1

EFFECT OF VALUE ADDED TAX ON ECONOMIC GROWTH AND

DEVELOPMENT IN NIGERIA

BY

OSHIBOYEJO, SUNDAY SAMUEL

MATRIC NUMBER: NOU183027186

A PROJECT PRESENTED TO THE NATIONAL OPEN UNIVERSITY OF NIGERIA,

FACULTY OF MANAGEMENT SCIENCES, DEPARTMENT OF FINANCIAL

STUDIES

IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF THE

BACHELOR OF SCIENCE DEGREE

McCARTY STUDY CENTRE, LAGOS

NOVEMBER, 2022
 2

CHAPTER ONE

INTRODUCTION

1.1 Introduction

Value added tax (VAT) is simply called the Goods and Services Tax (GST). It is a consumption

tax payable on the goods and services consumed by any person, business organizations or

individuals (Clement, Osaro, Igbinosa, Raphael & Oghogho, 2019). VAT can also be defined as

a tax on spending/consumption which is levied at every stage of transaction but eventually borne

by the final consumer of such goods and services (Ugwa & Embuka, 2012). The concept of VAT

in Nigeria is traceable to the Dr. Sylvester Ugoh-led study group on Indirect Taxation in

November, 1991. Thereafter, a committee was set up by the then Military government under the

chairmanship of Mr. Emmanuel Ijewere to conduct extensive research and make

recommendations. Value Added Tax (VAT) was finally introduced by the Federal Government

of Nigeria and was provided for by the Value Added Tax Decree 102 of 1993. It became

effective in 1994 as a replacement of the Sales Tax which had been in operation under Federal

Government Legislated Decree No.7 of 1986 but administered by the States and the Federal

Capital Territory (Ugwa & Embuka, 2012).

1.2 Background of the Study

Taxation is one of the oldest means by which the cost of providing essential services for the

generality of people living in a given geographical area is funded (Abiola & Asiweh, 2012). Tax

revenue, all over the world plays a vital role in the development of an economy, this facilitated
 3

many nations to introduce tax on goods and services. According to Nasiru, Haruna & Abdullahi

(2016), the government has the mandate to impose tax via its various regulations. An efficient

and effective tax system is capable of ensuring the basic necessities and services in the country.

Taxes Are used to achieve economic development, equity in income and wealth distribution and

maintain equilibrium in the economy.

Onwuchekwa & Aruwa (2014) defined tax as a compulsory payment made by all concerned to

the government of a country from which essential services are rendered, without necessarily

offering an explanation on how the money generated was spent or equating the services with the

money collected. Taxation is one of the sources of revenue generation to the government for the

social welfare of its citizens. Social welfare can be the provision of the power supply, free

education, social amenities, stipends for her citizens, and infrastructure. Before now, Nigeria

government revenue has been sourced majorly from oil and other petroleum products. Hence, the

Nigerian economy has been adjudged to be overly dependent on petroleum and petroleum

products. Against the backdrop of the implications of this overdependence on oil revenue has

been a serious negative implication and this calls for the need to diversify the economy of

Nigeria, without which the economy will collapse (Okonjo-Iweala, 2015). It is against this

backdrop that taxation has become handy in diversifying the economy of Nigeria away from

petroleum and petroleum products.

The economic goals and needs of most countries, determine their level of development. One

of the major focuses of many countries (Nigeria inclusive) for generating revenue is to grow the

economy in which taxation would aid its achievement. A tax system represents one of the most

effective means of mobilizing a nation’s internal resources and it lends itself to creating an

environment conducive for the promotion of economic growth for the three-tiered tax structure
 4

between the federal and other sub-national governments, each of which has different tax

jurisdictions (Odusola, 2006; Nzotta, 2007). The need for taxation among others therefore, is to

provide a material source of revenue for the government in discharging its ever-growing

obligations and commitments to its citizenry. An efficient tax system ensures the mobilization of

the untapped abundant internal resources and it also stimulates an environment conducive for the

promotion of growth of a nation. Therefore, tax is a compulsory levy imposed on a subject or

upon his property by the government to provide security, social amenities and create conditions

for the economic well-being of the society (Appah & Oyadonghan, 2011) .

There is no doubt that the revenue generating ability of the government in the developing

nations of the world is a far cry from being desirable. The Indirect Taxes (especially those from

Import and Export Duties) which ought to contribute the highest percentage to the revenue are

not even reliable (Abialo & Asiweh, 2012). This is because of the imbalance emanating from

business transactions between the less developed and the developed countries. Excessive export

duties may discourage local production while import will be discouraged if the import duties are

too high to cope with (Moore, 2014). That the government has to strike a balance between the

desire to raise revenue and incentive for economic growth is indeed a major problem.

In an attempt to proffer solution to this problem, Naiyeju (1996); Bikas & Andruaite, (2013)

observed that the wealth-poverty gap widens in the developing nations because their economic

reforms become trenchant. Governments are compelled to continue to explore all means of

redistribution of resources and improving the welfare of citizens. The resultant effect is to look

inward which motivated the introduction of such an Indirect tax known as the Value-Added Tax

(VAT). The suggestion of Value-Added Tax (VAT) as a way out of the dilemma is predicated

on the fact that it is capable of generating substantial revenue, since evasion is difficult and the
 5

base is wide (Omesi & Nzor, 2015). Another reason for suggesting VAT is the belief that it is a

weapon that is capable of reducing the wealth-poverty gap. Gordon & Nielsen, (2017) are

optimistic on the effectiveness and equity of VAT has strong support in some earlier works of

tax experts.

Value added tax (VAT) also known as the Goods and Services Tax (GST) is a consumption

tax payable on the goods and services consumed by any person, business organizations or

individuals (Clement, Osaro, Igbinosa, Raphael & Oghogho, 2019). VAT can also be defined as

a tax on spending/consumption which is levied at every stage of transaction but eventually borne

by the final consumer of such goods and services (Ugwa & Embuka, 2012). The concept of VAT

in Nigeria is traceable to the Dr. Sylvester Ugoh-led study group on Indirect Taxation in

November, 1991. Thereafter, a committee was set up by the then Military government under the

chairmanship of Mr. Emmanuel Ijewere to conduct extensive research and make

recommendations. Value Added Tax (VAT) was finally introduced by the Federal Government

of Nigeria and was instituted by the Value Added Tax Decree 102 of 1993. It became effective in

1994 as a replacement of the Sales Tax which had been in operation under Federal Government

Legislated Decree No.7 of 1986 but administered by the States and the Federal Capital Territory

(Ugwa & Embuka, 2012).

Before the introduction of VAT in the Nigerian economy, the Federal Government has been

working relentlessly on how to revamp the moribund Nigeria economy. To this effect, several

economic measures were introduced and among them include the Second-Tier Foreign Exchange

Market (SFEM), Structural Adjustment Programme (SAP) and Foreign Exchange Market (FEM)

and so on. All these efforts at revamping the economy were to no avail as the economy seems to

have defied all fiscal measures (Ehigiamusoe, 2018). Prompted by its avowed position to revamp
 6

the economy at whatever cost, the Federal Military Government under the leadership of General

Sani Abacha introduced a fiscal policy, the Value Added Tax (VAT) in January 1994. It is

charged on the supply of VAT-able goods and services in Nigeria. It also requires

Manufacturers, wholesalers, importers and suppliers of VAT-able goods and services to get

registered within six months of commencement of the business. Such a registered entity is

expected to charge and collect VAT on the supplied goods and services. The amount collected

constitutes the VAT output. On the other hand, a purchaser of VAT able goods and services is

also expected to pay a VAT. The amount paid constitutes the VAT input. The difference between

the VAT output and the VAT input represents the amount payable to Federal Inland Revenue

Service (FIRS). Thus, VAT is an offshoot of sales tax.

Nigeria is experiencing a revenue crisis due to declining crude oil earnings and as such, the

government is trying to improve its revenue potential by imposing more taxes (Ogbonna &

Ebimobowei, 2017). The Nigerian government on Wednesday, September 11, 2019, approved a

50% increase in the Value Added Tax (VAT) rate applicable on supply of goods and services in

Nigeria, from 5 per cent to 7.5 per cent. The new rate took effect in the first quarter of 2020 (1st

February, 2020). Thus, the recently signed finance bill has attracted public attention and met

with mixed reactions by Nigerians. It will also be recalled that the Federal Government

attempted to increase the VAT rate to 10 per cent in 2007, but this was faced with stiff

opposition resulting in the suspension of the proposed increase. However, the problem is that

the VAT rate in Nigeria has remained at 5 percent since its introduction in 1993 despite several

attempts to review it upward by successive governments. All these strategic objectives aim

towards achieving an improved welfare of the ever increasing population of the country. Tax

reforms are changes that are made in the Nigerian Tax system to increase the revenue potential
 7

of the government so as to improve peoples’ welfare. No matter the angle from which VAT is

viewed, the purpose is to generate more revenue to the government. The introduction of VAT in

1993 and its eventual implementation in 1994 has recorded a huge success in Nigeria. For

instance, records from the Federal Inland Revenue Service (FIRS ) database revealed that the

total VAT revenue increased from N 8.20 billion in 1994 to a whopping sum of N 163.30 billion

in 2004 (ten years after its introduction). The revenue rose to N 616.90 billion in 2014 and N 1.7

trillion in the year 2018. The total amount generated by the nation from VAT dipped by N 53

billion from N 1.7 trillion in 2018 to N 1.17 trillion in 2019. Despite the significant rise in the

revenue accruals from VAT to the Nigerian government coffers on yearly basis, it is important to

state that the rate is one of the lowest in the world.

