CHAPTER ONE

1.1 INTRODUCTION

Taxation has been in existence since time immemorial and it has undergone several
evolutions before reaching this stage. At which it is today. Taxation is dynamic and as such it
has been growing and changing with the needs of the society in British, income tax was
originally introduced in 1799 by an act as a temporary tax to finance the napolenic wars.

“Lioyd George” was however the one behind the British progressive tax system
whereby limited companies are used as a conduct pipe for taxing individuals which grew from
proportional system. It has been in full operation in England since 1842.

In Nigeria, the history of taxation is traced to the period before the advent of the British
colonialism. At that period Nigerians has been willingly and cheerfully paying their taxes in
kind digging latrines, wells, traditional rulers were extracting tributes dues from subjects and
serfs etc. they were derived or levied not to make money for their domains. But as evidence of
the subjects servitude and partly in return for their protection and for the benefit of the
community as a whole. Failure to render such services usually resulted to/into seizure of
property. Which might be reclaimed on payment of money.

Today, government levy taxes taxes primarily to enable them run varieties of services
and to control the economy such as the provision of basic infrastructures, such as educational
facilities, postal services, hospitals and etc.

Examples of taxes paid by Nigerians before the advent of the British are: Written below/next
page.

I. In Bayelsa, for instance, we have kirisa, which is the rent paid to landlords for
cultivations.
II. Taxes on livestock, such as jangali, are charged in the north.
III. Zakat, according to Islamic law, it is for charitable or annual arms given to the poor or
needy.

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 IV. Special taxes.
V. Guldo, i.e death darters which was common in borno emirates.
VI. Owo ode- tribute to the chiefs which is more important for governor/government to
derive a mean of getting money today. These taxes can be classified into direct &
indirect taxes. The indirect taxes are levied directly on goods and services.

For example: excise duties, sales and purchases taxes are value added tax(VAT). The idea
for the introduction of VAT in Nigeria came from the report of the study group set by the
federal government in 1971 to review the entire tax system.

Value added tax was proposed and a committee was setup to carryout the feasibility
studies on its complementation In January 1993. By which government agreed to
introduce VAT by the middle of the year. It was later shifted to 1 st September, 1993 by
which time, the relevant legislative would have been made and proper ground work done.

1.2 HISTORICAL BACKGROUND OF THE STUDY.

(VAT) “value added tax” is widely believed to have been introduced in its modern form
in France in the year 1954 but it is said to have been first advocated in Germany in 1919. The
form advocated than was the “Addition type” in which the taxes base would be the sum of
wages and capital income. (meaning in according system or sense. The difference between
sales and purchase of the taxation firm).

France introduced “production tax” in 1937, this was a type of excise duty in 1948. It
was transformed into a products income base tax. Which used the credit mechanism thereby
moving it near the present day VAT.

According to Lent in 1999, after the second world war, a team of tax experts under the
leadership of professor Catt Shoup was commission in japan to study the Japanese tax system
and prescribe reforms in other to shore up the battered economy the team proposed to Japan
about the introduction of value added tax in 1984 in the report on Japanese taxation, professor
Shoup is said to have put his feet down on the need for the first time in fiscal history. For the
introduction proof VAT, this proposal was however discounted by the government.
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 The 1954 France government tax reform led to the introduction of VAT on the
consumption of goods. The tax was made applicable to the industrial sector along the services
distribution having separate taxes, while the VAT system adopted in France gave full credit
for the paid on investment goods. The successful implementation of VAT in 1996 by
Ogundele system adopted in France is said to have enticed other European economic
community.(EEC) members to adopt VAT. The adoption of VAT EEC members countries
was to be made obligation under the treaty of Rome signed in January 1957. The tax soon
becomes popular and continued in 1967, the EEC unanimously opted VAT and later on its
adoption became a condition for the membership of EEC. This is very important as it was to
foster the objectives of international trade in the community.

Glem P. Jenkons of the international tax program of Harvard university, who at various
times was tax adviser to Kenya SRI lanka, Malawi & Bolivia, has revealed that uniquely and
brazil were the first nations to implement a full scale VAT.

In Africa, the French speaking countries were the first to adopt VAT. “thus it is due to the
fiscal influence on French on the France phone countries”. Examples of these French colonies
in Africa that adopt VAT early are: Cote-divore in 1960, Guinea in 1960, Senegal in 1961
and Morocco in 1962.

Ogundele (1996) has observed that of the 24 members of the organization of economy
operation and development(OECD) only United State of America(USA), Switzerland and
Australia have not embrace VAT fully, the state of Michigan on the USA was said to have
experimented the implementation of what looked like a “modified VAT”. In 1953 but the
policy was through over board four years later.

The tax(VAT) soon became so popular and continued to gain prominent place in the fiscal
armory of many countries in Europe latin America, Asia, and Africa since the 1960’s and
1980’s many countries throughout the world have moved to VAT since 1980’s.

Nigeria joined the league of countries that have embraced VAT in 1993. It was introduced
in Nigeria following the commendation of study group set by the government in 1991 to

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review the Nigeria tax system. Dr. Sylvester U. Ugoh led committee on indirect taxation
recommended the introduction of VAT to replace the sales that was in operation in Nigeria.
The VAT law promulgated in 1993 but implementation started in January 1994.

1.3 STATEMENT OF THE PROBLEM.

Many people asked questions and also wonder why at all they have to pay tax. A fact that
part of their legitimate earnings has to be surrendered to the government for some reasons, this
problems some people faces in respect to why they have to pay these taxes are:

I. THE LAW INCOME EARNERS: insufficient income earners find it difficult to share
with the government and the fact that they still have to provide for their families out of
thus insufficient earners the receive.
II. PERSONAL PROBLEMS AND AS WELL AS BUSINESS PROBLEMS.

Since the beginning of 1994, the new tax system finally took off, some unacceptable signal
do emirate from the market across the country, prices do hit the roof thereby exacerbating the
runaway inflation already inflicted on the irony of it all. In its new year of implementation in
that as VAT adds only five(5) percent to the final cost of a production or services. the rate of
price increase in most cases are as 50% and sellers attribute to value added tax in view of the
above face. One is compelled to ask some questions which will be discussed in this process of
the study.

1.4 RESEARCH QUESTIONS

In this category, one would be compelled to ask the following research question which of
course will be attended to, in the process of this study.

Questions are as follows:

I. What is the administration policy of VAT all about?

II. To what extend do Nigeria embraces the new tax system in the state?
III. Do the various policies and administration of VAT applies in Nigeria, approve or
improve the economic activities of the country?
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IV. To what extend has the introduction of value added tax(VAT) changed the income
generation capacity of the nation?
V. Who benefit more from VAT…… the producer, the consumer or the government?
VI. Is value added tax(VAT) contributing in any way to the economic development?

This study will therefore be concerned with examining the effect of valur added
tax(VAT) and all the possible listed problem to the development of Nigeria economy.

1.5 OBJECTIVES OF THE STUDY

The objectives are listed below, one is 40:

1. Examine the effect of value added tax(VAT) on revenue generation in Nigeria.

2. The specific objectives are:
a. To evaluate the effect of VAT as a tool for solving the revenue problems in Nigeria.
b. To look at the impact of value added tax on the economy of Nigeria.
c. To identify constraint facing the VAT system in the achieving or achievement of its
objectives.
d. To suggest policies and measures that may enhance the achievement of value added
tax(VAT) objectives.
e. To consider the low earners.

1.6 RESEARCH HYPOTHESIS

The value added tax has been useful tool of generating income in Nigeria economy. It has
shown a great significant effect on national economy development.

Thy following hypothesis are stated:

HYPOTHESIS 1

HO: the value added tax has no positive impact on revenue generation in Nigeria.

H1: the value added tax has a positive impact on revenue generation in Nigeria.

HYPOTHESIS 2
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 HO: the value added tax has no significant impact on the economy development in Nigeria.

H1: the value added tax has great significance impact on the economic development in
Nigeria.

HYPOTHESIS 3

HO: The value added tax system in Nigeria has negative impact on consumers.

H1: the value added tax added tax system in Nigeria has positive impacts on consumers.

1.7 SIGNIFICANCE OF THE STUDY

This study is prompted by an interest in the process of government in using fiscal

instrument to some of the socio-economic problems in the country. The extend and pattern of
the federal government policy towards value added tax (VAT) system have been for interest to
policy makers, economists, businessmen, students who might need it in future for reference
purpose and the society in general within the few years of its introduction. This study shall go
a long way in helping the government to know whether it effort and policies on the
implementation of the introduction of new tax system in the country and thereby helping in
future planning. It will also help economic analysis as well as the academic in their quest to
understanding tax policies in the state. Also the general public will benefit from this study,
because it will provide them with knowledge concerning the impact of the policies and
administration in the economic activities in the state.

Finally, it will serve as a sleeping stone for further research work on the new tax system
for those who are interested in taxation and tax matters.

1.8 LIMITATION OF THE STUDY

Despite the things that go with VAT there are some areas that need attention for re-
adjustment, these areas includes the following:

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 1. DELAY OF PAYMENT: before payment of VAT is made, there have to be verification
exercise in the refunds which are not automatic. This results mostly on average period
of two months delay, whereas in some difficult areas. It may exceed two months.
2. CRIMINALIZED: there are a lot of false document and fake treasury receipt
submission. There are also the problems of VAT evasion of the tax by the VAT
officers.
3. LACK OF PLANNING: these are problems of funds from which to aid approved
refunds in the first few months of establishment, the scheme is grossly face with the
problem of inadequate facilities that results from lack of planning.
4. TRAINING: VAT inspectors can be switch to task relating to VAT at any time. This
leads to serious administrative danger.
5. OVER-AMBITION: the first estimate of VAT able person is observed to be tentatively
put off.
6. PUBLIC: it is discovered that there is less new paper advertisement, it should be
increased making more advertisement, in newspapers radio and television as well.

All these were necessitated by the limited time for the researcher to carry out this study.
Apart from the limitation of time, They was also constraint of money which could not allow
the researcher to travel to various VAT offices for the purpose of this research.

The issue of sorcery and confidentially of government records did not allow the researcher
access to valuable records which would have been used.

1.9 DEFINITION OF TERMS USED IN THE STUDY

There are various concepts used in this study in this study that needs to be defined or
explained for the purpose of understanding or comprehension by readers the team “tax” shall
be used to mean all tributes and duties on goods & services levied by government authority
against its citizens, taxes are classified either direct or indirect taxes and include income tax,
pull tax, capital transfer tax, excise and impact taxes, sales taxes, and value added tax,(VAT)
most of the terminologies are as well explained in the literature but a few are presented as a
reminder.
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1. TAXATION SUPPLY OF GOODS AND SERVICES

This means that the sales of goods and services/ rendering of services. Subjects to (VAT)
value added tax regulation. This phrase refers to someone or some organization qualified to
pay the tax, for example a trade, producer, wholesalers, and the consumer, who are qualified
under the law of (CITA) company income tax act.

