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THE EFFECT OF VALUE ADDED TAX ON THE NIGERIA TAX SYSTEM: A CASE STUDY OF REVENUE MOBILIZATION AND FISCAL ALLOCATION COMMISSION, ABUJA

CHAPTER ONE

INTRODUCTION

Background of the study

Modern economic development relies heavily on taxation. They are significant not just because they are by far the most important of all incomes, but also because of the severity of the difficulties generated by the existing high tax burden (Greene, 2011). The primary goal of taxation is to raise revenue. To meet its obligations, a welfare state must levy a large amount of tax. Taxation, according to Musgrave (2008), is utilized to achieve specific social aims, such as dispersing wealth and decreasing disparities.

Taxation is consequently vital in a contemporary government not just to raise the resources required to meet the ever-increasing expenditure on administration and social services, but also to narrow income and wealth disparities. Taxation is also required to remove funds that might otherwise be spent, causing inflation.

In most countries around the world, the goal is to achieve rapid overall development through optimal tax collection and a bigger income base. In order to attain this goal, several governments around the world, particularly developing countries, have selectively established new kinds of taxes to expand their earning potential and better their populations’ socioeconomic conditions. Various countries (Iorun, 2012). Value added tax is one of these types of taxes. Imported goods and services are included in this category. It is determined at a fixed rate of five per cent throughout Nigeria (5 percent ). The 5% Exit Tax is determined on all goods and services provided by a registered person, with the tax burden being borne by the end user (Ajakaiye, 2000). The expansion of the VAT base has resulted in a significant increase in federal revenue, indicating that the majority of Nigerians’ consumption patterns are changing. Increased purchasing habits establish a market and have a positive impact on the country’s economic activity (Unegbu and Irefin, 2011). The influence of VAT on Nigeria’s tax system will be investigated in this study.

Problem statement

To achieve a stable flow of oil revenues and reduce corporate and income taxes, Nigeria plans to increase the percentage of value added tax on goods and services due to its importance for income, economic growth, and development by shifting away from direct taxation and toward a consumption-based indirect taxation system in line with best practices worldwide. Citizens, on the other hand, have opposing viewpoints (including: too much burden on the end user, inflation and higher prices for fuel pumps). The majority of Nigerian population shared this viewpoint, making research into the impact of VAT on the Nigerian tax system necessary. It is so vital to comprehend the influence of VAT on the Nigerian tax system based on empirical evidence.

Purpose of the study

The major goal of this research is to see if the Value Added Tax has an impact on Nigeria’s tax system. The following are some of the specific goals:

  1. Determine the impact of the Value Added Tax on tax collection.
  2. Determine the impact of the Value Added Tax on tax evasion.
  3. To determine the impact of the Value Added Tax on tax evasion.

Significance of the study

The government will benefit greatly from this study because it will demonstrate the impact of VAT on Nigeria’s tax system. This research will also aid in shaping and providing a better knowledge of how VAT is levied and how it contributes to the economy to citizens. It will also assist other researchers in conducting additional research in this area.

Study hypothesis

The following is the study hypothesis:

Ho1. Value Added Revenue has no substantial impact on Nigerian government tax collection.

Ho2. Value Added Tax has no substantial impact on Nigerian government tax evasion.

Ho3. The government of Nigeria’s tax aviodance is unaffected by the Value Added Tax.

Scope and Limitations of the Study

The purpose of this research is to look into the influence of the value added tax on Nigeria’s tax system, utilizing the revenue mobilization and fiscal allocation commission in Abuja as a case study. The research was hampered by a lack of time and financial resources.

Definition of Basic terminologies

Value Added Tax (VAT) Concepts

Value-added tax (VAT) is an indirect form of taxation based on people’s general consumption habits. It’s a spending tax that’s supposed to be paid by the final consumer of products and services. It includes manufactured items, imports, professional and banking services, and so on.

The VAT (Value Added Tax) on consumer goods
Under the consumption VAT, capital purchases are handled the same way as input. It has a number of advantages, one of which is that it is simpler to calculate because the firm does not need to split expenditure on other goods when determining the VAT base. The main downside of this sort of VAT is that it generates complex issues in areas where extremely large and expensive technology is used.

The tax paid on capital input purchases is amortized (that is, credited against the firm’s VAT liability) over the projected lifespan of such capital inputs under this type of VAT.

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