THE CONTRIBUTION OF VALUE ADDED TAX (VAT) TO ECONOMIC DEVELOPMENT OF NIGERIA 2007 – 2017
CHAPTER ONE
INTRODUCTION
The administration of tax systems and the enthronement of a tax payment culture nationwide continue to challenge successive government in Nigeria. One of the attempts to expand the tax net with minimum resistance and also to reduce tax evasion so that most of the tax income revenue would get to the government of Nigeria was the introduction of value added tax (VAT) in 1993. This tax reform actually came into operation in January 1994 to replace the old sales tax which was narrow in scope in terms tax revenue from goods and services. In other words, VAT is a broader tax system structured to raise revenue for government (federal, state and local governments). This is why Odusola (2006) stated that in Nigeria, the government fiscal power is divided into three tiered tax structure: federal, state and local governments, each with their different tax jurisdiction. Nzotta (2007) also put forth a similar argument when he stated that taxes constitute the key sources of revenue to the federation account shared by the three tiers of government. Azubike (2009) opined that a tax system such as VAT should be able to mobilize a nation’s internal resource in order to create an environment conducive to promote economic growth.
Many developing countries adopted the value added Tax system because of the perceived advantage inherent in the collection process. Thus, in Sub-Sahara Africa and parts of West Africa such as Benin Republic, Cote d’ivore, Guinea, Kenya, Madagascar, Mauritius, Niger Republic, Senegal and Togo VAT became a major contributor to total government Tax revenues (Ajakaiye, 2005). In fact Schalizi and Squire (2008) found out from their studies that VAT accounted for about 30% of total revenue of Cote d’ivore, Kenya and Senegal in 1982. Similarly, Tait (2009) also observed that in Latin America that VAT account for 12.35% and 19.71% of total revenue in Ecuador and Mexico respectively as at 1983. The impressive performance of VAT in other countries as well as the intention of the Nigerian government to increase her non-oil revenue base principally accounted for the introduction of the VAT tax system. The value added tax system is consumption tax levied on the supply of goods and services which will be difficult to evade both by the rich and the poor, small or large companies. It is an indirect tax system designed in the form of a final tax liability on the final consumer of goods and services. The issue here is that to what extent has the revenue collected from value added tax system affected the growth of the Nigeria economy.
This is because the tax revenue is supposed to be used to grow or develop an economy. Dwivedi (2004) defines economic growth as a sustained increased per capita national output or net national product (NNP) over a long period of time. This implies that the rate of increase in total output must be greater than the rate of population growth. In other words, contributory revenue from VAT should be enough to positively affect the population and economic growth of Nigeria as country.
1.1 Background of the Study
It is worthy of note that in Nigeria, taxation is one of the oldest means by which the cost of providing essential services for the generality of persons living in a given geographical area is funded by government which is also saddled with the responsibility of providing some basic infrastructures for their citizens (Oladipupo and Ibadin, 2015). The researchers emphasized that tax under any jurisdiction is discriminatory, in that it is assessed on persons or property based on profits/income or gain, the benefit conferred on the citizens is without reference to the contributions of individual tax payers. Government also gets involved in activities geared towards stabilization of the economy, redistribution of income, maintenance of law and order, defence against external aggression, regulation of trade and business to ensure social and economic maintenance, provision of services in the form of public goods (Abiola & Asiweh, 2012). However, the serious decline in the prices of oil in recent times has led to a decrease in the funds available for distribution in the federation account to the federal, state and local governments (Afuberoh & Okoye, 2014). In the arena of taxes on commodities and services, the global trend has been towards simplification and rationalization in the structure of taxes; that led to enlargement of the tax base resulting in value added tax (VAT) replacing the other cascade type commodity taxes (Purohit & Purohit, 2010). VAT started to be implemented internationally in the 1960s, and since then, its use has grown rapidly around the world such that by April 2001, some 123 countries had implemented VAT systems (Glenday & Hollinrake, 2005). The researchers further reiterated that because VAT is fairly demanding in terms of high standards of accounting and book keeping, it places a significant compliance burden on the private sector taxpayer and any new tax system also demands the development of adequate tax administration capacity to make it efficient and effective.
The fiscal system in Nigeria is undergoing revolutionary changes, especially in the field of taxation and most of other developing countries have reformed their tax systems by reducing the number of rates as well as exemptions (Purohit & Purohit, 2010). These reforms may involve the adoption of a Value Added Tax (VAT) in place of sales tax as done in Nigeria in 1993, the expansion of the VAT, the elimination of stamp and other minor duties as done in Kenya, the simplification and broadening of personal or corporate income or asset taxes, or the revision of the tax code to enact comprehensive administration and criminal penalties for evasion. Value Added Tax (VAT), which is currently 5% of invoice value of goods and services except items specifically stated as exempt or zero-rated, 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 by the Federal Inland Revenue Service (FIRS). It is eventually borne by the finalconsumer, (however sometimes multiple layers do bear part of the burden). Economic growth has been defined as the sustained increase in a country’s productive capacity (as measured by comparing the gross national product in a year with that of the previous year), increase in per capita national output or net national product over a long period of time which occurs when a nation’s production possibility frontier shifts outward (Salami, Apelogun, Omidiya & Ojoye, 2015). Customs duty is the tax charged most times on the value of goods or upon the weight, dimensions, or some other criteria that will be determined by the government on imports by the customs service of Nigeria to raise revenue for the country and also to save domestic and infant industries from cut-throat competition. Customs and excise duties are the oldest forms of modern taxation and are otherwise known as import duties which are charged either as a percentage of the value of import or a fixed amount on specific quantity (Fasoranti, 2013).
THE CONTRIBUTION OF VALUE ADDED TAX (VAT) TO ECONOMIC DEVELOPMENT OF NIGERIA 2007 – 2017