2. VATABLE PERSON

This refers to one who trade in VAT-able goods and services for a consideration i.e a person
who trade in the sales of goods and services subject to value added tax(VAT) regulation.

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 CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 INTRODUCTION

According to oladunjoya,(2003) effective and efficient tax administration in

indispensable for the realization of the goals of tax policy. A well formulated VAT policy
couple with good administrative machinery should be the aim of the government in Nigeria’s
VAT regime. The VAT decree 102 of 1993 vest the responsibility of its administration of
VAT in the Nigeria Economy.

Nigeria is presently operating a single rate VAT of 5% on all VAT able goods and
services, the VAT decree makes it mandatory for all VAT able persons to register with the
federal Inland Revenue and also keep proper and sufficient records for the calculation of VAT
liability.

Basically, there variant of VAT were classified, the income type consumption type and
the gross products types VAT where no credit is given for the impact tax on the purchase of
capital goods. Also three board methods of calculating VAT are equally identified the
addition, subtraction and credit method. Nigeria adopted the credit method where input tax on
purchase is calculated and subtracted from output tax on sales and the difference is positive,
and over to the revenue but if negative, a refund is called for from the revenue.

As regards administrative short coming VAT evasion was seen to be perpetrated by VAT
able persons who refuse to register and those who register but keep incomplete and incurrent
records the revenue should be up and doing in enforcing the law. It should not relax because
of the VAT principle of voluntary compliance, Complained needs to be enforced.

Conflicts resolution under the Nigeria VAT regime is another area that calls for attention.
The establishment of the VAT tribunal produced under decrees also 32. 1996 is still lying in
the cooler, aggrieved persons under VAT at the moment have now purse their cases. The

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decision of VAT administration is final, their delay in putting in place the tribunal does not
argue well for the development of taxation in this country.

The necessity for computerizing the VAT system and indeed the entire tax administration
in Nigeria also emphasized this chapter is directed to a review of available literature on the
use of VAT administration on this country.

2.2 REASONS FOR THE ADOPTION OF VAT

Many countries of the world have embraced VAT as a system of indirect tax, and it has
continued to enjoy popularity and acceptance within the family of indirect tax. it has become
mostly favored. It has continued to gain support more than other direct system of taxation. As
government around the globe continue struggle with the problem of resources inadequacy for
the provision of public goods and services and the problem of fiscal in balance, they are
always in the lookout for the better way of improving their revenue level and how to manage
the economy. These has often led to economic reforms been carried out. An economic reform
has become a perennial business with taxation features in most of them. No generalization is
possible about the reasons for the adoption of VAT as an different countries and combination
of factors may necessitate the adoption of VAT by country however; some of the most general
reasons are discussed below.

PARTICIPATION IN COMMON MARKET:

According to John (1996) any single stage tax allows tax harmonization in a common
market if all countries use the same form. But the type of tax effects the relatives distribution
of revenue. The manufacturer tax give a high share to those country dominant in
manufacturing the retail tax is distributed in relation to location of conduct of economic
activity and may therefore be more acceptable.

The adoption of VAT by the EEC member countries is obligatory under the treaty of
Rome signed in January 1957 and by 1967 its adoption becomes a condition for EEC member.
This was to foster the objective of international trade in the community. Ogundele also stated
that, even more important (for the EEC) was that, cascading tax under the former regime did
10
not permit a reliable determination of border tax adjustment. Export rebates could only be
appropriated because of the differing number of selling stages the goods went through before
exports and the fact that value added tax adjustment between members of the union difficult.

REVENUE TO THE OBTAINED

The larger the amount to be collected from the tax(relative to GNP) the more attractive
is the value added from most importantly is the advantage of spreading the impact of the tax
over a wide sector of the economy. A country taking not more than 1% of GNP(seeking only
relatively limited revenue from tax) should be able to do so easily with a tax confined to the
retail or wholesale and retail sectors, while a country taking 5% may fund a VAT imperative.

According to John (1996) he recognized that where the goal of taxation is to realized a
large amount of revenue the VAT is mostly attractive, then introduction of VAT in Nigeria
has led to introducing more relies and cut in personal income tax and cooperative rate because
VAT is generating substantial revenue.

a. There is the past second war logic for the imposition of tax Naiyeju(1996) submitted
that, there was the need to mobilized saving to support capital formation, which in turn,
is expected to smoothen business and industrial growth. The idea, much exposed in the
theory of VAT he said that, if the taxation of consumption of certain goods and
services would reduce consumer demand for them, the utilization disposable income
could be saved for such boosting taxes. According to Nicholaskaliko(2002) he argues
that by providing a surplus over recurrent expenditure, they make to possible to devote
a higher proportion of resources to building base. Possibility this could be on the
reasons for the proposal of VAT by the professor who led team to japan in 1984.
b. The impressive performance of other of taxes for instance japan started the
implementation of VAT in 1920, the tax was envisaged as a potential remedy to the
ineffectiveness of existing Japanese taxes that were in operation after the second world
war.

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 Revenue from indirect tax predominates in the developing countries where direct tax gave
generally not been truthful. And in the family of indirect taxes, it is the import duties and
export duties predominates in response many countries including Nigeria, Ghana, Senegal,
and Kenya have over the year tried to diversify the revenue base on their indirect taxes this
had led to the introduction or purchases or sales tax in some of their countries as a certain
European Asian and Caribbean countries.

Generally, the returns from other forms of sales tax adopted could hardly convince
economic planner that the tax system has been reformed. Tax evasion continued to be on the
increase nationality. Policy makers finds it worthwhile prospecting for new reforms that
would redress tax evasion inequity, inefficiency of administration and above all boost revenue
yield to government the VAT has been most favored on the choice of taxes adjusted portent in
delivering the fiscal goods. A study by Glen Yenkins shows that, between 1984 to 1991, about
24 major tax reforms took place across the globe with VAT featuring in most of the reforms.

2.3 THE CONCEPT OF VAT

VAT is already been defined on chapter one, according to Ogundele (1996) in his book,
VAT is a tax on the supply of goods and services, which is eventually borne by the final
consumer but collected at each stage of the production and distribution chain.

The three essential characteristics of VAT which should be emphasized are;

I. It is a tax on the consumption of goods and service.

II. Its incidence is on the final consumer on the other worlds it is borne by the final
consumer who purchases the goods and services.
III. It is multi-stage tax that is, it is charged and collected at each stage at which supplies
change hand.

According to Aluko (1996) where these three(3) characteristics are present in a tax, it is
a classified VAT. But where they are not all present similarly to VAT and variously named
(for example, modified VAT, sample VAT) is been operated.

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 Aluko also propound that value added tax is the increase on the value of goods and
services in the process of production or delivery, he further explained that value of goods or
services that cost of the inputs of the other goods or services that cost of the inputs of the
other goods or in the delivery of the services.

An illustration below would explain VAT better as a multi-stage tax. assuming a 5% rate.

SALES SALES PRICE (5% SALES PRICE

PRICE(BEFORE VAT) VAT INCLUSIVE) TO
SUPPLIER PRICE Raw materials supplier Government VAT
N1000 Sales price=1050 collected N50 less paid-
(inclusive VAT) VAT PAYABLES N50

MANUFATURER MANUFACTURER VAT COLLECTED

PRICE SALES PRICE=1575 LESS: VAT PAID N100
N1500 (INCLUSIVE VAT) VAT PAYABLES N25

WHOLESALER PRICE WHOLESALER SALES VAT COLLECTED N125

N200 PRICE=2100 LESS: VAT PAID N100
(INCLUSIVE VAT) VAT PAYABLES N25

RETAILER PRICE RETAILER SALES VAT COLLECTED N125

PRICE N2635 LESS:VAT PAID
INCLUSIVE OF VAT N100
VAT PAYABLES N25
CONSUMER PAYABLES TO
Retailer total VAT paid N125 N2625
(INCLUSIVE VAT)(i.e 5%of 2500)
SOURCE: FIRS/VAT

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 INFORMATION CIRCULATE 9304 2006
SOURCE: federal Inland Revenue service VAT information circular NO.9304 2006
According to Mclure(2002) he observed that the most general case for a VAT is the broad
based, flat rate should be introduced into the system.

1.4 TYPES OF VAT

According to MC clure(2002) the three types of VAT are the income type VAT, the
consumption type and the gross product type has been stated the base difference among the
three typesis on how capital item acquisition (eg future plant and machinery) are treated in
the determination of the tax base.

a. INCOME TYPE VAT

Under this, credit for tax on capital goods are allowed top taken over the life of the assets
as it depreciates in other word, the ta paid is amortized(i.e credit against the firm VAT
liability) over the expected lives of capital input.

ILLUSTRATION

If a car is acquired by a company for #100,000 and VAT is 5%, #5000 is allowed as
credits against the firm output tax over the economic live span of the assets. If the assets are
estimated to last for 5years, the #1000 is allowed as set annually. That means the whole input
tax will be fully recovered in five(5)years. The system is much like capital good is recovered
against the output of tax of the company rather than against its assessable profit.

The implementation of the income types VAT would make it necessary to distinguish
between immediate and capital goods and to apply depreciation schedules for the later, as
under the income taxes. These indeed would pose not to favor the taxable firm because it
does not allow tax immediate credit of the whole input tax hence affecting its cash inflows, it
however favor the government because credit is not given to the firm at once but spread over
the economic life of the assets.

b. CONSUMPTION TYPE VAT

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 Under the consumption VAT, the firm is allowed immediate credit for all taxes paid on
capital goods as well as taxed in other words, capital purchase are treated the same way as the
purchase of any other input. This is the type employed by the EEC countries and OECD
nations.

THE ADVANTAGES OF THE TYPES TO THE FIRM

I. The taxable firm can recover tax paid on capital goods immediately as credit is given.
This will improve its cash flow position and this serves as incentive to the firms.
II. The tax burden firm capital expenses is shifted to the consumer in full and immediately
instead of being borne wholly or in part by the company.