Ther are numerous countries that are using VAT as a form of indirect tax. Obadan

(2015); Wheatcroft, (2015); Ebrill (2018) reported the VAT rate of a number of countries as

follows: European countries: Austra 20 percent, Belgium 21 percent, Bulgaria 20 percent,

Denmark 25 percent, France 20 percent, Hungary 27 percent, Latvia 21 percent, Finland 24

percent, and United Kingdom 20 percent. For non-European union countries, Albania has 20

percent rate, Australia 10 percent, Argentina 21 percent, Bangladesh 15 percent, Chile 19

percent, People’s Republic of China 17 percent, Egypt 10 percent, Ethiopia 15 percent, South

Africa 14 percent, Russia 18 percent and Norway 25 percent, Others are Ghana with 15 percent

VAT rate, 161 Guyana 16 percent, Indonesia 10 percent, Taiwan 18 percent, Tunisia 18

percent, Israel 18 percent, Japan 8 percent, Mexico 16 percent, Mauritius 15 percent, Namibia 15

percent, and Morocco 20 percent. It is therefore no longer news that the revised Value Added

Tax (VAT) from 5% to 7.5% in the recently signed finance bill took effect from February 1st,

2020.
 8

Nevertheless, the inadequate social infrastructures in Nigeria has made the rate of corruption

on the part of tax officials to be so alarming as most of them connive and collude with supposed-

tax- payers to evade and avoid tax. Sometimes, the tax officials are not properly trained on the

modern ways of tax administration. Furthermore, the de-escalating revenue generation has

become a recurrent problem facing the three-tier structure of the government in Nigeria, which is

characterized by yearly budget deficits and insufficient funds for economic growth and

development. Apart from strengthening the existing sources of revenue through economic

reasoning of revenue needs of the government, it is also necessary for the government to

diversify its revenue base in order to meet its constitutional responsibilities. Several researches

have been carried out on the relationship between Value added tax and Economic development

both within and outside Nigeria, with mixed result emanating from the analysis. For instance,

Madugba and Azubike (2016), examined the relationship between Value added tax and

Economic development in Nigeria. The result of the multiple regression showed a negative

significant relationship between value added tax revenue and Gross domestic product. While

Ofishe (2015), using Ordinary Least Square techniques found a strong positive significant

relationship between value added tax revenue and Gross domestic product. These inconsistencies

mean that the value-added tax-growth dynamics in Nigeria has not been derived. Therefore, this

current contribution will help to expand the existing body of literature on the nexus between

value-added tax and economic development in Nigeria. More so, Value added tax is one of the

instruments the Federal government introduced to generate additional revenue. Yet, most

prominent Nigerians and interest groups had spoken against its introduction. It would appear that

VAT is froth with some problems. After its adoption into the Nigeria tax system, it has become a

controversial issue that generates debate among several authors as Naiyeju (2009) quoted that the
 9

purpose of introducing value added tax as one of the methods of taxation in Nigeria economy has

not yet known. Hence, this study tends to explore the implication of value added tax on

economic development in Nigeria and to provide reasonable solutions and recommendations that

will be geared to reveal the benefit of VAT in Nigeria macro economy.

The relevance of tax revenues is a core motive for suggesting that emerging economies such

as Nigeria must increasingly mobilize their internal resources to enhance economic growth and

reduce fiscal deficits through the implementation of an effective tax policy (Wawire, 2006).

There is a dearth of literature on the revenue performance of state government level VAT in

developing countries like Nigeria. The contribution of personal income tax to the government's

total revenue remained consistently low, hence the need to evaluate alternative taxes such as

VAT is needed to support the taxation system in generating more revenues to enhance the

growth and development of the economy.

New form of taxes are selectively being introduced particularly by the developing countries

so as to boost their revenue earning capacity with the aim of ensuring rapid economic growth and

development of their countries. The Value Added Tax (VAT) is one of such taxes recently

initiated by governments to raise revenue for smooth government operations.

Value Added Tax (VAT) in Nigeria is a Federal Government tax, which is administered

using the existing machinery of the Federal Inland Revenue Services (FIRS). VAT has a

directorate within the framework of the Federal Inland Revenue Services (FIRS) with the head

office in Abuja. VAT is a consumption tax at each stage of the consumption chain and is borne

by the final consumer. It requires a taxable person upon registering with the Federal Board of

Inland Revenue to charge and collect VAT at a flat rate of 7.5 % on all vatable goods and
 10

services. The registration of Value Added Tax (VAT) is to cover all the business activities of the

vatable persons.

Therefore all domestic manufacturers, wholesalers, distributors, importers and suppliers

of goods and services in Nigeria are expected to register for VAT within six months after the

commencement of the decree or six months from the commencement of business, whichever is

earlier. Vat in Nigeria were created as replacement or substitution for the sales taxes that were in

operation before. They were imposed on all goods that were manufactured in the country as well

as goods that had been made outside the country and were selling there. Value Added Tax

(VAT) seems to be the best among other types of taxes. It is against this background that we are

going to analyze VAT and to see the impact it has on the nation‘s economy. The primary goal of

any developing country like Nigeria is to ensure or initiate the impact of taxation on the

economy growth and development which leads to a higher standard of living, thus taxation can

be used as a stimulus to accelerate such growth of the Nigeria economy.

Therefore it can be realized that since the advent of democracy in Nigeria, tax revenue and

economic growth have been experiencing an upward growth in absolute terms. This study

therefore seeks to determine the effect of Value Added Tax on economic growth and

development in Nigeria and to determine whether there is any relationship between economic

growth and taxation in Nigeria.

1.3 Statement of Problem

The attitude of Nigerians towards taxation is worrisome as many prefer not to pay tax if given

the opportunity. The economy continues to lose a huge amount of revenue through the

unwholesome practice of tax avoidance and tax evasion. This loss of revenue can change the

fortune of many economies. Particularly, developing countries like Nigeria. This problem has
 11

been lingering for so long and therefore urgent attention and solution is over due to the cost of

collecting tax in Nigeria (both social and economic cost) is too high to the extent that if left

unchecked the cost may soon outweigh the benefit or value derived from such operation and

which is one of the instruments the federal government introduced to generate additional

revenue. Yet, most prominent Nigerians and interest groups had spoken against its introduction.

Value Added Tax has become an important source of revenue to the Nigerian

Government (both Federal and state level). The Federal government of Nigeria intends

increasing percentage of VAT imposed on goods and services because of its relevance to income

base and economic growth and development through a shift from direct tax regime to indirect tax

regime anchored on consumption, in accordance with best global practice, to achieve stable non-

oil revenue flow and to lower companies income and personal income tax. But the citizens'

perceptions are different (such as: too much burden on the final consumers, inflation, and a rise

in fuel pump price to mention). This popular opinion of the majority of Nigerian citizens has

made it pertinent to carry out a research to examine the impact of VAT on the economic

development of Nigeria. Thus, there is a need to assess empirically the effect of VAT on

economic growth and development in Nigeria.

1.4 Objectives of the Study

This study was carried out to empirically ascertain the effect of Value Added Tax on

economic growth and development in Nigeria. Specific objectives include:

1. To identify the effect of Value Added Tax on the Nigerian economy;

2. To ascertain the influence of Value Added Tax on government capital expenditure;

 12

3. To examine the impact of Value Added Tax on the performance of business firms and

industries in Nigeria;

4. To identify the problems confronting the implementation and administration of value

Added Tax in Nigeria.

1.5 Research Questions

In carrying out this research certain questions need to be answered and these questions are:

As a follow up to the objectives of this study are the following research questions:

1. Does Value Added Tax have any positive effect on the Nigerian economy?

2. Does Value Added Tax have influence on government capital expenditure?

3. To what extent has Value Added Tax affected the performance of business firms and

industries in Nigeria?

4. Are there problems confronting the implementation and administration of Value Added

Tax in Nigeria?

1.6 Statement of Hypothesis

The researcher tested the following hypotheses, which would serve as a guide toward the

realization of the aims and objectives of this research work.

Ho1: Value Added Tax does not have positive effect on the Nigerian economy.

Ho2: Value Added Tax does not have any effect on the government capital expenditure.

Ho3: Payment of Value Added Tax does not affect the performance of business firms, and

industries in Nigeria.
 13

1.7 Significance of the Study

This research work is an investigation into the effects of Value Added Tax on economic

growth and development in Nigeria. It is expected that at the completion of the study, the

findings will be useful to the tax authorities and tax regulatory bodies on the administration of

Value Added Tax for survival, growth, and development of the economy. This study will be of

great importance to the government by highlighting the effect of VAT on the economic

development of Nigeria as it will also help in shaping and providing a better understanding to

citizens on how VAT is charged and its contribution to the economy. More so, it will help other

researchers to carry out further research from this. Likewise, it will also be useful to students

who wish to embark on a study in a similar topic, as the findings of the study will serve as a

guide to them.

1.8 Justification of the study

The importance and justification for conducting this study by the researcher is as follows:

As the literature shows, for such a study only few ones has previously been conducted in Nigeria,
especially as it relates to the effect of value added tax on economic growth and development in
Nigeria. The research objectivs to ascertain the influence of Value Added Tax on government
capital expenditure and also to look into the challenges of value added tax on government capital
expenditure in Nigeria.

1.9 Scope the Study

From the research topic, the study covered the economy as a whole (Federal, State and Local

Government) but with particular reference to the Federal Board of Inland Revenue (FIBRS)

which is the relevant tax authority for the value added tax in Nigeria.

The research was particularly interested purely on primary data in order to get first hand

information from the staff and client through oral interview of the effect of Value Added Tax on
 14

economic growth and development in Nigeria with reference to the Federal Inland Revenue

Service (FIRS) Abuja. The data collected was restricted to FIRS, business registered and non-

registered, consumers and wholesalers within the country, hence the findings of the study was

generalized to cover VAT activities within Abuja.

