Evaluation of Nigeria system, emphasis

on value added tax – study of federal 

board of inland revenue (fbir)

Preface

 

Evaluation of Nigeria tax system emphasis on value added tax (VAT) study of Federal Board of Inland Revenue is a dynamic subject and needs appraisal. It is for this concern that moved the writer into the research work. He tried to give the reader a bird’s eye-view of the entire gamut of the newly introduced tax system in Nigeria.

His research project is divided into five chapters, one delves with introduction. Chapter two relays the literature review, chapter three deals with the research design and methodology. Chapter four houses data presentation analysis and interpretation, lastly chapter five gives the summary of the findings conclusion and recommendation.

It is worthy to note that chapter four in the main, discusses extensively the work in question

Abstract

 

This study is carried out with the aim of evaluating Nigeria tax system with special emphasis on value added tax – study of Federal Board of Inland Revenue (FIBR).

 

It began with the history and development of Nigeria tax system right from its introduction between 1804 and 1810 and went through the fields of various tax It main purpose its to find out which tax system s good for Nigeria especially when compared to sales tax.

 

There is no gainsaying the fact that the study no problem. For instance the research discovered that (VAT) administration is solely the work of Federal Board of Inland Revenue.

 

The objective of research are various, amongst them: – to ensure that there is a minimal tax evasion and avoidance: that the replacement of sales tax with VAT is on the right direction and assess the revenue collectible from Vat.

 

In the light of the above some hypothesis were propounded and they are: who bears the incidence of tax, whether VAT reduces tax evasion and avoidance, whether it affects negatively the demand for products, and if VAT has justified its introduction. The result from the analysis reveals that  VAT is a suitable tax system in Nigeria.

 

Consequent upon result from the study carried out, it is recommended that VAT should be allowed to stay, it is indeed a force to reckon with in Nigeria tax system.

CHAPTER ONE:

• Overview of study
  • Introduction
  • Statement of problem
  • Objectives of the study
  • Hypotheses
  • Scope and limitation of the study
  • Significance of the study
  • Definition of terms

 

CHAPTER TWO:

2.0     Review of related literature

• Objectives for the imposition of VAT
• The origin and history of VAT
• Administration of VAT in Nigeria
• The basic structure of vat, administration
• Methods of computing vat
• Accounting of vat
• Inspection of vat operations
• Vat and sales tax compared
• Economic stabilization of vat

CHAPTER THREE:

3.0     Research Design and methodology

• Population
• Sample selection
• Description of instrument used in data collection ‘
• Questionnaire distribution and collection
• Other sources of data
• Procedure of data analysis

 

 

CHAPTER FOUR:

4.0     Data presentation analysis and interpretation

• Presentation and analysis of data
• Testing of Hypothesis

CHAPTER FIVE:

• Summary of finding, Conclusion and Recommendation

5.1     Summary of findings

• Conclusion
• Recommendations

Appendix

Questionnaire

Bibliography

 

 

LIST OF TABLES

 

4.2         Showing responses in payment of tax

• Showing response whether vat can increase the general cost of production
• Showing response of vat rate
• Showing response of vat incidence
• Showing response of whether vat will reduce the demand of a firm’s product
• Showing responses whether vat will reduce tax evasion and avoidance
• Showing whether vat is a major contributor of federal government revenue.
  • Showing position of vat in revenue generation in 1996
• Showing the inflationary effect of vat on Nigeria economy
• Showing the effect of vat vatable goods and services
• Showing response whether vat is favourable or unfavourable
• Showing response on vat publicity
• Showing response concerning whether vat should be privatized
• Showing response on vat staff strength
• Showing response the introduction of vat has been justified
• Showing vat comparison with sales tax
  • Hypothesis incidence of vat
  • Hypothesis on tax evasion and avoidance
  • Hypothesis on the yield of vat
  • Hypothesis on vat justification

 

 

 

 

 

 

 

 

 

 

CHAPTER ONE

• OVERVIEW OF THE STUDY

1.1     INTRODUCTION

Revenue is a very important concern to any nation of the world both for the developed and the under developed nations. The essence of this is to enable her undertake her numerous activities. The question that often comes to mind is, how are the government source here revenue. This answer is not for fetched, as a nations’ government can source her revenue at home or from external grants and aids, interest and loan repayments, mining income and royalties, licenses, etc. besides all these, the main source of government revenue comes though taxation. This will now lead us to the definition, discuss as introduction to Nigeria and then try to find out the most viable form to taxation for Nigeria.