The consumption type VAT pose less administrative difficulty as differentiating capital
purchase from purchasing of immediate goods is not needed because total rebate is given on
all expenditure on the other side the government is at a disadvantage because of huge amount
of refund that will result from capital expenditure of the firms. It is a disadvantage because
unlike in the income type VAT, the credit under the consumption type VAT is to br granted at
once.

c. GROSS PRODUCT VAT

Under the gross products VAT, no deduction of tax on impact of capital purchased is
allowed against the firm output tax in other words, the taxable firm is treated as a final
consumer of all its capital input. This situation, the tax paid on capital acquisition is to be
capitalized. That is the input tax paid is to form part of the cost of the assets, therefore capital
allowance is claimed over the expected life span of the assets. The advantage in this type is to
the government who saved the problems of having to make cash refunds while firm are
disadvantaged because it does not encourage investment in capital goods. The goods product
VAT is the system adopted by Nigeria, the Federal Inland Revenue VAT information
circular(2002) states that, only inputs taxes paid on raw materials meant for production of
goods meant for resale will qualify for set off similarly Federal Inland Revenue information
circular(2002) also states that, all input VAT payable in respect of assets purchase for use in

15
the bank and other financial institution should be added to cost of the asset on which capital
allowance may be claimed.

It could be deduced from the forgoing that Nigeria has favored the gross product type VAT.
Through it advantageous tothe revenue service as stated earlier on, because it lives the revenue
allowance with more money as a results of less refund at a time, through capital allowance
granted yearly on the capital inputs, it has on the other hand the administrative problems of
differentiating expended time on capital items and intermediate goods, in addition to been
disincentive to firms on investment of capital goods.

II.4.1 VAT COMPUTATION

There are basically three alternative ways by which VAT can be calculated. The three
methods are;

i. The additional method

ii. Subtraction
iii. Credit methods

A. THE ADDITIONAL METHOD

This method takes the tax bases. The sum of factor and profits (i.e earnings by the four factors
product, rent for land, interest for capital, wages for labour and profit for entrepreneurial
ability). There are two approaches to this;

DIRECT APPROACH

Under this approach all factors of payment are needed and the rate of tax applied on the
total to arrive at the tax ability.

INDIRECT APPROACH

Under this approach the rate of tax is applied on each factor payment and summing up
all the tax on the factor payment to arrive at the total liability.
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B. THE SUBTRACTION METHOD

According to subtractionmethod (the first of the deduction variants) the tax base in
determined by deducting purchase inputs from sales. This method is often referred to as the
Japanese model. VAT is calculated by subtracting the cost of taxed inputs from sales and
multiplies by the tax rate to get tax liability.

C. THE CREDIT METHOD(THE SECOND DEDUCTION VARIANT

The tax on the purchase inputs is deducted from the tax on sales to determine the net tax
liability. Therefore, this involves two processes. First, the firm would multiply it sales by the
tax rate to calculate VAT collected on sales, secondly, the firm would credit VAT paid on
inputs against VAT collected on sales and remit the difference to the government. This
method is known as the European methods or model. In this approach value added not be
determined. It merely determines the output tax and the input tax and subtracts the later from
the former to get VAT payables.

1.5 VAT SYSTEM AND METHOD OF COMPUTATION

The VAT system adopted in Nigeria as already be noted as the gross products typs
where no credit is allowed for tax on purchase of capital inputs. While the method of
calculating VAT adopted in Nigeria is the credit method where inputs VAT is deducted from
output VAT payables to the government. A refund would result to the VAT able person where
the input VAT is greater than output VAT.

2.5.1 VAT RATE

The rate structure is another fact of VAT that has direct influence on its administration.
There are three routes structure that a country can choose, from these are, the single rate,
double rate and multiple ratedetermination of what types of rate to adopt is very important to
the establishment of a VAT

Most countries of the world that have complemented VAT have adopted multiple rate in
preference over other rate structure, through much complex to administer the grounds for it
17
adoption is to protect the poor and thereby avoid regressively or maximize revenue it is much
simpler to administer, according to Ogundele(1996)”the countries that adopt the single rate
have done so far administrative convenience reduction of cost of implementation and
minimization of evasion.

Nigeria has initially adopted the double rate system considering of 5% rate of tax for all
VAT able goods and services, (FIRS information circular NO. 9304, 1999). But the FIRS
information circular NO.9901(2002) states that all exported goods and exception status.
Therefore, inputs tax is not refundable any more.

2.5.2 REGISTRATION OF VAT

Registration is very essential to the success of any VAT system. It determines how
broad the base of the tax would be. If any tax payer were registered, the tax would have a
better effect with regards to achieving the purpose of its imposition. The persons to be
registered will depend on the provision of the lair. Section 8(1) of the VAT decree provides
that taxable persons shall within six months of the commencement of business, whichever is
earlier, register with the board for the purpose of tax. the decree interprets “taxable person” to
mean a person who is dependently carries out in any place an economic activity as a producer,
wholesaler trade, supplier of goods, supplier of services(including mining and other related
activities) or person exploiting tangible or intangible properly for the properly for the purpose
of obtaining income thereby way of trade or business and include a person or an agency of
government acting in that capacity.

In time with the provision of section 8(1) of the VAT decree, FIRS information circular
No. 9910, (2002) states that all existing manufacturers, disruptors, importers and suppliers and
supplier of goods and services are to register for VAT payment within six month of such
commencement of business the nearest local VAT office the circular, equally states that, every
VAT-able person has an obligation to register for VAT operation.

VAT able person according to Naiyeju, is a person who had in VAT-able goods and
services infact no VAT-able person is exempted from VAT registration and this means the

18
absence of registration and this means the absence of registration threshold. This is to prevent
the usual tendency of VAT-able person to deliberately arrange their economic affair to fall
below the stipulated theirs hold and there by avoid registration.

Section 8(2) and section 28 of the VAT decree stipulate penalties for any taxable persons
who fails to register with the board within the specific in the decree, or a taxable who
knowingly or intentionally fails to register under the decree when a VAT-able person is
registered, he is assigned a unique tax identification number known as VAT registration
number(VRN) which will be on hisregistration certificate. The registrant must quote this
number on all his involved and all correspondence with the tax office. The VAT registration
certificate issued to a registered person must be clearly displayed at the business premises of
the registered person.

2.5.3 EXEMPTIONS FROM VAT

One of the arguments against VAT is that it is regressive since lower income tax than
the middle and upper income tax payers .in an attempt partially to correct exemption for
commodity group, there are important items in the expenditure of the poor.

According to FIRS training lecture note(2004) exemption are fiscal measures designed to
achieve some special purpose, some of aims of exemptions are:

I. To make some good chapter for the poor.

II. To encourage some industrial sector to expand.
III. To redirect investible funds to petered sector.
IV. To make locally produced goods completive.
V. To reduce inflation.

In Nigeria, considering the list of exemption goods, it is clear that the first reason above
informed the decision of government when goods and services are exempted, it means that
they will not be taxed at all no output tax is to be collected by any firm that deals in such items
and inputs taxes paid by such firm are not creditable therefore input taxes are to form part of
the production cost of the items.
19
The first exempted goods and services as per FIRS information circular NO. 9901 are;

i. GOODS EXEMPTED
a. Medical and pharmaceutical products.
b. Basic food items.
c. Book and education materials.
d. Baby products
e. Agricultural equipment and products and veterinary
f. Fertilizer
g. Agriculture
h. Exported goods
ii. SERVICES EXEMPTED
a. Medical services.
b. Services by community banks, people bank and mortgage institution.
c. Plays and performance conducted by educational institutions as port of learning.
d. Religious services.
e. Export services.

There are certain services which are not liable to VAT provided by banks and their
financial institutions, as started criteria for determining whether a service is VAT-able or not
is the identification of these that represent consumption of services, the services of banks and
other financial institution that will not represent consumption of services of banks and other
financial institution that will not attract VAT include;

1. Premium on insurance policy.

2. Interest loan/advances and overdraft facilities.
3. Interest on saving accounts.
4. Interest on bank deposit.
5. Directed
6. Interbank placement.
7. Profit/gain on disposal of government securities.
20
I.5.4 VAT INVOICING ACCOUNTING

Section 9 of the VAT decree provides that every registered person shall keep such records
and books of all transaction. Operation inputs and other activities relating to taxable goods and
services are as sufficient to determine the correct amount of tax due in effort all VAT
registrants are to keep books and records sufficient to ascertain their VAT liability and such
records must be readily available for VAT inspection. According to FIRS circular NO.9901
(2002)”such books will ordinarily include the cash book, sales book, and purchase day book,
ledger accounts, trial balance profit and less account and balance sheet among others” for
VAT purpose; tax invoices are to be issued for all supplies and VAT account is also to be
kept.

The VAT account is the summary of the output and input tax in a normal ledger account
form that is VAT purchase, VAT on services bad debt relief are debited to the account while
VAT charge on sales for the months or VAT charged on services e.t.c are credited’ where
there is credited balance, a draft is prepared and paid over to the LVO through the designated
banks universally are debit ball calls for refund and would be made by the FIRS after
necessary verification by audit officials.

The tax involve is a very important part of the credit system. It is the single most
important source of verification of transactions. It is necessary therefore under the VAT
regime for the supplier of taxable goods or services to issue a tax record purpose and
inspections, while the customer keep a copy to support his claim for input tax where
necessary.

BELOW IS A SIMPLE OF TAX INVIOCE

Damilola enterprises

3 yemaja street,

P.O. box 33, Ondo

Miss Patricia enukoh 25th November 2016

21
 5, okeodunwo street, Tax invoice No: 056894

Ondo VAT reg no: AKL469852

QUANTITY DESCRIPTION UNIT PRICE TOTAL

OF GOODS AND N
SERVICES
(1) 2 door fridge and 25000 25000
(2) citizen calculator 8500 17000
SDC888
(3) Yards of rubber 220 2200
carpets.
Sub total 44200
Less: discount(if (4420)
any)@10
Add 39780
VAT@5%(1989)
Grand total 1989
Total 41769

According to Naiyeju (1996:57) essentially the tax invoice must contain the following:

a. Tax papers identification number.

b. Name, address, and VAT registration number.
c. The customer’s name and address.
d. Types of supply
e. A description of the goods and services supplied.
f. Quantity of goods supplied of services rendered.
g. The rate of any cash discount offered and:
h. The total VAT payables.

22
 The law has made it mandatory for every registered person to issue tax invoice for the
goods sold and services trailed with penalty for failure to comply with the law.

I.5.5 VAT AUDIT AND INVSETIGATION

The credit invoice type of VAT adopted in Nigeria is the most popular type adopted by most
countries opting for VAT-able person is expected to voluntary comply with the VAT laws.