1.10 Definition of Terms

ECONOMY: The state of a country or region in terms of the production and consumption of

goods and services and the supply of money.  

ECONOMIC GROWTH: is an increase in the capacity of an economy to produce goods and

services, compared from one period of time to another.

ECONOMIC DEVELOPMENT: the process in which an economy grows or changes and

becomes more advanced, especially when both economic and social conditions are

improved.

EXPORT DUTIES: the general or specific taxes on goods or services that become payable

when the goods leave the economic territory or when the services are delivered to non-

residents; profits of export monopolies and taxes resulting from multiple exchange rates

are excluded.

IMPORT DUTIES: taxes charged by the customs authority on the importation of goods into a

country.

REVENUE: the income of a government from taxation, excise duties, customs, or other sources,

appropriated to the payment of the public expenses.

TAX: it is a compulsory levy contribution made by the citizens to the state or even an alien,

subject to the jurisdiction of the government, for reasons of residence or property and this

contribution is for general common use.

 15

TAXATION: it is a form of levy, imposed on all residents living in, as well as non-residents

doing business, within a tax jurisdiction.

TAX OFFICIALS: they are government agencies or entities authorised by law for the intake of

government revenue via levies, assessing and collection of taxes.

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

The whole essence of governance is to promote welfare of the entire citizenry. The Constitution

of the Federal Republic of Nigeria, in many of its provisions affirms this position. The problem

of paucity of funds to prosecute welfare programmes by the government can be solved, using a

fair and effective tax administration (Balogun, 2015). Nigeria’s current democratic experiment

places greater responsibility on government to look for ways of improving its revenue

generation.

There is no doubt that the revenue generating ability of the government in the developing nations

of the world is a far cry from being desirable. The Indirect Taxes (especially those from Import

and Export Duties) which ought to contribute the highest percentage to the revenue are not even

reliable (Abialo & Asiweh, 2012). This is because of the imbalance emanating from business

transactions between the less developed and the developed countries. Excessive export duties

may discourage local production while import will be discouraged if the import duties are too

high to cope with (Moore, 2014). That the government has to strike a balance between the desire

to raise revenue and incentive for economic growth is in indeed a major problem.
 16

In an attempt to proffer solution to this problem, Naiyeju (1996) & Bikas, Andruaite, (2013)

asserted that the wealth-poverty gap widens in the developing nations because their economic

reforms become trenchant. Governments are compelled to continue to explore all means of

redistribution of resources and improving the welfare of citizens. The resultant effect is to look

inward which motivated the introduction of such an Indirect tax known as the Value-Added Tax

(VAT).

The suggestion of Value-Added Tax (VAT) as a way out of the dilemma is predicated on the fact

it is capable of generating substantial revenue, since evasion is difficult and the base is wide

(Omesi & Nzor, 2015). Another reason for suggesting, VAT is the belief that it is a weapon that

is capable of reducing the wealth-poverty gap. Gordon and Nielsen, (2017) are optimistic on the

effectiveness and equity of VAT has strong supports in some earlier works of tax experts.

2.1 Conceptual Framework

2.1.1 Value Added Tax as Goods and Services Tax

Value added tax (VAT) is simply called the Goods and Services Tax (GST). It is a consumption

tax payable on the goods and services consumed by any person, business organizations or

individuals (Clement, Osaro, Igbinosa, Raphael & Oghogho, 2019). VAT can also be defined as

a tax on spending/consumption which is levied at every stage of transaction but eventually borne

by the final consumer of such goods and services (Ugwa & Embuka, 2012). The concept of VAT

in Nigeria is traceable to the Dr. Sylvester Ugoh-led study group on Indirect Taxation in

November, 1991. Thereafter, a committee was set up by the then Military government under the

chairmanship of Mr. Emmanuel Ijewere to conduct extensive research and make

recommendations. Value Added Tax (VAT) was finally introduced by the Federal Government
 17

of Nigeria and was provided for by the Value Added Tax Decree 102 of 1993. It became

effective in 1994 as a replacement of the Sales Tax which had been in operation under Federal

Government Legislated Decree No.7 of 1986 but administered by the States and the Federal

Capital Territory (Ugwa & Embuka, 2012).

Before the introduction of VAT in Nigerian economy, the Federal Government has been working

relentlessly on how to revamp the moribund economy. To this effect, several economic measures

were introduced and among them include the Second-Tier Foreign Exchange Market (SFEM),

Structural Adjustment Programme (SAP) and Foreign Exchange Market (FEM) and so on. All

these efforts at revamping the economy were to no avail as the economy seems to have defied all

fiscal measures (Ehigiamusoe, 2018). Prompted by its avowed position to revamp the economy

at whatever cost, the Federal Military Government under the leadership of General Sani Abacha

introduced a fiscal policy, the Value Added Tax (VAT) in January 1994.

It is charged on the supply of VAT able goods and services in Nigeria. It also requires

Manufacturers, wholesalers, importers and suppliers of VAT able goods and services to get

registered within six months of commencement of the business. Such a registered entity is

expected to charge and collect VAT on the supplied goods and services. The amount collected

constitutes the VAT output. On the other hand, a purchaser of VAT able goods and services is

also expected to pay a VAT. The amount paid constitutes the VAT input. The difference between

the VAT output and the VAT input represents the amount payable to Federal Inland Revenue

Service (FIRS). Thus, VAT is an offshoot of sales tax.

2.1.2 Rationale for Using VAT in Nigeria

Nigeria is currently experiencing revenue crisis due to declining crude oil earnings and as such,

the government is trying to improve its revenue potential by imposing more taxes (Ogbonna &
 18

Ebimobowei, 2017). The Nigerian government on Wednesday, September 11, 2019, approved a

50% increase in the Value Added Tax (VAT) rate applicable on supply of goods and services in

Nigeria, from 5 per cent to 7.5 per cent. The new rate took effect in the first quarter of 2020 (1st

February, 2020). Thus, the recently signed finance bill has attracted public attention and met

with mixed reactions by Nigerians. It will also be recalled that the Federal Government

attempted to increase the VAT rate to 10 per cent in 2007, but this was faced with stiff

opposition resulting in the suspension of the proposed increase. However, the problem is that

VAT rate in Nigeria as remained at 5 percent since its introduction in 1993 despite several

attempts to review it upward by successive governments.

All these strategic objectives aim towards achieving an improved welfare of the ever increasing

population of the country. Tax reforms are changes that are made in the Nigerian Tax system to

increase the revenue potential of government so as improve peoples’ welfare. No matter the

angle from which VAT is viewed, the purpose is to generate more revenue to the government.

The introduction of VAT in 1993 and its eventual implementation in 1994 has recorded a huge

success in Nigeria. For instance, records from Federal Inland Revenue Service (FIRS ) data base

revealed that the total VAT revenue increased from N 8.20 billion in 1994 to a whopping sum of

N 163.30 billion in 2004 (ten years after its introduction). The revenue rose to N 616.90 billion

in 2014 and N 1.7 trillion in the year 2018. The total amount generated by the nation from VAT

dipped by N 53 billion from N 1.7 trillion in 2018 to N 1.17 trillion in 2019.

Despite the significant rise in the revenue accruals from VAT to the Nigerian government coffers

on yearly bases, it is important to state that the rate is one of the lowest in the world. Obadan

(2015), Wheatcroft, (2015) & Ebrill, (2018) reported the VAT rate of a number of countries as

follows: European countries: Austra 20 percent, Belgium 21 percent, Bulgaria 20 percent,

 19

Denmark 25 percent, France 20 percent, Hungary 27 percent, Latvia 21 percent, Finland 24

percent, and United Kingdom 20 percent. For non-European union countries, Albania has 20

percent rate, Australia 10 percent, Argentina 21 percent, Bangladesh 15 percent, Chile 19

percent, People’s Republic of China 17 percent, Egypt 10 percent, Ethiopia 15 percent, South

Africa 14 percent, Russia 18 percent and Norway 25 percent, Others are Ghana with 15 percent

VAT rate, Guyana 16 percent, Indonesia 10 percent, Taiwan 18 percent, Tunisia 18 percent,

Israel 18 percent, Japan 8 percent, Mexico 16 percent, Mauritius 15 percent, Namibia 15 percent,

and Morocco 20 percent. It is therefore no longer news that the reviewed Value Added Tax

(VAT) from 5% to 7.5% in the recently signed finance bill took effect from February 1st, 2020.

A number of empirical studies in extant literature such as Diamond & Zodrow (2010); Skinner

(2015) & Omesi & Nzor (2015) did not shed light on the magnitude of impact (positive and

negative) of VAT on economic growth. It is therefore pertinent to stress that VAT should only

provide governments an avenue to explore all means of redistribution of resources towards

improving the welfare of citizens. This should be done at the expense of the citizens as well. It is

evident VAT revenue is being shared among the three levels of government in Nigeria. This is

indication that this revenue is being re-injected into the economy. Against this background, this

study is therefore motivated by the recent dwindling of oil revenues due to fluctuations of price

in the global oil market. Therefore, the paper examined the effect of VAT on economic growth

using CPI as a threshold.

Since its introduction in Nigeria in 1994, Naiyeju (1994) argued that tax is gaining more

prominence among fiscal planners and governments and beside Keynes’ fiscal propositions, the

most significant fiscal revolution of the twentieth century is VAT. Similarly, Diamond &

Zodrow (2010) submitted that a VAT would lower household consumption in the short and long
 20

runs, and would reduce GDP for the next several years followed by several years of negligible

change.

2.1.3 Administration of Value Added Tax in Nigeria

According to Loveday & Nwanyanwu (2015), the success or failure of any tax depends

largely on the extent of how it is properly managed. The extent of tax is interpreted and

implemented as well as the publicity brought into it, which determines how a particular tax is

able to meet its objective.

