Problems And Prospect Of Value Added Tax (VAT)
(A Case Study In Enugu State)
Value Added Tax (VAT) presents both challenges and opportunities in contemporary fiscal policy landscapes. On one hand, its implementation often grapples with complexities stemming from compliance issues, administrative burdens, and the potential for tax evasion. These hurdles require adept regulatory frameworks and robust enforcement mechanisms to mitigate. Additionally, VAT systems can face resistance from certain sectors or populations, necessitating effective communication and stakeholder engagement strategies. On the other hand, VAT offers numerous prospects, including enhancing revenue streams for governments, promoting economic efficiency through a consumption-based tax model, and fostering greater transparency in the tax system. Moreover, VAT implementation can stimulate formalization of the economy by incentivizing businesses to register and comply with tax obligations, thus broadening the tax base. Addressing the challenges while leveraging the opportunities of VAT demands a comprehensive approach that balances regulatory rigor with facilitative measures to ensure its effectiveness in revenue generation and economic governance.
The topic value Added Tax, which was introduced in the year 1993, is a tax on consumption born by the final consumer by paying five percent (5%) on any valuable product whether local produced or imported.
The researcher data collection was on two bases, which include the primary, and secondary. The primary data was the information got by the researcher when the researcher conducted on oral interview with the officials of the federal in land Revenue service, the Accountant General of Enugu state and some of his office staff, and Enugu North Local Government Council staff who are basically concerned with the collection and the disbursement of the money from value Added Tax.
The secondary data was got from the value Added Tax information circular No 93/ 04 dated 20th August 1993 and 93/ 05 dated 5th Nov. 1993. Other were value Added Tax Decree No. 102 of 1993 and principle and practice of Management by Breech E.F.L of 1975.
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The data collected was presented and analyzed accordingly and the following findings were made; that there were, “Registered person” at the time of this project which in actual sense is a success; that the money collected by the federal inland Revenue service officers the “Registered persons” were promptly recorded and paid to the central Bank of Nigeria in on the importance of value Added Tax offices has not been established in the local Government use the money as it suits them; and that the payment of value Added Tax rate through central Bank in each state to the central Bank in Abuja is a delay tactics which hinders the sharing at the appropriate time.
Based on the above findings, the following recommendations were made. That value Added Tax offices be established in all local government area to effect prompt payment and curb the value Added Tax rate evaders. By its establishment, it will become a household name in all the local government areas, that a specific project be mapped out by the federal Government for the utilization of the money realized from the Added Tax: that a specific account be opened into which the money realized will be paid instead of through the central Bank; and that a special Board be established for the sharing of the money realized.
Title page
Approval page
Dedication
Acknowledgement
Abstract
Table of content
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
1.2 Statement of the problems
1.3 Purpose of the study
1.4 Research questions
1.5 Significance of the study
1.6 Scope and limitations
1.7 Definition of terms
CHAPTER TWO:
LITERATURE REVIEW
2.1 Definition of value added tax (vat)
2.2 Contribution of vat
2.3 Offences and penalties
2.4 Method of collection and allocation
CHAPTER THREE:
RESEARCH DESIGN AND METHODOLOGY
3.1 Methods of research
3.2 Source of data secondary/primary
3.3 Population and sample size determination
3.4 Description of respondents
3.5 Treatment of data
CHAPTER FOUR:
DATA PRESENTATION AND ANALYSIS
4.0 Presentation, analysis of data
4.1 Summary of results
CHAPTER FIVE:
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Findings
5.2 Conclusions
5.3 Recommendations
Appendices
Bibliography
References
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Value Added Tax (VAT) is a system of tax recently introduced in Nigeria, which is based on imposition, and charging 5 percent tax on certain goods and services imported or produced locally in Nigeria. The idea of introducing Value Added Tax in Nigeria came from the report of the study groups set up by the Federal Government in 1991 to review the entire Tax System.