To ensure the compliance by VAT-able persons with the laws and regulation. VAT audit is
carried out as a routine. Verification exercise of the registered persons books and records to
ensure the accuracy, completeness, and guidelines and genuine of the document on which
VAT calculations by the registered persons are based. It is not out of place to expect that some
registered person will miss-use the self-assessment opportunity, the credit mechanism and
exemption in respect of items, others may delay in the remittance of tax collected therefore, to
maintain and enhance the voluntary compliance with the tax laws. Regular and vigorous tax
audit becomes necessary investigation into reported of known case of fraud and erosion or
sharp practices by registered or even non-registered persons shall be conducted.

I.5.6 COMPLAINCE OF VAT

Conflicts between taxpayers and tax administration over tax base, or the interpretation
of tax law need to be resolved. According to Naijeyu(1996) since the objectives of
government is implement VAT in a manner and style than must guarantee a democratic
approach to both tax.

Administration and tax compliance, there is a provision in the statute that in aggrieved
registered person can make an appeal against any action or assessment of the FIRS he went
further to smith that “in order to accelerate the dispensation of justice in the numeral cases of
VAT, the Federal government approve the establishment of the zonal VAT tribunals
throughout the country. A taxpayer who feels like aggrieved by the operation of the tax
authorities can appeal to the tax could not be resolved through the administrative conflict
resolution mechanism of the FIRS, such democratic process promotes equity and fiscal justice

23
it also helps to enhance the quality of tax administration by ensuring that tax officer are
diligent and meticulous in their operations.

I.6 ISSUE BOTHERING ON VAT ADMINISTRATION IN NIGERIA

According to CITN, Nigeria tax guide and statutes (2002) any pretense that the Nigeria
tax system is perfect must quickly fall down on its face even if we apply the good old tests of
equity, certainly convenience and administrative efficiency, Nigeria will score less than a pass
mark. In most cases, government funds to concentrate on tax policy on the choice of taxes and
insufficient consideration of the aspect of tax administration in short, there may be well too
much per occupation with what to do and too little attention to “how to do it” the
administration of tax systems are generally receiving slight attention especially in developing
countries(Nigeria inclusive) yet government rely heavily on taxation as an important tools for
the generation of revenue as well as for influencing the working of the economy. It has
however increasingly becomes apparent that tax administration must receive for greater
attention if the goods of tax policy are to be attained only within quite recent years has the
significance of carefully designed tax administration mechanisms for the successful
implementation of tax policy begun to the fully appreciated. According to DAS GUPTA and
Mookhergee(1998) has written that “that is a general that substantial improvements on tax
administration were made in a number of developing countries during the 1980’sleading
Carlos Sylvians to label it as the wining decades for time administration. This statement seems
to suggest that until then developing countries plays less attention to tax administration.
Recent contribution by a number of writers strongly emphasized the necessity of improving
tax administration as a prerequisite for effective taxation.

According to professor Carl Shoup(as quoted by Malcon in reading in taxation(2005).

Policy makers and administration alike can recognize that the degree of adoption, the range of
successful policy formulation depends largely on advances in administration. As tax
administration becomes more and more efficient, policy makers can consider a wider range of
possible tax patterns or combinations. Tax administration creates the possibility of true tax
policy in its widest sense; tax administration is the key to tax policy, the goal of taxation can
24
easily be detailed. If there is no sufficient or effective administrative machinery in place
Emem(in ICAN views 2000)is the opinion that the role of taxation in Nigeria, in promoting
economic activity and growth is not felt primarily because of its poor administration.

Apart from the complex nature of VAT, which leads of its peculiar problems there are
other general problems of tax administration shared by different system of tax in Nigeria.

VAT from inception to date has been adjudged as one of the most successful taxes in Nigeria.
But according to CITN(2002)it is also obvious that, the potential yield is more than double
what we have now less than optional yield from VAT the institute noted it as a result of the
great challenges to the administration of Nigeria.

2.6.1 ZERO RATING AND EXEMPTIONS

Zero rating and exemption are some of the means by which the issue of regressively of
VAT can be addressed. Exemption and zero rating means that goods so treated will be bought
free tax. with zero rating the items are taxed but at zero rating one important feature of zero
rating is that no tax is collected on the sales of items zero rated but all input tax paid on their
acquisition are debated. Zero rating is nearly always applied to export trade since nearly all
nations adopt the designation principle in their jurisdictional rules. Before now, exports under
the VAT law in Nigeria was zero rated(FIRS information circular No. 9304) but export has
subsequently been exempted. all exported goods are to enjoy exemption status(FIRS
information circular NO. 9901, 2002). This means that no VAT is collected from the foreign
buyer although any input incurred will be borne by the seller.

Under the destination principle of VAT, tax is imposed on import and rebated on export
to free the international pace of exported goods of any local tax component. According to
Ogundele (1996) he started that, this principle has been incorporated in the general agreement
in tariffs and trade(GATT) rules since 1982. The effect of what Nigeria has done by
exempting instead of zero rating export is that, inputs VAT no longer refundable would add to
the cost of such exports. In effects, the prices of export goods in negates the VAT destination
principles, which is aim at fostering international trade.

25
 Exemption status are granted normally to goods and services frequently regarded as
essentials in the interest of equity. The inherent character of VAT makes exemption more
difficult to implement. The fact that inputs tax on exemption items are more costly. This is
because input tax should form part of the selling price such items. This been the case in
Nigeria, Canave say then, that exempt goods and services are low priced because no outputs
tax us charged on their inputs tax on exempt goods and services needs to be rebated for their
final consumer price to be low.

Exemptions can equally compound the problems of records keeping of registering form.
A firm that deals in both exempt goods(on which is not refundable)and taxable goods needs to
record exempt and non-exempt items separately, Lent ET AL,(2003) on his paper stated that
“if the law does not allow for a system of pro-ration it will be necessary to record separate the
input that will go into the production of exempted goods and taxable goods”.

They however opened that, in order not to over burden the tax payer, a prior rate credit
on the total taxes paid on purchases based on the same proportion that has taxable sales have
in relation to his total sale”.

2.6.2 REGISTRATION THRESHOLD

Under the VAT operation on Nigeria, all business, manufactures, distributors, importer
and supplier of goods and services are to register for VAT(FIRS information circular no.
9901)in effect, the VAT laws in Nigeria does not exclude any forms of organization from
registration for VAT in as much as such an organization engage either in the purchases or
supply of VAT-able goods and services.

What might have informed this decision according to Naiyeju(1996)”is to prevent the
usual tendency of VAT-able persons to deliberately arrange their economic affairs to fall
below the stipulated threshold and thereby avoid registration”. According to Ogundele(1996)
he also identifies a possible reason, which is to develop culture of records keeping even at the
small business level. This he said desirable to the economy and beneficial to the small firms
themselves. VAT-ing all enterprise requires a great deal of commitment on that part of

26
government in terms of resources (materials and humans) to be able to effectively administrate
the tax. it is often seen that the cost of administrating the tax to cover small business and other
difficult to tax activities is not economical when compared with the revenue that accrues from
taking them, some problemhave been identify with VATing small business they are as follow:

a. The small business pay tax that is much less in proportion to collection efforts exerted
on the group. Ogundele quoting Mr. Sol Dubroof an IMF consultant, submitted that,”
studies have shown in recent years that 78% of the taxpayer which are small business
in Korea pay only 5% of the total VAT while 95% came from the big companies
which are 25% of the total in the United Kingdom 75% of the small VAT payers
accounted for only 7% of the collection while the remaining 24% which are the big
ones, accounted for the remaining 90% of the VAT revenue was collected from the
big firmswhich constitute only 10% of the VAT payer in the 5year leading to 2002.
b. Cost of collection is higher among the smaller groups because they are many and a
large number of VAT officers are needed to police them.
c. Their records and book keeping are less efficient, so VAT officers handling this group
need special training and more dealings with incomplete records.
d. Voluntary compliance is less among this group because illiteracy and innumeracy are
more rampant. Besides, they are more personalized companies and the owners take
more active interest in cost reduction.
e. The more difficult to tax groups are more prevalent in this category of business. These
groups include farmers and small sub-contractors who hardly prepare account.

In the view of (ITN2002)the Nigeria social setting provides the greatest changes to VAT.
VAT is said to be a tax thrives on written records, but there is much in our system, which
simply does not reflect the underlying assumption of the tax for instance, the first step in VAT
is the registrationof taxable person then follow the equally essential component of records
keeping by such VAT-able person. The fact on the ground is that most persons who are
chargeable under the law operates without any tangible or reliable records.

27
 The CITN has equally observed rightly that details trade in Nigeria is incredibly big but
substantially informal. Collection at that stage is bound to be logistically night mare. Traders
makes a large chunk of sales”on the move” and receipts are hardly issued. It is unrealistic to
expect even a minimal measure of record keeping from such retailer. Commenting on what he
turns “selective registration” according to Oguelu(2000)”said small retailers are not required
to register now not because they are exempted but because the implementation machinery is
not enough to reach them from now, they pay input VAT but cannot charge output VAT on
their sales; “it is equally stated in the FIRS training lecture notes (2005) that for administrative
convenience, small traders are exempted from registration for the time been he also said that
retailers and pettytraders are not obliged to register for VAT within introducing period of
three years. This implies that with time, the average is to be all encompassing. This indeed is
contrary to the provision of the VAT law which from the outset did not exempt supplier of
purchases of VAT-able goods and services from registration. Oguolu(2002) as noted that since
VAT is not expected to fall on the producer of goods and services nut on the final consumer
the VAT be included as cost of production, but as a percentage of the selling price, the
question here is about the treatment of the impact VAT of the small retailer who is not obliged
to register. A register who is on this position does one of the two things.

a. Absorbs the input VAT paid as a reduction of margin.

b. Add on the input VAT paid to his cost and hence increase his selling price to cover
input VAT paid.

Both action Oguolu(2000) concluded, contractors the concept of VAT. The retailer
should neither increase cost nor selling price.

From therefore going, it can be seen that it is administratively difficult and costly VATing
small business and other form of activities must be weighed against the consideration of
efficiency and equity that may lead to their exclusion or inclusion. According to Lent Et Al, in
the paper an administrative aspect of VAT, large medium size enterprises can be absorb the
accounting and procedural requirement of a VAT which relative ease. There are relatively few
such enterprises in developing countries. An important part of total economic activity is
28
concentrated in their; they tried to become a target to audit and control by the administrative
service”. They continued that “the problem arises with the large number of small artisan’s
traders and peddlers that exist in developing countries who may comprise and insignificant
proportion of total business activity. They are stated that a practical approach to solving the
problem of small business is to limit the VAT to firms with annual sales in excess of a
specified minimum, a policy that is generally practiced in Europe. The authors said various
solution to problems of administering. The taxes on these forms have been advanced as
follow;

a. Apply that VAT to all stages of production and distribution, including retailing but limit
it to these firms that have a yearly turnover above a specified level. Since most of the
exempt firms would pay tax on their purchases, tax would be scarified only on their
retail margin. These small firms could choose coverage by the VAT and might do so if
tax paid on the purchases exceeded the tax paid on their sales(or if their buyers insisted
on a tax credit).indeed many European countries and some developing countries exempt
small business.
b. Establish a limit generally based on yearly turnover below which tax payer may elect
either to be incorporated with the VAT system or to pay a high rate of turnover tax on
their total sales with no deduction for taxes paid on their purchases.

