MANAGEMENT OF VALUE ADDED TAX AND ECONOMIC DEVELOPMENT OF BENUE STATE, NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Value Added Tax (VAT) is a form of taxation levied on various commodities consumed by people. The introduction of VAT like every other economic policy generated both positive and negative responses from economic observers. Most of the observers were forecasting that VAT could influence the overall consumption habits of people and increase the cost of production. The implication is that it will ultimately worsen the rate of inflation in the economy. Apart from generating revenue for the government, VAT which shifted taxation from production to consumption, could thereby cause cost-push inflationary effects on taxation and on production (Adeniyi, 1993:134).
The idea of introducing VAT in Nigeria came from the report of the study group set up by the federal government in 1991 to review the entire tax system. VAT was proposed and a committee was set up to carry out feasibility studies on its implementation (Philips, 1991: 102).
Value added tax (VAT) has become one of the major sources of revenue in many developing countries in sub-Saharan Africa, for example, VAT has been introduced in Benin Republic, Coted’ivorie, Guinea, Kenya, Madagascar, Niger Republic, Senegal, Togo and Nigeria. Evidence suggests that in these countries,
VAT has become an important contributor to total government tax revenues (Ajakaise, 2000). Shalizi and Squire (1988), find out that VAT accounted for about 30% of total tax revenues in Coted’ivoire, Kenya and Senegal in 1982. The oil producing countries are not excluded from the list of countries introducing this tax hurdle. This impressive performance of VAT in virtually all countries where it has been introduced clearly influenced the decision to introduce VAT in Nigeria in 1994 (Ajakanje, 2000: 203).
Value added tax (VAT) is a consumption tax that is relatively easy to administer and difficult to evade and it has been embraced by many countries World- wide (Federal Inland Revenue Service, 1993; 560). Evidence so far supports the view that VAT revenue is already a significant source of revenue in Nigeria.
Anyanwu (1993), stresses that, tax is a deliberate effort by the monetary authorities (the Central Bank) to control the money supply and credit conditions for the purpose of achieving certain broad economic objectives.
One of the fiscal instruments employed by the government to influence economic activities in the countries is taxation, put simply: “Taxation is a compulsory payment made by individuals and organization to the relevant Inland Revenue Authorities at the federal, state or local government level”, (Anyato, 1996: 1O8).
Similarly, Udu and Agu (2001), define tax as a “compulsory payment made by each eligible citizen towards the expenditure of the State.” A tax is levied by the government without regard to the specific benefits that individual taxpayers may receive.
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