THE VALUE ADDED TAX AND AS EFFECT ON THE ECONOMY (A CASE STUDY OF ENUGU STATE)
ABSTRACT
Value added tax is a tax on consumed goods and services of individuals and corporate bodies made payable to the government. It serves as a source of income for satisfying collective wants and for regulating both economic and social policies and programmes.
In the recent past, other forms of taxes were existent in Nigeria with the exception of VAT and they could not generate enough revenue for execution of government projects and programmes.
In view of this, the value added tax was introduced in Nigeria with effect from January 1, 1994. The objectives of VAT, recently, were not fully realized and this brought about problems today under this study.
The topic “value added tax and its effect on the economy” a case study of Enugu state x-rays the problematic areas in the topic under study.
In order to succeed in the study, hypothesis were formulated and quesionnaires were constructed and chi-square were used to test the hypothesis.
It was observed that vat in Enugu state is asset in controlling inflation on the econmy and vat decreases the demand for consumer items in Enugu state.
Having examined the above topic and identified the problems, recommendations were made on how this will be improved to ensure proper utilization of vat fund and increased vat revenue.
PREFACE
In this research work, I have made attempts to explain my views and findings on the value added tax and its effect on the economy with particular reference to Enugu state.
The value added tax which was introduced in Nigeria by the 1994 budget broadcast of late Sani Abacha made a landmark in Nigeria’s public policy regulation, value added tax is bound to afect the economy in one way or the other.
This work had been slit into five chapters.
Chapter one which is the introduction further divided into five parts. In this chapter, I tried to identify the problem of the study, rationale of the study, significance of the study, background of the study and definition of terms.
Chapter two which is the literature review tries to incorporate the views of other experts into the study thereby exposing the theoretical review and the empirical review.
Chapter three of the study is the hypothesis, research methodology, sources of data and limitations of the study.
The fourth chapter treated data presentation and analysis and discussion of the result.
Chapter five revealed the summary of the study, conclusion, recommendation and suggestion for further research. The steudy will prove useful to graduates professions/ students and for various professionals in involved in taxation and tax matters.
Chapter one
Introduction 1
Chapter two
Literature review 8
2.1 Theoretical review 8
2.2 Empirical review 30
Chapter three
Hypothesis, methodology of the study, sources
of data and limitations of the study 34
3.1 Hypothesis 34
3.2 Methodology of the study 35
3.3 Sources of data 38
3.4 Limitations of the study 40
Chapter four
Data presentation, analysis and discussion of the result 42
4.1 Data presentation 42
4.2 Analysis 43
4.3 Discussion of the result 50
Chapter five
Summary, conclusion and recommendation 51
5.1 Summary 51
5.2 Conclusion 56
5.3 Recommendation 57
5.4 Suggestion for further research/studies 59
Bibliography 61
Appendix 64
LIST OF TABLES
S/No Tables pages
S/NO figures page
CHAPTER ONE
INTRODUCTION
Value added tax is a tax on consumed goods and services of individual and corporate bodies made payable to the government. It serves as a source of revenue for satisfying collective wants and for regulating both economic and social policies and programes.
According to Ola (1985).
In the recent past, other forms of taxes were existence in Nigeria with the exception of vat and they could not generate enouhg revenue for execution of government projects and programes. In view of this, the value added tax was introduced in Nigeria with effect from January 1, 1994.
I want to investigate on the followings.
The effect of value added tax on the economy. I want to know whether it is used in controlling inflation in the economy. We shall also assess the effect of value added tax on the demand for consumer items in the Nigeria economy.
The functions of the federal inland revenue is the extension of value added tax to the economy. They are rendering a guest social services through their actions, investment are expanded and a high standard of living is realized. Value added tax is very important to the economy because it aids increased finance of the economy.
It is pertinent to research into the impact of these vats on the economy and suggest possible means of mitigating them.
The importance of the study is to appraise the benefits of vat on the economy. This is to examine the effects of vat on the economy. The economy is faced with potentialities of problem. The significance of this study is also to help to improve the lot or situation of the principals actors of the sectors of the economy. This study will be useful to the following people they are:
The tax existing in Nigeria before the 1994 budget was not able to generate the much needed revenue to meet up with the government expenditure requirements. As at 1991, the 75% of the total generated revenue was from petroleum which accounted for about 54 billion out of the N72billion total. There is therefore the need to reform the Nigerian tax system which is the major non-oil revenue sector. This is why the international monetary fund (IMF) and the world Bank, two agencies of the United Nations Organization which are closely identified with the establishment and continued operation and monitoring of SAP suggested to the federal government, the introduction of value added tax (VAT) as a replacement of sales tax. This is in anticipation of a higher revenue generation from the new tax system.