This system relies heavily on the accuracy of sales reported by small tax payers which
practically is impossible to determine.

c. The use of the forfeit type of assessment though this is a crude way of the taxing small
enterprises and subject to arbitrary decisions on the part of the administration and to
collusion between the payer and tax inspection, some countries still use it for instance,
in the French-speaking countries of west Africa their small tax payers are required to
submit an annual declaration of gross turnover, purchase and a number of employees,
wages and salaries paid and the value of inventories. On the basis of this, the tax
estimate taxable sales and access the tax payer.

29
 Another form of this system is that by which the tax payer would be allowed to deduct
from his fixed tax, the amount of the VAT that are shown on his purchase invoice, there
he forfeit payment would be fixed at a higher amount to allow for the deduction of taxes
paid on purchase.

The fundamental problem with respect to small business is that of determining which
tax payer should be considered, small faced with problems, most countries as mentioned
earlier have a fixed limit on total yearly turnover as appropriate dividing line. The difficulty
with this is obtaining an accurate report of total sales from small enterprises, small tax payers
will try to adjust their total sales to fall within or outside the scope of the VAT, according to
their interest and the authorities are generally unable to control such as situation.

Ogundele(1996) has identified some criteria that can be used to determine, constitute
small businesses turnover per annum, value added, capital assets, number of staff employed,
number of establishments or branches, number of owners. A combination of these can be used
in deciding the level for inclusion or exclusion.

In view of the trouble associated with VATing small business CITN(2002)has

suggested the possibility of stopping the tax at the wholesale/distributors levelwhere a
semblance of organization can be realistically demanded.

It is to be cautioned that, exclusion cases partial loss of the advantages of extending the
tax through the retail level and favor the small firms. Any exclusion from a VAT interference
with its effective operation more than they do with others form of sales tax because of the tax
deduction features. If a registered firm sells to a non-registered one and then the later in turn
sells to a registered firm, carry through tax for education purpose are composed and multiple
application of tax will occur. Any exclusion f small firms from a VAT must be kept as low as
possible. According to Carl Shoup(1975)in his paper on factor bearing on a assumed choice
between a federal retail sale case and a federal value added tax-similarly observe that,
exclusion of small firm will lead to many creaks in the tax credit claim. He therefore opened
that, those small firms must be kept in the system, perhaps a mill rate which will give rise to
tax refunds while farmers might be completely exempted with respects of sales to one another
30
without comparing the VAT system greatly, or complete exemption might be coupled with a
credit allowed to business firms that purchase from them at some percentage of purchases
deemed to equal the average lost tax credits. Borrowing lead to from CITN(2002) any hope of
gradually extending tax net to traders does appear to be quite unrealistic.

2.6.3 VAT REFUND

As a result of the credit mechanism of VAT the need for refund to VAT agents often arise
crediting input tax against output tax is thefirst and preferred form of refund of VAT paid by
any handler of goods other than the formal consumer, where the output tax in a particular
period of returns is not sufficient to satisfy the input tax claim, two alternatives for handling
this refunds is available, the excess input which could not be deferred and applied on the next
period output tax, or cash refunds have to be made by the tax authorities immediately to the
VAT agent.

Refunds are to be made after careful verification and authorization of the claim by the
tax authority. This process is considered very slow with denials as the most developing
countries asserted that “while VAT has been adopted in most developing countries, it
frequently suffers from being incomplete in one aspect or another, the credit mechanism is
excessively restrictive that there are denial or delays in providing proper credit for VAT on
inputs, according to Okere (CITN journal 2004)”has aptly remarked that, one of the pillars of
success of the VAT REGIME IS THAT ABILITY and promptness of the tax authority, to
make refunds and when indeed refund generates confidence in the system if done fairly and
timorously, if people get refund easily an speedily, they will not hesitate to make payment as
over payments may turn out to be a new source of finance in features” another angle from
which to view refund is that is it a test of the adequacy/inadequacy of the safety measures in
the system.

Ascertain that the administration of refund is inefficient in many developing countries; Lent
Et Al (2003) posted that, “whenever possible, refunds should be used”. They confirmed that
“the refund procedure entails not only a burden for the tax administration but also sometimes a
long and unpleasant struggle for the tax payer in obtaining his money”.
31
 The first need to take a clear position as to refund method can be applied as against
allowing for the use of any of the method. The FIRS has a preference for credit methods while
the registered person would prefer the cash method. This would amount to confusion hence
the need to adopt a single method VAT agent have become expectedly disenchanted about the
system because of the delay in cash refunds. Okere CITN journal (1999) submitted that “the
revenue should not be interested in collecting output VAT alone. The provision of decree,
which allows tax payers to claim refund in appropriate cases, should be respected. This
without prejudice to the revenue rights to conducts an investigation in the practice where by a
tax payer is subject to rigorous investigation of submitting a claim for refund as provided form
the VAT decree, and should be stopped, he further posted that a separate department be
created to handle refunds claims by tax payers. It is only when refunds are created and
discharged timely and appropriately that it would generate confidence in the system.

2.6.4 EVASION AND COMPLAINCE

Tax evasion could be defined as a deliberate or willful manipulation of records in order to

understate liability to tax amount to an act of illegality.

It is claimed that VAT is self-policing and therefore difficult to evade. This is based on
these believe that firms would always demand VAT invoices on other transaction which is the
only evidence for them to claim their input tax refunds. This appears theoretically sound, but
has practical problem.

The VAT law requires all private and public organization that deals in viable goods and
services to register for VAT and beep proper records of their transactions. But in the Nigerian
economy, so many businesses have been left out of the VAT nets though not legally
exempted. Vat intelligence information confirms to FIRS that evasion is intensified by a
poverty of attention to invoicing in business transaction. Poor records hamper effective
computation of tax liability and make evasion a preferable option.

The so called small business was not required to register during the introductory stage of
VAT in Nigeria put at 3years. For a decade of VAT operation in Nigeria, what has happened

32
to worth of transaction is carried out annually? This indeed is an erosion of the base and
revenue on the part of the taxable person, failure to register for VAT is an act of evasion.
Though they pay input tax on their purchases (if at all they do), they cannot claim refund
because they are not registered so increase the price of their goods which is against the
concept of VAT.

The system of compliance under which VAT operated in most countries of the world
(including Nigeria) is the voluntary compliance. It is a system of self-assessment as opposed
to official (or revenue) assessment in which the tax payers are trusted to fulfill their tax
obligation voluntarily by making up payable. The success of any self-assessment system (and
tax payer to comply with the tax laws voluntarily

Ogundele (1996), considered voluntary compliance as a double edge sword, which

increases the quantum of collection and decreases the cost of collection at the same time. But
according to Naiyeju (1996) “someone has said that where taxable entries are responsive to
VAT as FIRS IS straining to achieve the monthly output tax administration do really weird
their enforcement power perhaps a quarter of what is realized weird be added to the proceeds
each months”.

Oladunjaye (2004) said “the voluntary compliance is misnomer in tax administration quite
often he continued government tax administrators and other have place undue emphasis on the
need for voluntary compliance in the system.

According to him, it is wrong and unhelpful approach to tax administration Oladunjaye

(2004) also contented that voluntary compliance contradicts the very definition of taxation,
which is an involuntary payment by the citizens.

Someone has stated that, the degree of compliance with tax laws in this country is as low
as the degree of history in financial matters. Consequently, you find a person liable hiding
from the tax authority, transitory business in fake names and addresses worse still people will
not give information about them.

33
 Voluntary compliance with VAT laws in Nigeria is not an exception to the above picture.
That is why after a decade of operation; there are yet colossal number of taxable persons that
are unregistered.

According to John (2000) “no tax can be confirmed with expected standard of equity if it
cannot be administered with a high degree of effectiveness. If a person is able to escape by
legal or illegal means. The tax to which they should logically be subjected under the general
scope of the tax, the theoretical equity of the tax is to a large measure lost”.

It is often assumed that taxable persons knows what is good for them and will as a result do
exactly that which cannot be ultimately have because man will not just obey the law unless he
is compelled to this is quite true in a country like Nigeria where tax payers look at their
obligation on the state as a sheer waste because tax revenue end up in private and not been
utilized for the common good for all.

Tax laws should not only prescribe reward and punishment respectively for obedience and
disobedience of the law. Mass education of tax land compliance alone is not enough. Taxable
person have to be complied through measures adopted that the high potency of compliance.
That is measure adopted that would make evasion exceeding difficult to the point of
impossibility.

2.6.5 RESOLUTION OF TAX DISPUTE UNDER VAT

As earlier stated, VAT is operated in Nigeria as in most countries, on a system of

voluntary compliance. The system entails the self-assessment principle that presuppose that, a
taxable person will complete his tax liability and make payment to the revenue as well as file
return.

Self-assessment system count results in taxes being under assessed. This is necessary
therefore for the revenue to carry out the examination of the returns submitted to ensure that
the calculation of the tax base, the input tax and output tax are corrected both in terms of
arithmetical accuracy and conformity with the tax lands and regulation. As the world bank
(2003) asserted “selective checking and internal auditing should be used for enforcement and
34
penalties should be levied for under assessment of taxes” auditing in a sinaguazon to effective
self-assessment.

The process of verification and audit as showed above will result either in the confirmation
as correct, the computation of the tax liability as made by the tax payer or rejecting the
assessment when rejected the revenue would raise its own assessment, which would determine
the tax payer’s tax liability as the tax office view it.

The tax payer shall then be called upon for payment of the entire tax additional having made
up payment initially that is if there was an under assessment. Some of the taxpayers may agree
that the amounts requested are properly due but others may disagree and therefore
controversies would spring existence between the taxpayer and the tax authority other
disagreement may arise in the process of audit and investigation. Hence it becomes necessary
for a procedure for resolving the dispute to be established.