Richard (1993) concluded that “the successful execution of fiscal policies depends on the

quality of public administration and the formation of policies that are really adapted to the

available resources. VAT may be complicated to administer but it is not as complex as personal

or company income tax.

Federal Inland Revenue service (1999) Stated that there are five district bodies on which the

administration of VAT rests in Nigeria. They are inter related and the function of each are

complementary to others;

1. The Board (Federal Board of Internal Revenue).

2. The Service (Federal Inland Revenue Service).

3. The Technical Committee.

4. The Nigeria Custom Service.

5. The VAT Directorate.

Other sub-internal bodies include;

1. The State Internal Revenue Service.

2. The Zonal Officer.

3. The Local VAT Officer.

 21

The establishment of additional 25 VAT offices and 5 zonal tribunal has been approved. The

administration will work closely with the Nigeria Custom services and the State Internal

Revenue Services. The Custom Services specifically takes care of the VAT on imports. To

qualify for VAT, an Organization of enterprise must register with the VAT Directorate. All

domestic manufacturers, wholesalers, distributors, importers and suppliers of goods and services

in Nigeria are expected to register for VAT.

2.1.4 Concept of Economic Growth and Development

Economic growth has been a major concern of nations whether developed or developing around

the world. Economic development and Economic growth have been used interchangeably over

the years; despite the slight difference between the two concepts.

According to the Organisation for Co-operation and Development (OECD), economic

development is a deliberate policy intervention aimed at enhancing the economic and social

well-being of people, while economic growth is a phenomenon of an active market productivity

resulting in increase in gross domestic product (GDP). OECD (2014) defines Gross Domestic

Product (GDP) as an aggregate measure of production equal to the sum of the gross values of all

resident, institutional units engaged in production (plus any taxes and minus any subsidies, on

products not included in the value of their outputs). GDP is usually used as a proxy for economic

development and economic growth. Scholars have offered definitions of economic growth in line

with the OECD’s definition.

The United States Agency for Industrial Development (2014) proposed that economic growth

can be defined as a situation of increase in per capita national output or net national product over

a long period of time. Growth depicts that the rate of increase in total output must be greater than
 22

the rate of population growth. The agency further explained that economic development is the

development of economic wealth of countries or regions for the well-being of their citizens. That

is to say that economic development seeks to improve the economic well-being and quality of

life for a community by creating jobs and supporting or growing incomes. Economic

development implies improvements in a variety of indicators such as literacy rates, life

expectancy, and poverty rates. This is to say that economic development encompasses policies

that governments undertake to meet broad economic objectives such as price stability, high

employment, expanded tax base, and sustainable growth. GDP is a specific measure of economic

welfare (Abata, 2014). Abata further explained that economic growth is the growth of an

economic output of goods and services which is sometimes referred to as the gross national

product (GNP). When the growth rate of GNP declines, unemployment results and the income

generally falls. When this happens, the government has a duty to set policies that will step up the

economy output to achieve sustained economic growth.

2.1.5 Relationship between Value Added Tax and Economic Growth & Development

The relationship between value added tax and economic growth has been largely explored,

but the inconsistencies in the research report has made the issue still open for further research.

The active informal sector of the developing economy such as Nigeria, has been criticised as one

of the limitations of the introduction of value added tax, (Okoror & Onatuyeh, 2018). The

argument of the informal sector dominance may have resulted in the negative relationship

established by Ajakaiye (1999) in his investigation of the influence of value added tax on the

economic growth of Nigeria, using the Equitable General Equilibrium approach. According to

Emran & Stiglitz (2005), the argument in favour of the replacement of sales tax with value-added

tax, as an instrument of indirect tax in most developing countries, is built on a fragile result that
 23

relegates the presence of the active informal sector. Weller & Rao (2002), in their investigation

of the growth implications of progressive taxes, established that progressive taxes affords policy

makers the opportunity to pursue counter-cyclical policies that drive economic growth.

According to them, value-added tax can only have positive implications on economic growth if

the implementation procedures are well managed.

Ugochukwu & Azubike (2016) investigated the relationship between value added tax,

government revenue and economic development. The result of the study shows a negative

relationship between value- added tax and economic development. The poor result of the study

may be attributable to the proxy for economics. Focusing on the economy of Kenya, Njogu

(2015) examined the relationship between value-added tax and economic growth and found a

negative and statistically significant relationship between value-added tax and the Kenyan

economic growth. The result of the study of the nexus between VAT and Nigerian economic

growth was also negative according to Madugba & Joseph (2016).

Contrary to the negative relationship reported by the previous researches, Iyoha & Oriakhi

(2010), relying on Nigerian archival data from 1991 to 2006, found a positive and significant

relationship between value added tax and Nigerian economic growth. The result of the study

shows a tax buoyancy rate of 1.12 which appears to be the highest compared to other forms of

taxes (petroleum profit tax with a coefficient of 1.1 and companies income tax with a buoyancy

rate of 0.996). Focusing on the economy of Lagos, Owolabi & Okwu (2011) also reported a

significant positive relationship between value-added tax and the growth of Lagos economy. In

the same vein, Onwuchekwa & Aruwa (2014) reported a significant positive relationship

between value-added tax and economic growth in Nigeria. Smith,

 24

Islam & Moniruzzaman (2011) investigated the relationship between VAT and economic

growth in Bangledesh and found a satisfactory growth implication of value added tax in the

initial years of implementation. Relying on various growth indices, Samimi & Abdilahi (2011)

investigated the growth implication of value added tax and found a positive and significant

relationship between value added tax and the different export indices, and by implication the

growth of the national economy. Adereti, Sanni, & Adesina (2011), relying on macroeconomic

data from Nigeria, investigated the relationship between VAT and economic growth and reported

a positive and significant relationship between the two variables.

2.1.6 Functions of Federal Inland Revenue Service in Nigeria

Federal Inland Revenue Service (FIRS) In Nigeria is the only government institution at the
federal level saddled with the sole objective of collating and collection of Federal Government
Taxes across the country. In this review we would be looking at some of their major functions
and objectives as a government Agency. In order to know our right as a citizen of the country
and also to know our dues in our various places of work, there is a need to read through the
following below:
1. Providing sustainable finance and funding for governance, public and social services and
economic development.
2. Promoting civic responsibility, patriotism by citizens and social responsibility by
corporate citizens.
3. Stimulating priority social and economic activities and sectors while discouraging less
preferred ones.
4. Bringing about the redistribution of wealth and bridging sharp disparities in living
standards.
5. Giving taxpayers the moral and legal right to demand for (thereby engendering) a culture
of accountability.
6. Serving as a gauge for measuring the level, growth and health of economic units and
economic activities.
 25

7. Individuals and corporate organizations are conferred with definite benefits, rights and
privileges in the system based on their tax compliance status.

I. Aims of Value Added Tax

1. To broaden the nations revenue base thereby making it less dependent on oil export;
2. To make easy claim of credit for input tax since a registered person must hold tax
invoice;
3. To bring fairness to all taxpayers because a number of goods and services which were not
previously covered by the sales tax were brought together under VAT regime;
4. To enable easy collection of tax collected on behalf of the federal government by
business or organizations which have registered with the Federal Inland Revenue Service
(FIRS VAT directorate) for VAT purposes;
5. To help the common people, traders, industrialists and also the government. It is indeed
to move towards efficiency; healthy competition and farmers in the tax system;
6. To diminish the incidence of taxation towards expenditure rather than income.

II. Features of Good Value Added Tax System

According to Messre and Norregard (1999), the benchmark which form the basis for

appraising a VAT system in order to determine its good over other taxes are:

1. Neutrality: The interference of VAT with the choices made by both producers and

consumers is minimal. This implies that the economic distortion resulting from changing

relative prices compared to the pre-tax situation must be minimized.

2. Fairness: VAT is accompanied by appropriate change in other taxes or in the social

transfer system to alleviate or neutralize negative distributional consequences.

3. Price stability: VAT does not lead to sustained inflationary pressure either at its

introduction or in the long run.

 26

4. Revenue aspect: VAT supplies the government with good amount of tax revenue and

reduces the possibility of tax evasion and avoidance.

5. Administration and compliance cost: VAT minimizes or reduces government

administrative and compliance cost, this is because many machines are not needed for its

administration.

III. Advantages of Value Added Tax:

The introduction of VAT has a number of benefits that go with it. Among which includes:

1. It generates revenue for the government than the sales tax and at the same time reduces

over dependence on oil revenue;

2. It widens the tax base with its in-built capacity to raise more tax revenue;

3. VAT can be used as a tool of government fiscal policy, by exempting some classes of

goods and services to achieve specific economic objectives;

4. The introduction of VAT has to a reasonable extent to reduces tax evasions;

5. It boosts trade activities and it creates a favorable atmosphere for the country's economic

experience.