 

Taxation is defined as a compulsory levy imposed by the government for the general purpose of government. It is fees and revenue from individuals, business firms and cooperate bodies. Furthermore, is a tax is a compulsory levy imposed by the government on individuals and business firms and paid by them to the government (Ojo, 1982 P. 171).

 

Taxation was first introduced in Nigeria by the Fulani Jihad led by sir Usman Dan Fodio between 1804 and 1810. this was because of a well administered caliphate in the federal Hausa states which facilitated the imposition of taxes. Laggard refined the tax. System by combining the different taxes into simple, understandable and collectable direct tax. Between 1904 when Lord Laggard introduced income tax and to date, Nigeria has seen many tax laws with their ordinances. Among these are: Income Tax Management Act (ITMA) 1961: Capital transfer tax Act  (CTTA) 1979 etc. thus, taxation is to be important and dependable but the question is which is the more viable tax system that would stand the test of time in Nigeria. Since the writer wants to evaluate the Nigeria tax system, the concept of value added tax (VAT) come into play. What then is VAT? VAT which stands for value added tax is defined as a form of indirect taxation applied at a flat of 5% on spending or general consumption (goods and services). Again, vat is an indirect form of taxation based on the general consumption behaviour of the people (Ochiogu, 1994, P. 174); it is regulated by the vat Decree No 102 of 1993, which took effect from January 1, 1994. Under section 7 – of the vat Decree, the tax is administered by the Federal Board of Inland Revenue. It is intended to replace the 1986 sales tax law, which failed to generate funds for the government. Two agencies of the United Nations organization – the international monetary fund (IMF) and the World Bank which are closely identified which the establishment and monitoring of structural adjustment programme (SAP) in Nigeria in 1987 (Just a year after the introduction of SAP) advised that the tax systems in Nigeria needed some reforms, some as to make the government revenue less dependable on revenue derived from petroleum (Oil).

 

In other words, as one of the means of raising additional non-oil revenue locally, the introduction of vat was suggested to the Federal Government to replace the existing tax.

 

Consequent upon this, the federal government set up two tax study groups in 1991. one was set up by the federal ministry of finance and economic development to study and make recommendations on the reforms needed in the direct taxes in Nigeria. The other study group on direct taxation was set up by the federal ministry of budget and planning and inaugurated on April 26, 1991 with the following objectives:

 

• Overhaul the Nigeria tax system and embark on a deliberate low tax regime.
• Review the tax laws.
• Reduce dependence on oil (Petroleum) revenue
• Improve the administration in indirect taxes
• Re-organize the entire tax administration to make it more efficient.
• Maintain a fairly even tax incidence across various lines, stages and elements of production, including non-productive element of taxation on imported goods.
• Most importantly, attempt to make a remarkable shift from direct to indirect taxation in order to minimize government dependence on oil revenue.

 

It was this committee (the indirect group) that gave a guidance for the establishment of modified value added tax committee to carry out a feasibility study on the implementation to the new tax system in Nigeria. The government accepted its report with some modifications and therefore agreed to introduce vat in 1993 but for public opinion, the date was shifted to January 1, 1994.

 

1.2     STATEMENT OF PROBLEM

Since revenue is the blood- source or the life-wire of any nation. It is bitter truth to mention that agriculture, which used to be the largest carrier of revenue for Nigeria in the 1960s and early part of 1970s have been denied of adequate attention it needed. This was because Nigeria depended more on oil as a source of her revenue, thus, there is every need to arrest the situation. Furthermore, since the vat administration is solely the work of FBIR, it leads to monopoly, hence their few staff do not cover all the points for collection. In addition, to this, staff are not well compensated and the net effect of this that they do not put in all efforts to achieve the laudable goals and objective of the new tax system.