The VAT decree as originally conceived and enacted did not make any provision for an
appeal process, as it is the case of other form of taxes. The intention could be that complaint
relating to VAT should go to the Federal high court. Tax payer who fed aggrieved by the
operation of the tax authorities can exercise their right by resolving tax dispute as provided for
in the tremendously increased which in turn to accelerate the dispensation of justice in the
numerous case of VAT, the federal government through the promulgation of the finance
(miscellaneous taxation provision) decree NO. 32 of 1996 provided for the establishment of
the zonal VAT tribunal throughout the country, section 16 (2) of the decree provides that a
taxable person who is aggrieved by an assessment made on his way may appeal to the VAT
tribunal. This indeed is similar to what obtains in the United Kingdom and many other
countries where tribunals and special courts adjudicate in VAT disputes. According to
Nigerians tax notes and bulletin (2002). It should be noted that, the above decree did not
provide for any pre-tail or administrative resolution of disputes, such that unless it fails at that
level before it is referred to the tribunal. This is obtainable under the PTID NO. 104 0f 1993
section 56, and section 51 CITA (cap 60). Section 42 CGTA (cap.42 and section 36 (2) PPTA
(cap 354) law of the federation of Nigeria, 1990.
35
 The question one may ask is, why is the administration procedure in dispute resolution
not adopted in VAT sunny (2004) has pointed that through the procedure for handling and
resolving tax controversies will necessarily depend on the concept of administration law and
judicial review of a particular country, it is essential that the procedure should furnish internal
methods of judicial consideration when a settlement at the administrative level is not reached
conflicts between taxpayers and administrators over the value of the tax base or the
interpretation of tax obligation should be resolved by assessment committee, and taxpayers
should have the right to court advice if an accord cannot be reached. World Bank (2002) also
studied that the utility of the administrative internal settlement method cannot be over
emphasized. It helps in reducing the works load of the tax court (tribunal) there by giving it
more time to concentrate on theory cases referred to at its inclusive in the VAT decree will
bring about uniformity in the procedure of Nigeria tax law.

Apart from the above, pone wonders why till now, no VAT provision was made in the tax
land for the establishment of VAT tribunals. Aggrieved person have been denial hearing.
According to Nigeria tax and bulletin “the aggrieved person must keep cool somehow to find
a way to settle their claims. As the taxpayers cannot be faced with arbitrary administrative
action uncheck by judicial review.

It should therefore be known that a fair albeit a firm system of resolving there controversies
will build taxpayers confidence on the farmers and impartibility compliance which will be a
good achievementin successful tax administration.

2.6.6 COMPUTATION OF VAT OPERATION

The use of computer in modern tax administration has greatly been advocated in the
connection, lackof a computerized operation has been identified as one of the short comings
that would hamper efficient and effective administration of taxes, the problem is more serial
with VAT in that it is a mass-market tax with large number of possible registrant and d
resultant volume of work that the tax administration needs to perform. All these registrants are
expected to render monthly return rather than annual returns as in the case of income tax. the
results is that there are usually so many returns to handle and within a reduced period at one
36
month(being the current VAT period in Nigeria). There returns can run into millions annually
and they need to be recorded and checked, the money as to be collected and accounted for in
respect thereof. That is to say, the work involved, from VAT registration, assessment,
collection, audit and herculean. Therefore, the need for the computerization of VAT operation
cannot be over emphasized.

The World Bank (2000) has remarked that, one of the practical ways to reform tax
administration to make it more effective & efficient is by computerization. According to
Ogundele (1996) he noted that, time and again the view has begin canvassed that
computerization ab-initos is s sine quarion to a good VAT.

The following advantages maybe gained from the application of computer in tax
administration;

I. A tamper proof proper free information base can be created on the identity of potential
taxpayer, third party information, accounts and transaction. The base can be made
readily accessible and constantly updateable if greatly enhancing accuracy of
information of a fraction of the cost of earlier procedures.
II. It allows cross matching or different sources of information which aids in the
verification of returns filed, while reducing cross in summary assessment. Timely
fundamental in reducing errors is that it permits cross monitoring of different tax payer
who transact with one another.
III. It allows greater accuracy in tax collection and recovery operation and releases scare
man power from these task for audit and inspection.
IV. It aids the selection of taxpayers for audit, by employing system i.e statistical procedure
on a care data base.
V. It is valuable tool in reducing corruption by increasing the distance between tax payer
and tax officials, by automating filling, collection and refunds and by reducing the
discretion available to official in selecting and conducting audits.

37
 VI. It can be used to enhance taxpayers information and assistance by providing
information to taxpayers on tax laws, their tax amount, and how to complete tax return,
this reduces compliant cost.
VII. A classified database of legal precedent can improve decision to initiate prosecution
cases and can be used by administrative and judicial tribunal deciding to appeal more
expeditiously and on the basis of better information.
VIII. As with large organization, computers and management for example in accessing
performance evaluation, in planning and control and in generating up-to-date
information to finance ministry officials on revenue realization and targets. According
to Das-Gupta and mookherge (2004) state that, computerization will enhance
authorization to create a masterly is introduced in conjunction with a system of
numbers that uniquely identify each taxpayers, the ability to cross-reference will be
greatly enhance and the likelihood of error will be substantially reduced. The master
file will also help in identifying evaders of potential tax payers who had not been reach
previously.

The experience of other countries that have introduced the computer is tax administration
reforms have shown good results. The results to the investment is information technology is
the hall mark of the twenty-first century but a look at most of the tax offices in Nigeria shows
no evidence of information technology thereby making it possible for taxpayer and tax
authorities to declare non-uniform and inconsistent claims and data, thereby creating
loopholes for tax evasion “Emeni concluded that the Nigeria tax system should be
computerized and to reasonable extent connected to the internet”.

38
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 INTRODUCTION

The chapter is an attempt made to explain how data is to be obtained and collected for
the research work, this research will examine the data, Collection method, the research
design, sampling procedure, model construction and the application statistical tools.

Thus this chapter from the basic plan, which will guide data collection and the analysis
for the study, This will specify the type of data to be collected, the source of such data or
information as well as the procedure to collect any data/information. It will also ensure
that the information’s gathered are/is consistent with the study objective and gives solution
to the research questions accurately as possible.

According to Osuala(2002). A research is the process of arriving at a dependable

solution to problems through the planned and systematic collection, analysis and
interpretation of data/information.

Also, ozoji(1997), Had provided the following definition of research.

“Research is that which is essentially based on scientific inquiries whose procedures

include observation of the available facts relating to a particular problem followed by the
information of hypothesis or theoretical solution which is used as a basic for experiment of
practical testing of the theory to obtain evidence for a conclusion or generalization which
may or may not validate the hypothesis.

3.2 RESEARCH DESIGN

Value added tax(VAT) was introduced by the VAT report of the study of group set by
the Federal government in 1991 during the old sales tax. It was introduced by the VAT decree
of NO-2 of 1993, to replace the old sales. It is a consumption tax levied at each stage of
consumption chain and it is borne by the final consumer, it requires a taxable person upon

39
registering with the federal board of Inland Revenue services to change/ charge and collect
VAT at a flat rate of 5% of all invoiced amount of taxable goods and services.

VAT paid by a business on purchases is unknown as input tax, which is recovered from
VAT charged on company sales known as output tax. if output exceeds inputs in any
particular month, the excess is remitted to the federal inland revenue service(FIRS) but where
inputs exceeds output the tax payers is entitled to a refund of the excess from FBIR through in
practice, this is not always possible.

3.3 METHOD OF DATA COLLECTION

According to ASIK{2002} data can be described or can be seen as facts, observations or

information relating to the subject of the study.

Ugochukwu{1998}, states that data refers to things ideas concepts and facts known may be
drawn after proper investigation has been made or carried-out.

3.4 POPULATION OF THE STUDY

The population of thisstudy, consist of tax officials in federal inland revenue service
{FIRS}, other various recognized tax bodies and members of the system. The sample size that
was randomly selected, and made up of 550 respondents from the chosen population.

Questionnaires and survey were used for data collection or collected. The questionnaire
had been prepared to reflect all variables that would affect the management of {VAT} for
effective revenue generation in the government. These factors include VAT administration.
Legal frame-work problems of value added tax. the efficiency of the collection machinery and
the enforcement procedure.

III.5 SAMPLE AND SAMPLING TECHNIQUES

The sample and sampling techniques were chosen in stages, the first stage being the
selection of key operation department presenting some of the department VAT and cash center
by using sample random sampling. Out of 18offices that constitute FIRS and head office, 30
were chosen as well twenty{20} members of staff were given questionnaires in different
40
branches and 7 were given in the cash center and 3 were given in the tax through the use of
sample random method.

3.6 SAMPLE SIZE

The sample size for this study is determined using R.A fisher’s formulated Z model for
effective administration of questionnaire.

N=Z2 30={Z6}2

E2

Where N=the number of sample.

30=random sample.

E= estimated error.

III.6 SOURCES OF DATA

Data can be sourced in many ways, but for the sake of this research work, we will center
on primary and secondary data. This is regarded as the plan, structure and strategy to be
obtained, answers to research problems. The primary data will be used for specific functions
and secondary data recovered from it is to ensure that the required data are collected and they
are accurate.

3.7 PRIMARY SOURCES

This is known as the first-hand information specifically for the purpose of these data,
the researcher make inquiries by personal observation interviews, questionnaires and
participation, telephone conversation to get or require information.

3.8 SECONDARY SOURCES

They are data/ information collection from various sources which include internet,
libraries and magazines, the movement to federal inland revenue services {FIRS} to source
for data that will be of use or of need to the researcher.
41
3.9 METHOD OF DATA ANALYSIS

For the research work to be completed and useful it must be interpreted on line with the
condition under which it is done for the purpose of this research work. The researcher will for
student chi-square model in analyzing this research work.

Akenwa{2004} uses the descriptive statistics to analyze the sample data. They were analyzed
using the two(2) statistical techniques.

a) Sample linear regression model on the form Yi- at bxi + ei is used to determine the first
of the estimated parameters and their significant level in this model was.
Yi-value added tax allocation
Xi- output for the period
Ei- error of estimation
a- model constant term
b- f statistics which is variance ration of regression co-efficient and error variance was
used to test the overall significance of the variable in the model. It is as given as:
F=S1
S2
Where F- variance ration
S1-overall variance of the models
S2-variance of error team/term
Also Nicodemus {2005), uses a nova and the table in analyzing his data. He also uses
chi-square {X2} student model as the major statistical testing tools in analyzing his
hypothesis.
The chi-square is given by the formula-
X2={F0-Fe}
Fe
Where Fo-observed frequency
Fe-expected frequency

42
For the purpose of these research works, the researcher will use the chi-square model as
his major statistical tools in testing the hypothesis and to interpret and also analyze his
work in chapter(4) four.

43
 CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.0 INTRODUCTION

This chapter deals with the organization, manipulation and analysis of data collection
through questionnaires as well as testing the that were formulated.