The federal government’s budget of 1994 expected a total of N44.1billion as revenue from the non-oil sousrces which is part of the N110.20billion total budgeted expenditure. To achieve the amount of revenue realizable from the non-oil sources, the government, therefore, introduced the value added tax (Vat).
In the 194 budget radio broadcast to the nation, major General Sanni Abacha had stated;
Tax policy in 1994 would aim at encouraging genuine entrepreneurs while improving the enforcement of existing tax laws and the machinery for the collection.
However, a new tax on consumption known as the value added tax is to come into effect this year”.
This official budget statement introduced the new form of tax known as the value added tax (VAT) into the Nigeria tax policy and was backed up by decree 102 of 1st September 1993.
And the decree thus states:
“There is hereby imposed and charged a tax to be known as the value added tax (in this decree referred to as the tax)which shall be administered in accordance with the provisions of this decree.”
These extracts from the 1993 decree and the budget statement of 1994 has therefore given mandate to the federal Inland revenue services to administer and collect tax on consumption known as the value added tax.
The introduction to the value added tax at this point in time when the Nigeria economy is almost at the point of collapse is another avenue of seeking solution to the country’s economic problem.
Taxation is a key factor for promoting the government’s overall economy and scial objectives and taxation is used to achive economic growth which refers to an increase in the money, goods, and other resources of the community, society and household.
Some of the terms as used in this study are defined below:
SAP: Structural adjustment programme: an economic reconstruction programme introduced by Babangida regime to be monitored by the World bank and the international monetary fund (IMF) as an alternative of IMF loan.
Decree: a bill passed into law by the federal military government.
Consumption: This refers to the goods and services paid for by a consumer.
VAT: value added tax
Vat able goods: Goods and services that qualify for the value added tax.
ABSTRACT
Value added tax is a tax on consumed goods and services of individuals and corporate bodies made payable to the government. It serves as a source of income for satisfying collective wants and for regulating both economic and social policies and programmes.
In the recent past, other forms of taxes were existent in Nigeria with the exception of VAT and they could not generate enough revenue for execution of government projects and programmes.
In view of this, the value added tax was introduced in Nigeria with effect from January 1, 1994. The objectives of VAT, recently, were not fully realized and this brought about problems today under this study.
The topic “value added tax and its effect on the economy” a case study of Enugu state x-rays the problematic areas in the topic under study.
In order to succeed in the study, hypothesis were formulated and quesionnaires were constructed and chi-square were used to test the hypothesis.
It was observed that vat in Enugu state is asset in controlling inflation on the econmy and vat decreases the demand for consumer items in Enugu state.
Having examined the above topic and identified the problems, recommendations were made on how this will be improved to ensure proper utilization of vat fund and increased vat revenue.
PREFACE
In this research work, I have made attempts to explain my views and findings on the value added tax and its effect on the economy with particular reference to Enugu state.
The value added tax which was introduced in Nigeria by the 1994 budget broadcast of late Sani Abacha made a landmark in Nigeria’s public policy regulation, value added tax is bound to afect the economy in one way or the other.
This work had been slit into five chapters.
Chapter one which is the introduction further divided into five parts. In this chapter, I tried to identify the problem of the study, rationale of the study, significance of the study, background of the study and definition of terms.
Chapter two which is the literature review tries to incorporate the views of other experts into the study thereby exposing the theoretical review and the empirical review.
Chapter three of the study is the hypothesis, research methodology, sources of data and limitations of the study.
The fourth chapter treated data presentation and analysis and discussion of the result.
Chapter five revealed the summary of the study, conclusion, recommendation and suggestion for further research. The steudy will prove useful to graduates professions/ students and for various professionals in involved in taxation and tax matters.
Chapter one
Introduction 1
- Statement of problem 1
- Rationale of study 2
- Significance of study 2
- Background of the study 4
- Definition of terms 6
Chapter two
Literature review 8
2.1 Theoretical review 8
2.2 Empirical review 30
Chapter three
Hypothesis, methodology of the study, sources
of data and limitations of the study 34
3.1 Hypothesis 34
3.2 Methodology of the study 35
3.3 Sources of data 38
3.4 Limitations of the study 40
Chapter four
Data presentation, analysis and discussion of the result 42
4.1 Data presentation 42
4.2 Analysis 43
4.3 Discussion of the result 50
Chapter five
Summary, conclusion and recommendation 51
5.1 Summary 51
5.2 Conclusion 56
5.3 Recommendation 57
5.4 Suggestion for further research/studies 59
Bibliography 61
Appendix 64
LIST OF TABLES
S/No Tables pages
- Table 4.1 Distribution and % responses to the questionnaires
- Table 4.2 distribution and percentage % responses to the questionnaire
LIST OF FIGURES
S/NO figures page
- Figure 21.4 Collection of multistage vat at 5%
- Figure 3.2.2 statistical presentation of the acceptance and rejection regions.