IV. Disadvantages of Value Added Tax:

1. It is regressive in nature: since VAT has a uniform rate of 7.5 % on both luxury goods

and services ;it means that the higher the income the lesser the percentage spent on

consumption and consequently, the lesser the percentage paid on consumption tax;

2. The imposition of VAT on raw materials imported into the country will amount to an

additional burden on the cost of production;

 27

3. VAT leads to one time increase in price (inflation).

V. Rsgistration for Value Added Tax

All domestic manufacturers, wholesalers, distributors, importers, and suppliers of goods and
services in Nigeria are required to register for VAT within six months of commencement of
his/her business. Government ministry statutory body and other agency of government shall
register as agent of the board and all government ministries under the law shall register as an
agent of the board. This facilitates the collection of tax according to the Act.
Professionals like lawyers, accountants, architects and engineers etc. who provides
professional services to their clients are required to register. There is therefore no threshold for
registration.
Also, all contractors transacting business with a government ministry or statutory body and other
agency of the federal government, state government or local government shall produce evidence
of registration with the board as a condition for obtaining a contract. For non-Nigerian residents
they shall register using the address of their partner with consent.
All vatable persons are required to complete the registration form (VAT 001). The form VAT

001 is a standard registration form for VAT. It is to be completed by a potential VAT payer

within six (6) months of the commencement of business. VAT FORM 001 usually contains the

following:

● The name of the tax payer;

● The principal place of the business of the tax payer;

● Other requirement or units were the business is carried on;

● The date of incorporation of business;

● The date of commencement of the business;

● The registration number of the business;

● The nature of the business

 28

● The types of goods or services dealt in;

● The local VAT office where registration is sought;

● The name and designation of the principal officer of the business;

● The date when the application is filled.

Partnership firm, trust, estate, joint venture or incorporated bodies are required to complete the

registration form as it engages in taxation activities. The prospective vatable persons are

expected to obtain, fill and return the VAT form to the nearest local VAT office where the form

was obtained from.

VI. Accounting for Value Added Tax

VAT was introduced long ago, and there is need to emphasis the peculiar aspect in accounting

that relates to it. These are.

● The taxable period: This is the period covered by any particular VAT return. This period

is one month in Nigeria. It has been extended administratively by the federal Inland

Revenue services.

● Payment basis: VAT collected how to be accounted for and the taxable period in which a

payment is made or received. In accounting for VAT, it is important for registered

persons to take note of the following point.

● Where a trader pays VAT in respect of goods for resell, the amount so paid is debited to a

VAT account as receivable, when the goods are later sold, the VAT collected is greater

than the VAT paid, the VAT account will have a credit balance, which the trader pays to

the VAT directorate.

● When a trader is acting as a collecting agent in respect of goods which he acquired for

resale, the VAT should not be included in the account as expenses. When renders returns
 29

and pays the VAT, to the VAT directorate, the VAT account should be debited and the

cash book credited accordingly. At the end of the traders accounting period, any VAT not

yet paid over to the government should be reflected as a liability in the balance sheet.

● When a trader suffers VAT which he cannot pass on to the ultimate consumer,

● e.g. the trader buys a vehicle for his business, the VAT will only increase the cost of the

goods or services to him and should be accounted for as such.

2.1.7 Taxable Goods and Services Covered by Value Added Tax

● All goods manufactured or assembled in Nigeria;

● Household furniture and equipment;

● Petrol and oil petroleum product including engine oil, grease, and gas;

● Jewel and jewelries;

● All imported goods in the country;

● Sales of second hand property;

● Textile clothing, carpets and rugs;

● Cigarette and tobacco;

● Electric materials of any description;

● Office furniture and equipment;

● Soap and detergent;

● All vehicles and their spare parts;

● Perfumes and cosmetics including toiletries;

● Beer, wine, liquor, spirit, soft drinks and water including mineral water;
 30

● All aircrafts, aircrafts bodies and their spare parts;

● Any other goods and services from time to time as taxable goods.

1 Taxable Service Covered by Value Added Tax

● All services rendered by the financial institutions excluding peoples banks and mortgage

banks;

● Accountancy services, including any type of auditing, bookkeeping or related services;

● Legal services including services supplied therewith;

● Computer services, including the provision of bureau facilities, systems analysis, designs,

software, site development and training;

● Supply services by architects;

● Services supplied by security companies and enterprises;

● Services supplied by stock brokers;

● Courier services;

● Repairs, alterations, processing or any other services provided in connection with the

designated goods designated dealer;

● Telecommunication equipment, installments and maintenance services;

● Letting of video, tapes or any other audio, visual recording, rewriting of video tapes and

similar services;

● Entertainment services including plays, performance, crime shows and music concerts

conducted by educational institutions as part of learning;

● Air travels and company line;

 31

● Any other services may be presented by the board from time to time as taxable.

2 Goods and Services Exempted from Value Added Tax

● All medical and pharmaceutical products;

● Basic food items including rice , beans, yam tubers, cassava, millet, maize, milk, meat,

fish and infant foods;

● Books and education materials including exercise books, laboratory equipment, school

fees and PTA levies;

● Newspapers and magazines;

● Baby products, like feeding bottles, carriages, clothes, napkins, baby creams, and

powders, soaps, toys and baby dresses;

● Commercial vehicles and spare parts;

● Fertilizers and veterinary medicine, farming machinery and farming transportation

equipment;

● Plant and machinery and equipment purchased for used in the export processing zone

(EPZ) and in gas utilization activities;

● Agricultural chemicals;

● All exports.

3 Service Exempted from Tax are:

● Medical services;

● Services rendered by community banks, people banks and mortgage institutions;

● Plays and performances conducted by educational institutions as part of learning;

● All exports services.

 32

2.2 Theoretical Review

Theoretical framework is the structure that can hold or support a theory of a research study.

The theoretical framework introduces and describes the theory that explains why the research

problem under study exists.

2.2.1 Optimal Tax Theory

Mankin, Matthew & Dany (2014) explained that the optimal design of a tax system that

interplay between tax theory and tax policy was based on the foundational work of Ramsey

(1927) & Mirrlees (1971). That optimal tax theory is based on the following: a. optimal marginal

tax rate schedules depend on the distribution of ability; b. the optimal marginal tax schedule

could decline at high incomes; c. a flat tax, with a universal lump-sum transfer could be close to

optimal; d. the optimal extent of redistribution rises with wage inequality; e. taxes should depend

on personal characteristics as well as income; f. only final goods ought to be taxed, and typically

they ought to be taxed uniformly; g. capital income ought to be untaxed at least in

expectation;8.in stochastic, dynamic economies, optimal tax policy requires increased

sophistication. The standard theory of optimal taxation posits that a tax system should be chosen

to maximize a social welfare function subject to a set of constraints. It is often that everyone in

society has the same preferences over consumption and leisure. The theory posits that the social

planner’s is to choose the tax system that maximizes the representative consumer’s welfare,

knowing that the consumer will respond to whatever incentives the tax system provides. After

determining an objective function, the next step is to specify the constraints that the social

planner faces in setting up a tax system.

 33

Mankin et al further stated that Frank Ramsey (1927) suggested one line of attack-suppose the

planner must raise a given amount of tax revenue through taxes on commodities only, that such

taxes should be imposed in inverse proportion to the representative consumer’s elasticity of

demand for the good, so that commodities which experience inelastic demand are taxed more

heavily. That the social planner need to consider all possible tax schemes, including nonlinear

and interdependent taxes on goods, income from various sources, and even non-economic

personal characteristics. If the social planner is allowed to be unconstrained in choosing a tax

system, the problem of optimal taxation becomes too easy. The optimal tax is simply a lump-sum

tax. After all if the economy is described by a representative consumer, that consumer is going to

pay the entire bill of the government in one form or another. A lump-sum tax accomplishes

exactly what the social planner wants. The social planner has to come to grips with heterogeneity

in taxpayers’ ability to pay. If the planner could observe differences among taxpayers in inherent

ability, the planner could again rely on lump-sum taxes, but now those lump-sum taxes would be

contingent on ability. These taxes would not depend on any choice an individual makes, so it

would not distort incentives, and the planner could achieve equality with no efficiency costs. The

optimal tax theory is relevant to this paper as Nigerian government is planning to discover other

sources of income to boost the economy, tax on commodity is based on elasticity of demand of

individuals and all the eight factors are relevant to the goals of maintaining a sustainable

Nigerian economy.

2.2.2 Endogenous Growth Theory

The concept of economic growth has been rooted on different theoretic bases ranging from

the neoclassical growth theory of Solow (1956) which believed that taxes can hamper economic

growth. Rather than long run tax implication, it proposed a transitory growth (Hall &
 34

Jengenson,1967). The endogenous growth theory advanced a steady growth which presupposes

that policy changes can result in savings (King & Rebelo, 1990) as cited in (Okoror & Onatueh,

2018).

According to the, government policy, including taxation, can permanently result to increase

in per capita output where there is high level of innovation. The implication of the theory is that

taxes and other fiscal policies of government can persistently increase per capita output

(Mendoza, Milesi-Ferretti, & Asea, 1997 as cited in Okoror and Onatuyeh (2018). According to

Myles (2000), economic growth is the basis of increased prosperity. And since incremental

growth is not restricted to organic units, the Kuznets’ position of economic growth cannot stand

the test of time. Beyond the neoclassical and the endogenous theory of economic growth lies the

unified and the new theory of economic growth. The unified theory of economic growth was

propounded by Galor (2005) as an offshoot of the endogenous growth theory. The Galor

contribution emphasized that the problems of the developing can only be gleaned from a

complete understanding of the forces that propelled the developed economies to their present

state. The new growth theory on the other hand was popularized by Romer (1994) as cited in

Okoror and Onatuyeh (2018)). The unified growth theory internalized technological

development into a model of how market functions. The theory believed that knowledge and

technological development drives the growth of any economy.

2.2.3 Benefits of Principle Theory

Theory of Public Expenditure was propounded by John Maynard Keynes, in the 20 th

Century. It describes the expenses which government incurs in the performance of its operations.

With rise in state activities, it may be hard to determine what portion of public expenditure can

be ascribed to the maintenance of government itself and what portion to the benefit of the society
 35

and the economy at large. Persistent increase in public expenditure towards the maintenance of

government itself, rather than the benefit of the society and the economy at large results in

government desire to want to generate more revenue which can lead to imposing more than one

tax on the same tax base, collection of taxes on the same tax base by more than one tax

authorities, this in turns affects the performance and profitability of SMEs. In recent times,

public expenditure has increased rapidly and together with its role and importance in the national

economy, the area of public expenditure has remained untouched (Adanis, 2001).