According to osuala (2001), data refers to things ideas, concept and facts known which
conclusion is drawn after proper investigation has been carried out. Basically data is usually
obtained from two (2) sources, primary and secondary dairy sources, the researcher will
employ the use of primary data in analyzing the researcher hypothesis for the purpose of this
work.

The questionnaires ideas design to collect data on administration of VAT for Nigeria
with a view to determine its efficiency and effectiveness and the extent of complains with the
VAT law. Forty one questionnaires were administered to staff of Jos VAT office(comprising
Jos A and Jos B VAT offices). Out of the forty-one (41)questionnaires administered, only
thirty four(34) were returned.

4.1 DATA PRESENTATION

To facilitate the analysis of the data collected, each question is treated independently and
based on 100% and the purpose of testing the hypothesis the presentation are slightly modified
with respect to categories of respondents based on their educational attainment. The
respondents are divided into A and b. This with qualification ranging from OND-PHD fall
under A, while those with leaving certificate (SSCE & GCE,) fall under, B.

The respondents were given two options of agreeing or disagreeing with the questions, the
response to each question is tabulated and percentage base on the response are calculated for
the purpose of analyzing and drawing conclusion on it.

44
4.2 QUESTIONNAIRES SURVEY AND ANALYSIS

QUESTION ONE

This question tries to find out the educational qualification or respondents and to be
establishing the proportion of each category to the total number of respondents to the
questionnaires.

The responses are tabulated in table 1 below

EDUCATIONAL NO. OF STAFF PERCENTAGE PROFESSIONAL

QUALIFICATION QUALIFICATIONS
PHD 1 0 -
MBA/MSC 2 6 1
BSC/NCE 5 15 1
OND/NCE 15 14 -
GCE/SSCE 12 35 -

TOTAL 35 100 2

This result above indicate that 60% of the total staff has master degree in this category,
one of the staff has a professional qualification relevant to the field of taxation, 15 of the staff
are first degree holders with the one having a professional qualification relevant to taxation
44% of the staff are OND/NCE holders while 35% are school certificate holders. Since Jos
have only two local VAT offices the picture depicted above shows a balance staffing in terms
of qualifications. Though improvement in quality of staff may continue to be needed, It should
be expected of these two officers in their level of performance.

45
QUESTION TWO

Do you agree that the local VAT office adequate the efficiency cover the entire
country? These questions sought to determine how effectively the present VAT office speed
across the country can administer a mass market tax as VAT.

The responses obtained for this question are tabulated below.

RESPONSES NUMBER OF STAFF PERCENTAGE

Yes 18 47
No 16 53
TOTAL 34 100%

From the above, responses 47% of the staff are the view that the present numbers of
VAT offices are adequate or effectively police the entire country while 53% are of the view
that the number of local VAT offices are not adequate for effective courage of the entire
country. It can therefore be concluded that LVOs are needed for effective courage of the
country.

QUESTION THREE

Do you agree that, the numbers of VAT staffs are adequate to effective handle the
operation of a adequate to effectively handle the operation of a mass-market has as VAT?
These questions sought to determine the staff strength under VAT administration given its
peculiarity as a mass-market tax (covering a wide spectrum of activities) the responses
obtained for this question are tabulated below.

RESPONSES NUMBER OF STAFF PERCENTAGE

Yes 9 26
No 25 74
TOTAL 34 100%

The result of from the analysis above shows that 26% of the respondents agree that the present
46
staff strength under the VAT administration is enough to administer VAT while 74%
disagreed it can then be concluded on the foregoing that VAT administration presently lack of
adequate staff to effectively administer it.

QUESSTION FOUR

Is there a master file for all VAT registered person? This question was to determine
whether a record is been maintained for all VAT registered person such that it could be used
for cross referencing which would reduce error also identify evaders.

RESPONSES NUMBER OF STAFF PERCENTAGE

Yes 27 76
No 5 15
Undecided 3 9
TOTAL 34 100%

The table above shows that there is a master tax file maintained for all registered VAT
agents. This is a good development as it would help in tracking down errors and evaders by
way of cross referencing especially where it is use in a computerized system.

QUESTION FIVE

The finance (miscellaneous taxation provision) decree NO. 32 of 1996 provides for the
establishment of 5 zone/zonal VAT tribunals are they functioning? This question sought to
find out whether as provided by the law the tax court have been constituted and are
functioning.

RESPONSES NUMBER OF STAFF PERCENTAGE

Yes 12 35
No 22 65
47
 TOTAL 34 100%

The results above indicated that, 35% say yes and 65% confirm that, tribunals are yet to take
off”. This do not speak well of the VAT system as the tax payers are left at the mercy of the
tax administrators in the event of any dispute.

QUESTION SIX

Is there an investigation and audit department under the VAT directorate? The question sought
to establish whether an investigation and audit department exist, which is responsible for
checking the work of tax assessors and collectors, as well as the records of the tax payer in
other to prevent or detect errors and fraud. The responses are tabulated below.

RESPONSES NUMBER OF STAFF PERCENTAGE

Yes 30 88
No 4 12
TOTAL 34 100%

The results above shows that 30 respondents representing 88% confirm that an investigation
and audit department do exist under VAT directorate while 4 sys No representing 12%.

QUESTION SEVEN

At the moment, there is no registration exception for any supplier of VAT able goods and
services in Nigeria do you think is the best policy? The question here was meant to determine
whether the policy are operated in Nigeria which does not allow for exception of any supplier
of goods and services chargeable under VAT is the best policy.

RESPONSES NUMBER OF STAFF PERCENTAGE

Yes 19 56
No 12 35
Undecided 3 9

48
 TOTAL 34 100

The above result shows that 56% of the respondents are of the view that the policy of no
registration exemption for supplier of VAT-able goods and services is the best. 35% object to
the view while 9% were undecided from the foregoing it would be concluded that the policy
of no registration threshold is the best.

QUESTION EIGHT

Since the VAT law does not exempt any supplies of VAT-able goods and services from
registration, has the VAT directorate been able to enforce registration on all VAT-able
person? This question aim at ascertain whether the directorate has been able to enforce
registration compliance on all VAT-able person (that is suppliers of VAT-able goods and
services).

RESPONSES NUMBER OF STAFF PERCENTAGE

Yes 8 23
No 23 68
Undecided 3 9
TOTAL 34 100%

The results above shows that 23% of the respondents support that, the VAT directorate has
been able to bring all VAT-able person in the VAT net, while 63% said not all VAT-able
person has been brought into the VAT net, 9% of the respondents declined. It is therefore
agreed that there are suppliers of VAT-able goods and services that are to be registered.

QUESTION NINE

Do you agree that VAT operation in Nigeria can be improved , this question was designed to
get the respondents perception about the improvement that can be made or otherwise on the

49
VAT administration in Nigeria. If the respondents believe that improvement can be made on
the present state of VAT administration the respondents is given the opportunity to suggest
possible ways and if disagreed reasons should be stated. Responses are tabulated below.

RESPONSES NUMBER OF STAFF PERCENTAGE

Yes 34 100
No 0 0
TOTAL 34 100%

From the above tabulation, it can be seen that 100% of the administration of VAT in Nigeria.
The following suggestion improvement were put forward by the respondents.

a. Adequate provision should be made of functional vehicles to ease staff movement on

outside duties.
b. Communication facilities should be provided or improved upon in other to make for
easy communication with the VAT agents.
c. There is the need for vigorous publicity to create awareness of VAT among the popular
because there are lot more potentials VAT-able persons who are not aware of anything
like VAT.
d. There should be proper findings and autonomy granted to Federal Inland Revenue
Service to enable it take quick decision about matters of policy and administration.
e. The benefit of computerization of operations cannot be over emphasized. There is the
need for all computerization of VAT operations, will result to better delivery service.
f. More VAT officers need to be established in other to bring in enhancing compliance
and reduced cost.
g. Staff welfare should not be compromised in other to properly motivate them.

4.3 TEST OF HYPOTHESIS

Chi-square(x2) will be used to test our earlier formulated hypothesis.

The following is used in the x2-test.

50
 a. The hypothesis will be started.
b. Observed frequencies are then compared with expected frequency.
c. The hypothesis are then accepted or rejected on the basis of the statistical evidence
of probability.

Statement of hypothesis ones

HO: VAT system has no significant effect in the efficient and effective administration
in the country.

H1: VAT system has significant effect in the efficient and effective administration in
the country.

Response from question nine is used to test this hypothesis.

The level of significance used for this test is 5% and the test statistical used in
chi-square denoted by x2. The formula for calculating chi-square is given by

x2=(Fo-Fe)2

Fe

Where Fo= observed frequency

Fe = expected frequency

The degree of freedom (DF) is calculated thus (r-1)(C-1)

Where r= number of rows

C= number of columns

1= a constant

TABLE 4.4.1 COMPUTATION OF CONTIGENCY TABLE FOR HYPOTHESIS ONE

EXTENT STRONG WEAK TOTAL

Strongly agreed 10 12 22

51
 Agreed 6 6 12
Total 16 18 34
Percentage 47.06% 52.9% 100%

Therefore :- cell A =22*16 = 10.35

34

Cell B =22*18= 11.65

34

Cell C =12*18 = 6.35

34

TABLE 4.4.2 COMPUTATION OF CHI-SQUARE(x2)

FO FE Fo-Fe (Fo-Fe)2 (Fo-Fe)/Fe

10 10.35 -0.35 0.1225 0.01184
12 11.65 0.35 0.1225 0.01052
6 5.35 0.35 0.1225 0.02168
6 6.35 -0.35 0.1225 0.01929
0.06333
The value of x2 calculated is

(fo-fe)2 = 0.6333

Fe

Calculated the degree of freedom

(r-1)(C-1)

=(2-1)(2-1)

The theoretical value of x2 read off the x2 table under 1 degree of freedom is 3.84.
52
Decision Rule

The decision rule under x2is that, if the calculated x2is less than the value of x2read off the
table, the null hypothesis should be accepted while if otherwise, the null hypothesis should be
rejected and alternative accepted.

Based on the above test and rule, null hypothesis therefore accepted which means that,
VAT system has no significant effect on the efficient and effective administration in the
country.

Hypothesis Two

HO: VAT decree of compliance has no significant impact with the high decree of VAT-able
persons in the country.

H1: VAT decree of compliance has significant impact with the high decree of VAT-able
persons in the country.

Response from question thirteen is used to set this hypothesis. The level of significance used
for this test is 5% and the test statistical used in chi-square denoted by.

