Vatable goods and service for a consideration.
SHARE PROJECT MATERIALS ON:
Advantage Of Value Added Tax In Terms Of Revenue Generation:
Value Added Tax (VAT) is a consumption tax levied on the value added to a product or service at each stage of its production or distribution. One of the primary advantages of Value Added Tax in terms of revenue generation for governments is its efficiency and effectiveness in raising revenue. Here are some key advantages:
- Broad Revenue Base: Value Added Tax has a broader revenue base compared to other types of taxes. It applies to a wide range of goods and services, ensuring that a significant portion of economic activity is captured within the tax net.
- Stable Revenue Source: Value Added Tax tends to be a stable source of revenue for governments because it is collected throughout the supply chain and is less susceptible to economic fluctuations. People continue to consume goods and services even during economic downturns, ensuring a relatively consistent revenue stream.
- Reduced Tax Evasion: Value Added Tax is typically collected at multiple points along the supply chain, and businesses can claim input tax credits for the Value Added Tax they’ve paid on their purchases. This system encourages businesses to keep accurate records and report their transactions accurately, reducing the likelihood of tax evasion.
- Reduced Tax Avoidance: Value Added Tax is a destination-based tax, which means that it is levied in the country where the final consumption occurs. This reduces the incentive for businesses to shift profits to low-tax jurisdictions, as the tax is ultimately paid by the end consumer.
- Encourages Formalization: Value Added Tax systems often require businesses to register and comply with tax regulations. This can incentivize businesses to formalize their operations, leading to increased transparency, accountability, and participation in the formal economy.
- Minimized Tax Cascading: Value Added Tax eliminates or reduces the issue of “tax cascading,” where taxes are applied at multiple stages of production without accounting for taxes paid at earlier stages. This helps ensure that taxes are levied only on the value added at each stage, leading to a more accurate taxation of economic activity.
- Flexibility in Rates: Value Added Tax systems can be structured with different tax rates for different goods and services. This allows governments to implement progressive or targeted taxation policies based on the nature of the product. Essential goods can be taxed at lower rates or exempted, while luxury goods can be taxed at higher rates.
- Easier Administration: Modern technology and electronic invoicing systems make VAT administration more efficient. Automated systems can help streamline tax collection, reduce administrative costs, and minimize errors.
- Less Distortionary: Compared to direct taxes like income tax, Value Added Tax is considered less distortionary because it does not directly discourage savings or investment. It encourages consumption while allowing individuals and businesses to make economic decisions based on factors other than tax implications.
- Potential for Higher Revenue: When properly designed and implemented, Value Added Tax can generate significant revenue for governments. This revenue can be used to fund public services, infrastructure projects, and other essential government functions.
While Value Added Tax offers numerous advantages for revenue generation, it’s important to note that its effectiveness depends on proper design, administration, and enforcement. In some cases, it can also have regressive effects, disproportionately impacting lower-income households. Therefore, careful consideration of its impact on different segments of the population is essential during implementation.