2.2.4 Laffers Curve Theory of Taxation

Laffer curve theory of taxation was propounded by Arthur Laffer in 1979 (as cited in

Afuberoh & Okoye, 2014). The curve illustrates a theoretical relationship between rates of

taxation and the resulting levels of government revenue, with emphasis on taxable income

elasticity. The theory assumes that no tax revenue is raised at the extreme tax rates of 0% and

100%, government collect zero revenue due to changes in behavior of taxpayers in response to

the tax rate either losing their incentive to do business or finding numerous ways to evade tax

just like 0% tax rate where no revenue is raised.

The theory further explained the two effects of taxation namely: the arithmetic and

economic effects of tax rates on revenue. The two effects have opposite results on revenue in

case of decrease or increase in tax rates. According to the arithmetic effect, if tax rates are

lowered, tax revenue will be lowered by the amount of the decrease in the rate. That is the

amount of the tax revenue is a function of income available for taxation multiplied by the tax

rate. Thus, revenue R is equal to t x B where t is the tax rate and B is the taxable base (R = t x B).

The economic effect however recognized the positive impact that lower tax rate has on work,

output, employment, and entrepreneurship growth. At a high tax rate with multiple imposition,
 36

negative economic effect like tax evasion and disinvestment will dominate arithmetic effect

leading to decline in tax revenue (Lawal & Aduku, 2016).

2.2.5 The Ability to Pay Theory

One of the generally accepted attributes of a good taxing system is that of equity. Such

accepted principle of equity or justice in taxation implies that citizens of a country should pay

taxes to the government in accordance with their ability to pay. The theory has been attributed to

Arthur Cecil Pigou but was first mentioned by Adam Smith (1776) in “The Wealth of Nations”

In line with the principles of taxation, the payment of tax is on individual’s capacity. The Theory

was propounded on the bases ownership of property, expenditure and income (Adeite, 2019).

2.2.6 Theory of Public Expenditure

Theory of Public Expenditure was propounded by John Maynard Keynes, in the 20 th

Century. It describes the expenses which government incurs in the performance of its operations.

With rise in state activities, it may be hard to determine what portion of public expenditure can

be ascribed to the maintenance of government itself and what portion to the benefit of the society

and the economy at large. Persistent increase in public expenditure towards the maintenance of

government itself, rather than the benefit of the society and the economy at large results in

government desire to want to generate more revenue which can lead to imposing more than one

tax on the same tax base, collection of taxes on the same tax base by more than one tax

authorities, this in turns affects the performance and profitability of SMEs. In recent times,

public expenditure has increased rapidly and together with its role and importance in the national

economy, the area of public expenditure has remained untouched (Adanis, 2001).
 37

2.3 Literature on the subject matter

Adereti et al (2011 ) studied value added tax and economic growth in Nigeria. Time series

data on the Gross Domestic Product (GDP), VAT Revenue,Total Tax Revenue and Total

(FederalGovernment) Revenue from 1994 to 2008, sourced from Central Bank of Nigeria (CBN)

were analyzed using both simple regression analysis and descriptive statistical method. Findings

showed that the ratio of VAT Revenue to GDP averaged 1.3% compared to 4.5% in Indonesia,

though VAT Revenue accounts for as much as 95% significant variations in GDP in Nigeria. A

positive and significant correlation exists between VAT Revenue and GDP. Both economic

variables fluctuated greatly over the period, though VAT Revenue was more stable. No causality

exists between the GDP and VAT Revenue ,but a lag period of two years exists.

Owolabi and Okwu (2011) examined the contribution of Value Added Tax (VAT) to

development of Lagos State Economy from 2001 to 2005. The study examined each

development indicator (infrastructural, environmental management, education sector, youth and

social welfare, agricultural, healthcare, and transportation) on VAT revenue proceeds generated

by Lagos State during the study period. Their finding was that revenue generated from VAT

positively contributed to the development of the respective sectors of Lagos State economy

during the period studied.

Worlu and Emeka (2012) examined the impact of tax revenue on the economic growth of

Nigeria between 1980 and 2007 using its effect on infrastructural development. They reported

that tax revenue has direct and indirect relationships with the infrastructural development and the

gross domestic product respectively (GDP). The authors argue that the channels through which
 38

tax revenue affect economic growth in Nigeria are infrastructural development, foreign direct

investment, and GDP. They stressed that availability of infrastructure stirs up investments that in

turn bring about economic growth.

Bukie and Adejumo (2013) examined the effect of tax revenue on economic growth of

Nigeria for the period 1970 to 2011, regressing indicators of economic growth (domestic

investment, labor force and foreign direct investment) on tax revenue. The result shows that the

indicators all have a positive and significant relationship with economic growth in Nigeria.

Onaolapo, Aworemi and Ajala (2013) examined the impact of VAT in Nigeria revenue, and

observed dwindling revenue generation as characterized by annual budget deficits and

insufficient funds for economic growth and development. Using ex-post facto research design

and with the adoption of stepwise regression analysis, their study revealed that there is statistical

significant effect of VAT on revenue generation in Nigeria. They recommended dedication and

apparent honesty on the parts of agents of VAT with respect to collection and payment

improvement. The way forward to address the dwindling national revenue was not discussed,

which this paper was designed to address.

Ihenyen and Mieseigha (2014) examined taxation as an instrument of economic growth and

development in Nigeria. Using annual time series data sourced from the Central Bank of Nigeria

(CBN) Statistical Bulletin during the period 1980 through 2013, data of Corporate Income Tax

(CIT), Value Added Tax (VAT) and Economic Growth (GDP) was estimated using the Ordinary

Least Square (OLS) technique. The empirical result suggests that the hypothesized link among

corporate income tax, value added tax and economic growth indeed exist in the Nigerian context.
 39

Thus the result offer tantalizing evidence that taxation is an instrument of economic growth in

Nigeria. This conclusion points to the need for additional measures by government in ensuring

that taxpayers do not avoid and evade tax so that income can be properly redistributed in the

economy.

Ishola (2016) reiterated the fact revenue from indirect taxes has been declining over the

years from 85% in 1970 to 12% in 1980 and 13% in 1990, and that government needed a

revenue source that would help in turning around this trend. He explained further that VAT has

the tendency to generate a lot of revenue since the incidence falls on the consumer who hardly

knows that he is paying the tax, provides incentives for exports, enhances balance of payments

position, and serves as a gauge of the economic health of the country. He stressed further that

when the earning power increases it is immediately reflected in VAT proceeds. He therefore

stated the weaknesses of VAT for the following reasons: compliance and returns by numerous

collecting agents is a difficult task, smuggled goods are not captured into the system and the

informal sector of the economy are yet to be captured. The discussion is vital to the reform of

VAT, which this paper is designed to resolve.

There a number of contrary arguments on whether VAT had done more harm than good in Public

finance literature. For instance, Keen and Lockwood (2010) and Skinner (2015) asserted that the

benefits of the VAT can be numerous as it is perhaps harder to evade than other forms of

taxation, and it can easily be made compatible with international trade. The impact of the

introduction of the value-added tax on inequality and government revenues was examined by

Kaisa (2019) and the findings of the study showed that revenue consequences of VAT have not

been positive. This is an indication that income-based inequality has increased due to the VAT
 40

adoption, whereas consumption inequality has remained unaffected. The author argued that VAT

appears to have led to an increase in inequality when inequality is measured based on disposable

income.

Nigerian Tax reforms with respect to value added tax (VAT) became the topical issue as result of

the replacement of sales tax with value added tax (VAT). The study of Omesi and Nzor (2015)

revealed that the contributions of Value Added Tax to the total revenue accruals was significant

and that it was primarily designed to favour development at the lower level of government. The

study also revealed that Nigerian Value Added Tax rate was the least in the world and

recommended that the rate should be increased to 10 percent based on destination principle to

impose VAT on imported services rendered outside Nigeria by a non-resident company.

 41

CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Area of Study

This research will cover Federal Inland Revenue Service at Imam Dauda Street, Surulere in

Lagos, which is within the Mainland Local Government and 15km to Lagos Island local

Government; other communities surrounding it. The city is versatile with offices and residential

area.

3.1 Source of Data

This refers to the set of methods and procedures used in collecting and analyzing measures

of variables specified in research problems. According to Kothari (2004), research design is a

plan, roadmap and blueprint strategy of investigation conceived to give answers to the research

questions. A survey research design will be used in building up this project work. The choice of

this research design is considered appropriate because of its advantage of identifying attribute of

a large population from a group of individuals Also, it is structuring of investigation aimed at

identifying variable and their relationship to one another. It is an outline or a scheme that serves

as a useful guide to the researcher in his effort to generate data for his study. The research design

used in this project is survey design to enable the researcher to make use of questionnaire.
 42

3.2 Sampling Technique

Sampling is the process of selecting a part of a population to represent a whole. Sampling

size is been used if the population is very large in order to give equal chance to all business

organizations. This study centered on Federal Inland Revenue Service Office in Lagos State

where the researcher used random sampling to pick two hundred (200) persons, constituting of

senior and management staff in the office with additional clients from the population.

3.3 Method of Data Collection

The data collection techniques form main part of the study. The data for this study were

obtained partly from the primary source, which were questionnaire issued to the respondents,

information gotten from the oral interview administered, while the secondary source were most

published materials, such as text books, newspapers, scholarly journal and government

documents and related materials on the topic.