Value Added Tax was proposed and a committee was set up to carry out feasibility studies on its implementation. In January 1993 government agreed to introduce Value Added Tax by the middle of the year and it was later shifted to 1st September, 1993. Value Added Tax is a replacement of the existing sale’s Tax, which has been in operation under Federal Government Legislated Degree N0. 7 of 1986.
In some advanced countries of the world, this system of taxation had been in operation and its enormous benefits being harvested. These countries are United States of America Britain, China and a host of others. Nigeria on her own wants to take the bull by the horn by introducing value added tax like other benefiting countries earlier mentioned above despite all pitches that may appear to impede the good intentions of government to introduce and implement the system.
The value added tax system has been introduced and made to get its location offices in all the 36 states of the Federation and Abuja. To ensure that the system works most effectively and efficiently so that the main purpose or goal for which the system was introduced is achieved, the then federal military government made a decree that backs its smooth take off. The value Added Tax System has taken off in earnest and its application on various sectors of our economy in Nigeria and some states.
Especially Enugu, seems to be producing good and bad effects on the economy generally.
The good effect of value added tax include the reduction of the tax evasion, provision of incentives to exporters, reduction of government excessive dependence on the oil sector as well as enhancing the provision of social infrastructure.
It produces bad effect on the general economy on the ground that in some sectors of our economy like manufacturing, its application especially on industrial machines, raw materials and other manufacturing inputs would cripple the growth of the real and exports sectors.
Despite this and high hopes in official circles that the newly introduced Value Added Tax would rest government’s over dependence on the oil revenue for its programmes, its implementation appears to hit the brick walls. This is because there is fear that the tax policy may actually escalate the rate of socio-economic disequilibrum in the economy.
Enugu State, which is the scope of this project, was created on 27th August 1919 with particular reference to Enugu North Local Government Council, which was also created in 1991.
1.2 STATEMENT OF PROBLEM
Value Added Tax and its introduction into the economy is a giant revenue generating mechanism, which will go a long way to boast revenue generation in the economy. It is based on this premise that there becomes the need to examine critically the mechanism or how far the imposition system of value Added Tax in various sectors of the economy has failed. The study will therefore address the following issues.
1. How the money is being collected
2. How t he money is disbursed
3. What the money is used for after disbursement
1.3 PURPOSE OF THE STUDY
The following are the purpose of the study of Value Added Tax:
1. To discover the techniques used in collecting the revenue.
2. To determine the type of products and services which are vatable non-vatable.
3. To understudy the distribution and usage of the money collected from Value Added Tax.
1.4 RESEARCH QUESTION
The following research questions were used for the purpose of this project. They include:
1. How is Value Added Tax collected and at what percentage.
2. How is the money collected disbursed and at where is it disbursed;
3. When does each money collected by Value Added Tax officials be disbursed?
4. At what percentage is the money collected be disbursed to states and local government councils.
5. Who is in charge of collecting both state and local government councils share;
6. How is the money collected after sharing by each state and local government council used.
1.5 SIGNIFICANCE OF THE STUDY
The study would be useful in modifying the economy of Enugu State as it stands the chance of adding more revenue to the already existing revenue of the state. The study also stands as an eye opener to the citizens of Enugu State in highlighting them the amount that comes into the state purse through Value Added Tax.
1.6 SCOPE AND LIMITATION
The scope of this project is Enugu State with particular reference to Enugu North Local Government Council.
LIMITATION
The time span for the research was limited as one had to do normal lecture with the research at the same time. Due to lack of time, some areas that needed attention for efficient and accuracy of this project was not properly attended to.
Poor response from the workers was one of the limitations in this project. Some workers that were consulted for useful information were usually reluctant to give their opinion about the matter for fear of being victimized by the management as one who unofficially leaks the confidential information of the establishments or ministry.
Another issue was the distance. The distance between institute of management and technology Enugu and the 32 local government councils is quite much and that deprived the researcher the opportunity to call at any time the author had a problem on the issue of Value Added Tax.