 

This study therefore tends to proffer solution in how to improve the situation. In order to stabilize the Nigeria economy, how to generate enough fund is borne in mind. As tax evasion is much reduce with vat and its attendant high rate of consumption, Nigeria government can generate more fund through it than with any other form of tax as to evade tax through vat is as an individual denying himself of consumption of any vat able goods or services. Payment is by everybody irrespective of ones age provided that the person receive the services. Nevertheless, there is no complete evasion free with vat, as the middlemen whose duty is to collect the tax may not render to entire money so collected to the coffer of the government. Therefore, vat should be evaluated based on relative term and not absolute term of the essence in this case. The FBIR should have enough staff so that every establishment that renders vat ale services or deals with vat able goods should have one taxman present to ensure that the tax authority has accurate figure of the tax collectible form such establishment.

 

1.3     OBJECTIVES OF THE STUDY

The purpose for which this study was carried out were based on the following outlines:

• To asses the revenue collectible from vat.
• To show that the replacement of sales tax of 1986 with vat is on the right.
• To show that there is a minimal tax evasion with vat that in any other form of tax.
• To appraise the effective and efficient vat administration.
• To attest that with the broad scope of vat, quite a considerable proportion of tax (revenue) is realized.

 

1.4     HYPOTHESES

To achieve a meaningful objective of this work, a number of hypotheses were drawn.

 

Where:        Ho:    –        Null hypothesis

Hi:     –        Alternative hypothesis

 

HYPOTHESIS I

H₂:     –        Consumers bear the incidence of Vat entirely

H₁:     –        Consumers bear the incidence of Vat entirely

 

HYPOTHESIS 2

H_o:     –        Vat reduces tax evasion and avoidance.

H₁:     –        Does not reduce tax evasion and avoidance

 

HYPOTHESIS 3

H_o:     –        Vat effects negatively the demand for vatable products.

H₁:     –        Vat does not effect negatively be demand for vatable products.

HYPOTHESIS 4

H_o:     –        The yield from vat has justified it introduction

H₁:     –        The yield from vat has not justified its introduction

 

1.5     SCOPE AND LIMITATION OF THE STUDY

As earlier pointed out, Nigeria has seen many tax laws. In evaluating Nigerian tax system emphasis was based on vat. The reason fir such limitation in scope was principally to delve well into nearly all aspects of the newly introduced tax system so that the reader after going thought he entire text will have course to believer that he is well equipped with things that matters as vat is concerned.

 

The writer because of want to time and fun could not tour the length and breath of the country to gather more facts on this newly introduced tax system, but at any rate, with the selected areas he was able to cover, he is quite convinced that any reader of this research work will have a bird’s eye-view of the entire gamut of vat in Nigeria.

 

However, as research is an on going concern, the reader is free to still improve on this project work.

 

1.6     SIGNIFICANCE OF THE STUDY

This study gives the reader the totality of tax systems in Nigeria with a particular emphasis of value added tax where a critical evaluation was done.

 

It contribution to the nations economy, importance and objective were thrown into light. The administration and accounting of vat were also brought to the knowledge of the reader.

 

1.7     DEFINITION OF TERMS

          Some terms used in this exercise are here below defined for the comprehension of the research work.

FBIR –        Federal Board of Inland Revenue

FBRS          –        Federal Board of Revenue Services

SIRS –         State Board of Revenue Service

 

Vatable person,                   –     Corporate or incorporate that deals in vatable good and services.

Vatable goods and service            –   Tangible and intangible commodities or services that are not exempted from vat.

Vatable period                    –     Period covered by any particular return. The vatable period in Nigeria is one month.

Equitable taxation               –     Means the more one consumes. The more tax he pays

Input tax                             –     Tax paid or payable by a taxable person on the importation of any goods used or to be used for the purpose of a business.

Output tax                           –     Tax on the supplies by a taxable person.

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