CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The federal government in 1991 set up a study group to look into and give recommendation of the administration and reform of indirect taxation. This was as a result of the inadequate revenue yield from non-oil taxes in Nigeria and the overdependence of the government on oil revenue. This group was to review the indirect taxation system in Nigeria, study the feasibility of the introduction of Value Added Tax and make recommendation.
According to Ajakaiye (2000) the recommendation accepted by the government included the following:
Sales tax was the basic consumption tax by many countries. At the dawn of the 20th century, many countries embrace VAT as a replacement sales tax. The substitute of VAT for sales tax paid off tremendously though at varying degrees to various countries. The adoption of VAT was so pervasive that the adoption of it by European Economic Community (EEC) was made obligatory under the treaty of Rome signed in 1957. In spite of the wide acceptance, some countries like Japan, Australia and Canada have been reluctant of introducing the VAT.
The Standard Statement of Accounting Practice (SSAP) NO 5 (1993) defined VAT as a tax on the supply of goods and services which is eventually borne by the final consumer but collected at each stage of production and distribution.
Professor Aluko (1993) in his paper ‘Classical Value Added Tax (CVAT)’ defined VAT as a tax on the increase in the value of goods and services in the process of production and distribution.
Ayodele (2007) argued that VAT has become a major source of revenue for most developing countries like Nigeria. In view of this, there is penchant to increase the tax rate to get higher revenue.
First Tax Guide (2005) stated that the revenue from VAT was shared 20-80 percent between the state and federal government. Currently, it is shared 15:50:35 among the federal, state and local government. The state collection was to be earmarked as 30% for state of origin, 30% for consumption/destination and 40% for equality of the state. VAT is levied at a single tax rate of 5% which makes it easier to administer. When paid by business on purchase, it becomes an input tax which is recoverable from VAT charge on company’s sales known as output tax.
In Nigeria, all goods and service are vatable with limited aid specific exemptions. All imports are vatable with imported raw materials or finished goods and VAT on imports are calculated on total revenue value at the total cost, insurance and freight. Exports are zero rated, implying that exporters do not impose VAT on exports, but they can claim credit for VAT paid on their inputs.
According to Ajaikaiye (2002) Nigerian VAT has a very wide base with relatively few exemptions, moreover VAT does not replace any of the usual indirect or income taxes. Sales tax revenue accrues exclusively to the state government, but shared by all levels of government. Thus, it can be assumed that VAT revenue is shared by all the levels of government. Though VAT revenue is not sterilized, it is injected into the economy through government final consumption expenditures.
1.2 STATEMENT OT THE PROBLEM
Resistance to VAT in Nigeria at the early stage was very intensive and prolonged, in the sense that some manufacturing organizations do not want the tax, they felt that its implementation should not be given to any revenue agency. In the thrust of this it was argued that the VAT implementation would almost certainly be based on bureaucratic red-tapism (Ogundele, 1996).
Naiyeju (1996) identified a spectrum of fear inherent in the introduction of VAT in Nigerian economy;
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of the study;
RESEARCH QUESTIONS
1.5 RESEARCH HYPOTHESE
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