CHAPTER ONE
INTRODUCTION
- STATEMENT OF PROBLEM
Value added tax is a tax on consumed goods and services of individual and corporate bodies made payable to the government. It serves as a source of revenue for satisfying collective wants and for regulating both economic and social policies and programes.
According to Ola (1985).
In the recent past, other forms of taxes were existence in Nigeria with the exception of vat and they could not generate enouhg revenue for execution of government projects and programes. In view of this, the value added tax was introduced in Nigeria with effect from January 1, 1994.
I want to investigate on the followings.
The effect of value added tax on the economy. I want to know whether it is used in controlling inflation in the economy. We shall also assess the effect of value added tax on the demand for consumer items in the Nigeria economy.
- RATIONALE OF THE STUDY
The functions of the federal inland revenue is the extension of value added tax to the economy. They are rendering a guest social services through their actions, investment are expanded and a high standard of living is realized. Value added tax is very important to the economy because it aids increased finance of the economy.
It is pertinent to research into the impact of these vats on the economy and suggest possible means of mitigating them.
- THE SIGNIFICANCE OF THE STUDY
The importance of the study is to appraise the benefits of vat on the economy. This is to examine the effects of vat on the economy. The economy is faced with potentialities of problem. The significance of this study is also to help to improve the lot or situation of the principals actors of the sectors of the economy. This study will be useful to the following people they are:
- Nation: The entire nation will benefits from public educatin, health and sanitation facilities, police and fire protection and national defence.
- Federal Inland revenue: This people will also benefit from vat because they established and issue the guidelines of vat in Nigeria.
- Banks: They will also benefit from vat
- Civil servants: They will also benefit from vat
- Government: This study is to evaluate the expected role of government in her participations with the value added tax of the economy and they can positively compliment the efforts of the people.
- Students: Students of accountancy, banking and finance, infact, school of financial studies who might take a course from the workdone have to further research into the field of vat on the economy.
- The entire public will also benefit from vat
- BACKGROUND OF THE STUDY
The tax existing in Nigeria before the 1994 budget was not able to generate the much needed revenue to meet up with the government expenditure requirements. As at 1991, the 75% of the total generated revenue was from petroleum which accounted for about 54 billion out of the N72billion total. There is therefore the need to reform the Nigerian tax system which is the major non-oil revenue sector. This is why the international monetary fund (IMF) and the world Bank, two agencies of the United Nations Organization which are closely identified with the establishment and continued operation and monitoring of SAP suggested to the federal government, the introduction of value added tax (VAT) as a replacement of sales tax. This is in anticipation of a higher revenue generation from the new tax system.
The federal government’s budget of 1994 expected a total of N44.1billion as revenue from the non-oil sousrces which is part of the N110.20billion total budgeted expenditure. To achieve the amount of revenue realizable from the non-oil sources, the government, therefore, introduced the value added tax (Vat).
In the 194 budget radio broadcast to the nation, major General Sanni Abacha had stated;
Tax policy in 1994 would aim at encouraging genuine entrepreneurs while improving the enforcement of existing tax laws and the machinery for the collection.
However, a new tax on consumption known as the value added tax is to come into effect this year”.
This official budget statement introduced the new form of tax known as the value added tax (VAT) into the Nigeria tax policy and was backed up by decree 102 of 1st September 1993.
And the decree thus states:
“There is hereby imposed and charged a tax to be known as the value added tax (in this decree referred to as the tax)which shall be administered in accordance with the provisions of this decree.”
These extracts from the 1993 decree and the budget statement of 1994 has therefore given mandate to the federal Inland revenue services to administer and collect tax on consumption known as the value added tax.
The introduction to the value added tax at this point in time when the Nigeria economy is almost at the point of collapse is another avenue of seeking solution to the country’s economic problem.
Taxation is a key factor for promoting the government’s overall economy and scial objectives and taxation is used to achive economic growth which refers to an increase in the money, goods, and other resources of the community, society and household.
- DEFINITION OF TERMS
Some of the terms as used in this study are defined below:
SAP: Structural adjustment programme: an economic reconstruction programme introduced by Babangida regime to be monitored by the World bank and the international monetary fund (IMF) as an alternative of IMF loan.
Decree: a bill passed into law by the federal military government.
Consumption: This refers to the goods and services paid for by a consumer.
VAT: value added tax
Vat able goods: Goods and services that qualify for the value added tax.
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