X2=(Fo-Fe)2

Fe

Where Fo= observed frequency

Fe= expected frequency

The decree of freedom (DF) is calculated as follows

(r-1) (r-1)

Where r= numbers of rows

C= number of columns

1= a constant
53
COMPUTATION OF CONTIGENCY TABLE FOR HYPOTHESIS TWO.

VAT decree of compliance Extent of effective and efficient VAT

administration.
Extent strong weak total
Strongly agreed 7 15 22
Agreed 1 11 12
Total 8 26 34
percentage 23.5% 76.5% 100%
R*C

Therefore:- Cell A= 22*8 = 5.176

34

Cell B= 22*8 = 16.864

34

Cell C= 12*8 = 2.824

34

Cell D= 12*26 = 9.176

34

TABLE 4.4.4 COMPUTATION OF CHI-SQUARE(X2)

FO FE FO-FE (Fo-Fe)2 (Fo-Fe)/Fe

7 5.176 1.824 3.327 0.643
15 16.864 -1.824 3.327 0.198
54
 1 2.824 -1.824 3.327 1.178
11 9.176 -1.824 3.327 0.363
2.382
The calculated value of x2= 2.382

Calculation of freedom

(r-1) (C-1) = (2-1) (2-1) = 1

The theoretical value of x2 read off the x2 table for 1 degree of freedom at 0.05 level of
significance is 3.84.

Decision Rule

The decision rule under x 2 is that, if the calculated x 2 is less than the value of x 2 read off the
table, the null should be accepted while if the otherwise, the null hypothesis should be rejected
and alternative accepted.

Base on the above text and rules, the null hypothesis is accepted which means that the
decree of compliance with VAT law by VAT-able person is low.

55
 CHAPTER FIVE

5.0 SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 INTRODUCTION

The need for a broad based indirect tax without a cascading feature as in sales tax, with
a high revenue potential led for the introduction of value added tax in 1991, which started
operation in January, 1994.

Since the introduction of VAT, revenue yield has been on a steady growth.
Nevertheless, it potential yielded in Nigeria is more than double the present revenue generated
through it. This research was carried out to examine the administration of VAT in Nigeria in
other to identify the obstacle against optimal performance and to recommend measure to be
taken to improve it.

This chapter gives the summary of the findings of the researcher conducted,
recommendation for improvement and conclusion.

5.2 SUMMARY OF FINDING

In this study, the following research questions were asked.

1. To what extend does the VAT system affects the effective and efficient
administration in the country.
2. To what extend does the high decree compliance affect the decree of VAT able
person in the country.

Some of these challenges and factors identified as militating against the optimal
performance of VAT in Nigeria bother on matters of policy and administration.

It was observed that the exempt status give to export goods and services is a policy that
has negative effect on Nigeria trade with the outside world, this makes Nigeria exported goods
and services expensive, which again is disincentive to exports and discouragement to

56
international trade. It should be noted that, nearly all nations with VAT has adopted the policy
of zero-rating in keeping with the destination principle of VAT.

Government policy on exemption of essential commodities in the interest of equity,

supposed to make them cheaper is an irony because, input tax on such exempted items are not
debated hence part of the production cost and by extension, adding to the price of such items
(cost push inflation).

The absence of registration threshold means VAT-ing all enterprises or supplier of VAT
bale goods and services. This requires a serious commitment on the part of the government in
terms of human and material resources to be able to effectively administer the tax
unfortunately. This study has shown that, there are inadequacy of staff limited VAT offices,
lack of or death of vehicles, communication facilities and other infrastructure and lack of a
computerized system of which are all need to cope with a mass market tax as VAT.

In view of the fact that there is n registration threshold, but with so many VAT able
person yet uncarpeted into the VAT net, means a great deal of erosion of the VAT base
(colossal loss of revenue by the government). A part from this, it was discovered that there are
cases of lack of or delay on the remittance of VAT collection by agents. There is also the
possibility of collusion between revenue staffs and VAT agents to falsify records and defraud
the government. These corrupt practices have effectively eaten deep into what would have
accrued to the government. An audit and investigation unit should not only exist, but should
continuously be strengthened and be seen to be effective and efficient in detecting and
preventing errors and fraud.

This refund system or credit mechanism of VAT in Nigeria is slow with even denials. It
is only when claims are treated and discharged timely and appropriately that it would generate
confidence in the tax system.

It was also finding out that, the establishment of the VAT tribunals in 1996. They are
yet to be consisted. The absence of which means a denial of justice to the tax payer in case of
any dispute the tax payer is left at the mercy of the tax administrator.

57
 It was equally found out that, even though VAT as operated in Nigeria is on the
principle of voluntary compliance this has not been significantly achieved because the decree
of compliance with the VAT able person are not sufficiently informed about the operation of
VAT.

On a final note, it was established that, based on the myriad of short comings on the
system. The administration of VAT in Nigeria cannot be said to be effective and efficiently
looked at the terms of optimal performance, there is lot to be done in other to improve the
system.

5.3 CONCLUSION

Tax administration is generally receiving slight attention is especially in developing

countries, yet government rely on for revenue generation and control of the economy.

In most cases government tend to concentrate on tax policy (the choice of fixes) and
insufficient attention is given to the aspect of tax administration there is too much pre-
occupation with “what to do and too tittlesattention to “how to do it”.

Surely (1990) no matter how articulate the policy is the goal of taxation can easily be
derailed if there is no effective and efficient administrative machinery in place. It should
therefore be appreciated that to administer is the key to tax policy.

This researcher have tried to put the administration of VAT in Nigeria under the
microscope in other to see what administration problems are, there are hindrances to the high
revenue potentials of VAT. Some matters of policy on implementation were also examined.

This factor is identified as impediments to efficient and effective performance of VAT

administration are by no means insurmountable but there has been a conscious efforts by the
government to take a holistic approach to tax reforms bearing in mind the important of
taxation to the government.

The necessary for continuous improvement in tax administration should not be taken
casually if tax objectives are to be realized. The researcher hopes that, the finding of this study
58
has brought to light some of the factors militating against efficient and effective VAT
administration in Nigeria.

5.4 RECOMMENDATIONS

Based on the findings of this study, the following recommendations are made;

a. All exports goods and services should be zero-rated in other to uphold the destination
principles of VAT, which has embraced by most countries that have adopted VAT. This
is to force the international price of exported goods of any local components.
b. The VAT tribunals established since 1996 should be constituted without further delay
because tax payer have lost confidence on the system already at the establishment of the
tribunal by decree no. 32 of 1996. The adjudications of power were removed. Now that
the tribunals have not been constituted, an aggrieved tax payer is left at the mercy of the
tax administrator.
c. The computerization of the tax system would have a lot of benefit to go with it. It
should be noted that VAT is a mass-market tax with the resultant volume of work the
tax administrator need to perform and record to be kept. Computerization of a
promising tax like VAT which have the potentials of recouping the investment is such
project at no time.
d. Given the dearth of infrastructure in this country. The operation of VAT is seriously
affected. This is further worsen by inadequate provision of operational facilities the
combined effort of this is poor performance, coupled with high compliance cost on the
part of the tax payer because the VAT offices are far in between since overcoming the
problem of or infrastructure is not insight, the government should provide adequate and
functional vehicles, communication facilities, which would facilitate movement of staff
on duty, as well as communication with VAT agents. The government should also
consider establishing new LVO to bring services closer to the tax payer, which would
greatly reduce compliance cost.

However, the government should be able to balance this with the economy in taxation.

59
e. The welfare of the staff should not be compromised, training and retaining of staff
should be pursuit. It has been said that to talk of an efficient tax administration without
quality staff is to talk of a hamlet without a Prince.
The government shouldalso consider the use of consultants to monitor tax payer
compliance with the provision of VAT law. The would help to step up compliance and
revenue generation. Such privatized duties should however be defined and monitored so
as not to run afoul of the law.

60
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Adebimkpe, O. A (2002): managing value added tax for effective revenue generation in
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Maples and Temples association (2000): Nigeria tax notes and bulletin Illorin, Nigeria author.

Okele B. (2006): towards effectives tax collection system in Nigeria, the role added tax
journals of chartered institute

Das-Gupta and Lent Et Al (1998) incentive and constitutional reform in tax enforcement.
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Naiyeju, J.K (1996), value added tax; the fact of a positive tax in Nigeria. 1sted,.Lagos,
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Oguolu, O.(2000) value added tax avoiding the pitfalls ICAN news july/september,
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Aluko (1996); effect on VAT by GDP, Mayokuncrawford University, Europe.

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University.

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63
 APPENDIX I

Department of Accounting

Nacabs Polytechnic Akwanga,

Nasarawa State

Dear respondent,

RESEARCH QUESTIONNAIRES

We are final year students, the department of accounting, Nacabs Polytechnic Akwanga, Nasarawa
State. Currently carrying out a research on the topic: AN EVALUATION OF THE EFFICIENCY
AND EFFECTIVNESS OF VALUE ADDED TAX IN NIGERIA.

The research is carried out for the purpose of determining the efficiency and effectiveness of VAT
administration in Nigeria. The study is an academic exercise carried out in partial fulfillment of the
requirement for the award of National Diploma (ND) in accounting, your response to the question
would be treated confidentially.

Thanks

Yours faithfully,

Bala Sunday Chiroma

64
 APPENDIX II

QUESTIONNAIRES

SECTION ONE: Personal Data

1. Educational qualification: please tick the appropriate box PHD ( ) MBA/MSC ( ) BSC ( )
OND/NCE ( ) GCE/SSCE ( )
Other qualification(s)
Specific:___________________________________________________________________________
________________________________________
2. Discipline:__________________________________________________
3. Job description:________________________________________________

SECTION B:

Introduction: kindly tick the box against your answer and comment where necessary.

4. Do you agree that the numbers of VAT offices are adequate to effectively cover the entire country?
Yes( ) No ( ).
5. Do you agree that the number of VAT staff are adequate to effectively handle the operation of a mass-
market tax as VAT? Yes ( ) No ( ).
6. Are there adequate and functional vehicle and communication facilities to ease movement of shift as
well as communication with VAT agents? Yes ( ) No ( ).
7. Is the VAT operation in Nigeria full computerized? Yes ( ) No ( ).
8. Is there a master file for all VAT registered person? Yes ( ) No ( ).

9. The finance (miscellaneous taxation provision)degree No 32 of 1996 provides for the establishment of 5
zonal VAT tribunals are they functioning? Yes ( ) No ( ).

10. If no, how is conflict between VAT able person VAT administration resolved?-
_____________________________________________________________________________________
___________________________________________.

65
 APPENDIX III

Percentile values (X2)

For

The Chi-Square Distribution

With Vdegrees of Freedom

(Shaded area = p)

66