3.4 Method Data Analysis

Both quantitative and qualitative methods were employed in the data analysis. For

quantitative aspects, the use of tabular presentation of data in percentage for assessing the effect

of Value Added Tax on the economy of Nigeria was adopted. The essence of the quantitative and

qualitative method is for it to be easily understood by the study. Each data was examined and

analyzed on its merit and grouped into the various aspects of information requirement for the
 43

purpose of this project work. The findings were critically examined again to make sure that they

were not incongruous with the research objectives and hypothesis. Chi-square was used to test

the hypothesis based on its scientific nature. The formula for the chi-square used in this study is

as follows:

χ2 = ∑ (O − E)2 / E

Where is the computed chi-square

O = is the observed frequencies

E = is the expected frequencies

3.5 Reliability of Instrument

Cole (1998) defined reliability as the accuracy of the instrument in relation to stability,

repeatability, and precision. To ensure reliability, questionnaires will be administered to a large

representative sample.

3.6 Validity of Instrument

Asika (2009) defined validity as the degree to which a measuring instrument measures what it is

designed to measure. Validity is the extent to which any instrument measures accurately that

which it purports to measure. Questions will be based on the research objectives, the variables of

the study and the information that will be gathered during the literature reiew to ensure that they

are representative of what the respondents should know.

3.7 Limitations of the Study

 44

The researcher encountered a lot of hindrance and problems in the course of carrying out this

research work. Among the major problems are the difficulties in getting and gathering

information and others which include the following:

1. FINANCE: Due to the nature of office and business within the scope, the researcher

spends a lot of money on visiting, travelling from one location to another, from one office

to the other and even had to repeat a visit more than three times to seek for information,

all these involves money considering the financial constraint of the researcher and limited

resources available to him.

2. SOURCES OF INFORMATION: Many registered and non-registered business owners

were reluctant to give out or provide information about the research, since they believe

that tax payment is something very confidential and therefore could not open up to the

researcher.

3. INADEQUATE INFORMATION: Some of the respondents visited were unable to

present complete and comprehensive records of their business. While some were not

keeping proper records of their business activities and as such could not give adequate

and correct information on the effect of vat on their businesses rippling on the economy

of Nigeria.

4. TIME: Time constraint has been another vital limitation and obstacle towards effective

realization of the main objectives of this study. Time was really not on my side since I

have to combine the little time left with my academic work and preparation.
 45

CHAPTER FOUR

DATA ANALYSIS, FINDINGS AND DISCUSSION

4.0 lntroduction

4.1 Findings of the Study

Two hundred and ten (210) questionnaires were administered to the respondents and two

hundred (200) were retrieved which represents a 95.2 % collection. The data analysis is based

upon the returned questionnaires.

SECTION A - Socio - Demographic Characteristics

Table 4.1.1: Sex of the Respondents

SEX FREQUENCY PERCENTAGE

Female 180 90

Male 20 10

TOTAL 200 100

 46

Table 1 above shows that 180 respondents representing 90% were females while 20 respondents

representing 10% were males.

Thus, more female respondents were interviewed than their male counterparts in order for the

researcher to get a definite conclusion on the specific research study.

Table 4.1.2: Age distribution of respondents

AGE RANGE FREQUENCY PERCENTAGE

20- 29 66 33

30- 39 59 29.5

40- 49 45 22.5

50- Above 30 15

TOTAL 200 100

From the data, majority of the respondents were from ages 20-29 years which is 33%, 59

respondents representing 29.5% were from 30-39 years and 45 respondents from 40-49

representing 22.5%, the least number of respondents (30) with the age of 50 and above

represent 15%.
 47

Table 4.1.3: Marital Status of Respondents

STATUS FREQUENCY PERCENTAGE

Married 82 41

Single 118 59

TOTAL 200 100

Out of the 200 respondents representing 100 % who took part in the survey, 82 respondents

representing 41% were married while the young girls and boys which were 118 respondents

representing 59% were single.

Table 4.1.4: Educational Qualification of Respondents

QUALIFICATION FREQUENCY PERCENTAGE

WASC/GCE/SSCE 45 20

B.sc/HND 70 40

NCE/OND 65 27

Dr/Masters 20 13
 48

TOTAL 200 100

The above table shows that 70 respondents representing 40% have only B.sc/HND

qualification, 65 respondents representing 27% also have NCE/OND while 20 respondents

representing 13% have Masters and 45 respondents representing 20% have WASC/GCE/SSCE

certificate. The main feature of the personal characteristics of the respondents is the fact that

majority of them are city dwellers and many literate.

Table 4.1.5: Religion of Respondents

OPTION FREQUENCY PERCENTAGE

Christianity 80 40

African Traditional 40 20

Islam 60 27

Others 20 13

TOTAL 200 100

The above table shows that 80 respondents representing 40% are Christians in religion, 60

respondents representing 27% were Islam while 20 respondents representing 13% were either

Pegan or Athiest, while also 40 respondents representing 20% were African Traditionalist.

Which implies that majority of the respondents practiced Christianity.

 49

Table 4.1.6: Level in Organization of the Respondents

OPTION FREQUENCY PERCENTAGE

Management 15 7.5

Senior Staff 25 12.5

Junior Staff 160 80

TOTAL 200 100

This Table above shows that 15 respondents representing 7.5% indicated that they are of the

management level, 25 respondents representing 12.5% are senior staff, while 160 respondents

of 80% are junior staff. As expected, this shows that most of the respondents are non-

management staff.

Research Section B: This section concerns the information of respondents partaining the

resarch objectives and questions.

Questions 6, and above of the questionnaire schedule were meant to gather data for research

section B which has two option of answers which is Agree and Disagree.
 50

Question 6: Does the implementation of VAT have any positive impact on the Economy of

Nigeria?

Table 4.2.6: Showing Respondents Response

OPTION FREQUENCY PERCENTAGE

Strongly Agree 65 32.5

Merely Agree 55 27.5

Undecided 10 5

Strongly Disagree 30 15

Merely Disagree 40 20

Total 200 100

SOURCE: FIELD SURVEY (2022)

The implementation of VAT has impacted positively to the Nigerian economy. This was

identified by majority of respondents as worthwhile. This represents 61.5 % of respondents view

in the table above, 38.5% of the respondents however stated that it has no positive impact on the

economy of Nigeria, while 5% are undecided.

 51

Question 7: In your own assessment, do you agree that the imposition of VAT has

improved the existing business and industries in Nigeria?

Table 4.2.7: Showing Respondents Response

OPTION FREQUENCY PERCENTAGE

Strongly Agree 88 44

Merely Agree 72 36

Undecided 10 5

Strongly Disagree 20 10

Merely Disagree 10 5

Total 200 100

SOURCE: FIELD SURVEY (2022)

From table 4.2.7 above, it was discovered that greater number of the respondents are of the

opinion that VAT has improved the prospects of businesses and industries within the country.

This is represented by 80% of the total respondents. However, 15% disagreed with the above

statement or opinion, while 5% of the respondents are undecided.

 52

Question 8: Has the implementation of VAT result to any challenges at all in Nigeria?

Table 4.2.8: Showing Respondents Response

OPTION FREQUENCY PERCENTAGE

Strongly Agree 20 10

Merely Agree 20 10

Undecided 15 7.5

Strongly Disagree 75 37.5

Merely Disagree 70 35

Total 200 100

SOURCE: FIELD SURVEY (2022)

From the table above, about 20% of the total respondents agreed that VAT implementation and

administration has some challenges in Nigeria while 72.5% of the total respondents however had

a contrary opinion which discloses that VAT implantation and administration has not result to

any challenges in Nigeria, while 7.5% are undecided.

 53

Question 9: Does Value Added Tax have any influence on government capital

expenditure?

Table 4.2.9: Showing Respondents Response

OPTION FREQUENCY PERCENTAGE

Strongly Agree 90 45

Merely Agree 70 35

Undecided 15 7.5

Strongly Disagree 15 7.5

Merely Disagree 10 5

Total 200 100

SOURCE: FIELD SURVEY (2022)

From the table above, 160 respondents agreed that VAT has influence on the government capital

expenditure, which is represented by 80% and the 25 respondents representing 12.5% states

otherwise, while 15 respondents are undecided.

Question 10: Do you think that the collection of VAT in Nigeria is very effective?

Table 4.2.10: Showing Respondents Response

OPTION FREQUENCY PERCENTAGE

Strongly Agree 110 55

Merely Agree 90 45

Undecided - -

Strongly Disagree - -

Merely Disagree - -

Total 200 100

SOURCE: FIELD SURVEY (2022)
 54

According to the response the collection of VAT in Nigeria is efficient and effective over the

years. This was stated by 100% of the respondents.

Question: Do you think that the current 5% VAT rate is Okay in Nigeria?

Table 4.2.11: Showing Respondents Response

OPTION FREQUENCY PERCENTAGE

Strongly Agree 110 55

Merely Agree 90 45

Undecided -

Strongly Disagree -

Merely Disagree -

Total 200 100

SOURCE: FIELD SURVEY (2022)

The 5% VAT rate in Nigeria is okay. This was stated by 100% of the respondents.
 55

Question 12: In your own opinion has the imposition of VAT impacted the consumption

patterns of Nigeria?

Table 4.2.12: Showing Respondents Response

OPTION FREQUENCY PERCENTAGE

Strongly Agree 80 40

Merely Agree 80 40

Undecided 5 2.5

Strongly Disagree 17.5 8.5

Merely Disagree 17.5 9

Total 200 100

SOURCE: FIELD SURVEY (2022)

The above shows that majority of the respondents agreed that the consumption patterns is

Nigeria was some influenced by VAT. This was represented by 160 respondents, while 35

respondents however, had a contrary opinion, another 5 respondents are undecided.

 56

Question 13: Do you think that VAT staffs are motivated enough for effective VAT

collection in Nigeria?