Moreover, visits to all the 32 local government councils were numbered unlike what would have been in all the local government councils were situated in Enugu North Local Government Council.
The author also encountered financial problems. As a poor student always with little money within his possession could not frequent his visit to the 32 Local Government Councils in Enugu State as needed for a more comprehensive and a well researched project. This financial predicament contributed immensely as the setback and the deprivation of the glorious look this project would have achieved.
1.7 DEFINITION OF TERMS
1. Value Added Tax (VAT):- This is tax on spending. The tax is born by final consumer of the goods and services because it is included in the price paid.
2. Federal Inland Revenue Services (FIRS):- This provides a free information and advisory services to help you. Federal Inland Revenue Services also collect the money on value added tax and pays same to the Central Bank of Nigeria within the state it operates. The Central Bank of Nigeria within the state pays same to Central Bank of Nigeria, Abuja.
3. Registered Person (RP):- This is any person registered under section 8 of the Decree.
4. Authorized Office (AO):- This means an officer who has been authorized by the board to perform any function under or in pursuance of this Decree.
5. Board:- This means the Federal Board of Inland Revenue.
6. Tax Period (TP):- This means one calendar month commencing from the beginning of the month to the end of that month.
Problems And Prospect Of Value Added Tax (Vat):
Value Added Tax (VAT) is a consumption tax levied on the value added to goods and services at each stage of production or distribution. While VAT has become a common source of revenue for many governments around the world, it comes with its own set of problems and prospects. Here are some key issues associated with VAT:
Problems of VAT:
Complexity: Value Added Tax can be complex to administer, especially when it involves multiple tax rates, exemptions, and special schemes. This complexity can lead to errors and increase compliance costs for businesses.
Tax Evasion and Fraud: Value Added Tax systems are susceptible to tax evasion and fraud, particularly when there are gaps in enforcement and monitoring. This can result in significant revenue losses for governments.
Regressive Nature: Value Added Tax is often considered regressive because it applies uniformly to all consumers, regardless of their income levels. Low-income individuals may bear a disproportionate burden of the tax.
Compliance Burden: Value Added Tax compliance can be burdensome for businesses, especially small and medium-sized enterprises (SMEs). They must maintain records, file regular returns, and navigate complex rules, which can be time-consuming and costly.
Impact on Prices: VAT can lead to an increase in consumer prices, as businesses pass on the tax burden to consumers. This can contribute to inflation and affect the purchasing power of consumers.
Double Taxation: In some cases, VAT can lead to double taxation, where the same value-added is taxed more than once in the supply chain. This can distort economic incentives and hinder international trade.
Prospects of VAT:
Revenue Generation: VAT can be an effective revenue generator for governments. It provides a stable and predictable source of income that can be used for public services and infrastructure development.
Efficiency: Value Added Tax is often considered more efficient than other forms of taxation, such as sales tax, because it minimizes tax cascading (tax on tax). This can promote economic efficiency and reduce market distortions.
Broad Base: Value Added Tax typically has a broad tax base, encompassing a wide range of goods and services. This can help distribute the tax burden more evenly across the economy.
International Trade: Value Added Tax can be conducive to international trade because it is typically imposed on imports and rebated on exports. This can make domestic and foreign products more competitive in global markets.
Flexibility: Value Added Tax systems can be adapted to suit the specific needs of a country. Governments can adjust tax rates, introduce exemptions, and implement anti-avoidance measures to address economic and social objectives.
Transparency: Value Added Tax is often more transparent than other taxes, as it is clearly visible on invoices and receipts. This transparency can promote tax compliance and discourage tax evasion.
In conclusion, Value Added Tax (VAT) has both advantages and challenges. Its effectiveness largely depends on how it is designed, implemented, and enforced. While it can generate significant revenue and promote economic efficiency, it also poses challenges related to complexity, compliance, and fairness. Policymakers need to carefully consider these factors when implementing or reforming VAT systems to maximize their benefits and minimize their drawbacks.