Table 4.2.13: Showing Respondents Response

OPTION FREQUENCY PERCENTAGE

Strongly Agree 80 40

Merely Agree 70 35

Undecided 7 3.5

Strongly Disagree 23 11.5

Merely Disagree 20 10

Total 200 100

SOURCE: FIELD SURVEY (2022)

Majority of the respondent’s feels that the VAT staffs are motivated enough to do their work

effectively. This according to the table above represents 75% of respondents views, 21.5% of

respondents however feel that the VAT staffs are not motivated enough, while 3,5% are

undecided.

4.1.1 TEST OF HYPOTHESES

Hypothesis One

Statement of hypothesis

H01: Value Added Tax does not have positive impact on the Nigerian economy

The statistical tools used

Data for testing the hypothesis was obtained from question no. 6 from the questionnaire. Chi-

square used in this study is as follows:

Where is the computed data

O = is the observed frequency

 57

E = is the expected frequency

Table 4.2.6 was used for the analysis

Testing the hypothesis

Calculation of chi-square for hypothesis one (H01)

RESPONSE O E O-E

AGREE 123 37.5 32.5 1056.25 28.1666667

DISAGREE 77 37.5 -32.5 1056.25 28.1666667

200 100 56.3333334

SOURCE: FROM FIELD SURVEY (2022)

Computed chi-square 56.33

Table value

Degrees of freedom = (m-1) (n-1)

DF = (2-1) (2-1)

DF = = 3.84

The decision rule

A decision rule is the statistical objective procedure, which guides the researcher as to whether a

particular hypothesis is accepted or rejected from a set of data.

In testing the above hypothesis, the decision rule states that at 0.05 level of significance with 1

degree of freedom of the calculated value of mean reject H0 (Null hypothesis) and accept H1

(Alternative hypothesis), if the calculated value is more than the tabulated value or reject H1 and

accept H0 if the calculated value is less than the tabulated value.

Take the decision

The meam show that the calculated value is 56.33 is greater than the table value which is 3.84 at

1degree of freedom and a probability level of 0.05 %. So the null hypothesis (H01) is rejected
 58

and the alternative hypothesis (H1) upheld, that Value Added Tax have positive impact on the

Nigerian economy.

Hypothesis Two

State the hypothesis

H02: Value Added Tax does not have any influence on government capital expenditure

The statistical tools used

Data for testing this hypothesis was obtained from question no.9 from the questionnaires as

analyzed in table…mean used as the statistical tool to test the hypothesis. The formula for chi-

square is as follows:

Where is the computed mean

O = is the observed frequency

E = is the expected frequency

Table 4.2.9 was used for this analysis

Testing the hypothesis

Calculation of mean for hypothesis one (H02)

RESPONSE O E O-E

YES 175 37.5 27.5 756.25 20.1666667

NO 25 37.5 -27.5 756.25 20.1666667

200 40.3333334
SOURCE: FIELD SURVEY (2022)

The computed chi-square (X2) = 40.33

Table value

DF = (m-1) (n-1)

DF = (2-1) (2-1)

DF = = 3.84
 59

The decision rule

In testing the above hypothesis, the decision rule states that at 0.05 level of significance with 1

degree of freedom of the calculated value of mean reject H0 and accept H1, if the calculated

value is more than the tabulated value or reject H1 and accept H0 if the calculated value is less

than the tabulated value.

Take a decision

The mean shows that the calculated value of 40.33is greater than the table value which 3.84 at 1

degree of freedom and at a probability level of 0.05 %. This result shows that the alternate

hypothesis H2 that represents the positive response tested significant and it was held that “Value

Added Tax has influence on the government capital expenditure”.

Hypothesis Three

State the hypothesis

H03: Payment of (VAT) has not improved the prospects of business, organizations and

industries in Nigeria.

The statistical tools used

Data for testing this hypothesis was obtained from question no. 7 from the questionnaires as

analyzed in table…mean used as the statistical tool to test the hypothesis. The formula for mean

is as follows:

Where is the computed data

O = is the observed frequency

E = is the expected frequency

Table 4.2.7 was used for this analysis

Testing the hypothesis

Calculation of chi-square for hypothesis one (H03)

RESPONSE O E O-E
 60

AGREE 164 37.5 30.5 930.25 24.8066667

DISAGREE 36 37.5 -30.5 756.25 24.8066667

200 49.3333334
SOURCE: FILED SURVEY (2022)

The computed mean (X2) = 49.33

Table value

DF = (m-1) (n-1)

DF = (2-1) (2-1)

DF = = 3.84

The decision rule

In testing the above hypothesis, the decision rule states that at 0.05 level of significance with 1

degree of freedom of the calculated value of mean reject H0 and accept H1, if the calculated

value is more than the tabulated value or reject H1 and accept H0 if the calculated value is less

than the tabulated value.

Take the decision

The mean shows that the calculated value of 49.33is greater than the table value which 3.84 at 1

degree of freedom and at a probability level of 0.05 %. This result shows that the alternate

hypothesis H3 that represents the positive response tested significant and it was held that “Value

Added Tax has influence on the government capital expenditure.

TEST OF HYPOTESIS (H04)

State the hypothesis

H04: There are no challenges confronting the implementation and administration of Value

Added Tax in Nigeria.

 61

The statistical tools used

Data for testing this hypothesis was obtained from question no. 8 from the questionnaires as

analyzed in table…mean used as the statistical tool to test the hypothesis. The formula for mean

is as follows:

Where is the computed data

O = is the observed frequency

E = is the expected frequency

Table 4.2.8 was used for this analysis

Testing the hypothesis

Calculation of chi-square for hypothesis one (H04)

RESPONSE O E O-E

AGREE 40 37.5 -28.5 812.25 21.66

DISAGREE 160 37.5 28.5 812.25 21.66

TOTAL 200 43.32

SOURCE: FIELD SURVEY (2022)

The computed mean (X2) = 49.33

Table value

DF = (m-1) (n-1)

DF = (2-1) (2-1)

DF = = 3.84

The decision rule

In testing the above hypothesis, the decision rule states that at 0.05 level of significance with 1

degree of freedom of the calculated value of mean reject H0 and accept H1, if the calculated

value is more than the tabulated value or reject H1 and accept H0 if the calculated value is less

than the tabulated value.

Taking a decision
 62

The mean shows that the calculated value of 49.33is greater than the table value which 3.84 at 1

degree of freedom and at a probability level of 0.05 %. This result shows that the alternate

hypothesis H4 that represents the positive response tested significant and it was held that “Value

Added Tax has influence on the government capital expenditure”

4.2 DISCUSSION OF FINDINGS

From the findings of this study, it can be deduced that VAT collection has been effective and

efficient over the years. The various data collected and analyzed shows that:

● VAT has a positive impact on Nigerian economy;

● VAT has also impacted on the consumption pattern of Nigeria;

● VAT has a positive influence on the capital expenditure of the government;

● VAT has improved the prospective business, organizations and industries in Nigeria.

Therefore, it can be deduced from this study that VAT has impacted many benefits to the

economic development of Nigeria.

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CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.0 SUMMARY OF FINDINGS

In the earlier chapters, the researcher traced the historical development of Value Added Tax

(VAT) and its administrative structure in Nigeria. Emphasis was given to VAT registration

procedures and the impact of VAT in Nigeria. The basis of these reviews is textbooks.

Based on the study, data were collected from field and this included the use of questionnaire and

interview. Data were also collected from which they were interpreted accordingly with use of

tabular presentations and percentage to represent data.

5.1 CONCLUSION

Having critically examined the research questions, tested the hypothesis, and the research

findings, the following conclusion was made based on the information gathered.

● VAT has actually improved the economic development of the country with much

implication on the revenue generation of Nigeria.

● Payment of VAT has improved the prospects of business organizations and industries in

Nigeria to an extent, which we are all witness today for instance; there has been an

improvement in power supply recently.

● These has been a lot of motivation to VAT staffs to increase their efficiency, this could

be seen from their special salary structure different from other government ministry or

parastatals like them. That is the federal Inland Revenue service (FIRS).

5.2 RECOMMENDATIONS

On the basis of the findings that have been established and the conclusion drawn from the study,

following recommendation are necessary.

 64

● The government should adequately make provision for retrieving the proceeds of VAT

from companies and other agents of collection.

● From the above, it is expected that in a given tax system such as VAT an effective tax

administration would yield maximum revenue with a minimum cost.

● This however depends on the quality of the machines for tax administration which

includes manpower devoted to tax collection and assessment, the equipment and VAT

Decree. When the people come to understand VAT better and it‘s benefit, the economic

compliance would be greater and therefore compliance cost would be smaller on the

other hand, when the voluntary compliance is great, the VAT administration would be

easier and giving the tax structures, the greater revenue yield.

● Seminars and workshops so far organized on this issue are narrow in its scope and design.

There should be functional VAT offices in every council area to coordinate a vigorous

campaign to educate people and seek their cooperation. This will no doubt erode the

negative attitude that some of the consumers have developed towards, VAT.

● VAT has a good chance of working in Nigeria. If it receives the cooperation of tax

collectors, if however, people continue to evade tax colluding with tax collectors as

witnessed on sales tax, no meaningful achievement would be made.

● Again, enforcement of penalties and addition returns assessment provision could go a

long way in enhancing VAT collection.

● Fast disposition of tax cases will help administration machinery.

● A good tax system most ensure that tax laws which include VAT laws must satisfy the

basic principles of taxation.

● The list of VAT exemption items should be clearly defined in simple language. This

should be properly articulated to ensure those goods that are vatable and those goods that

must be exempted.
 65

● Finally, Despite the Positive side of the introduction of VAT, there are still the views of

the opposition which to an extent portrays the policy in a negative form or perspectives.

5.3 Proposal or Further Study

 66

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