This study was on effect of value added tax in revenue generation of SouthWestern states in Nigeria from 2011 to 2016. Five objectives were raised which included: To ascertain the relationship between value added tax and revenue generation in Lagos state, to ascertain the relationship between value added tax and revenue generation in Ogun state, to ascertain the relationship between value added tax and revenue generation in Osun state, to ascertain the relationship between value added tax and revenue generation in Ekiti state and to ascertain the relationship between value added tax and revenue generation in Oyo state. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from FIRS in South Western part of Nigeria. Hypothesis was tested using Chi-Square statistical tool (SPSS).
1.1Background of the study
One of the recurrent problems of the three-tier structure of the government in Nigeria is dwindling revenue generation as characterized by yearly budget deficits and insufficient funds for economic growth and development. This economic reasoning emphasized the revenue need of government and indicates that, apart from strengthening the existing sources of revenue, it is also necessary for government to diversify its revenue base in order to meet its constitutional responsibilities. Myles (2000) states that financial capacity of any government depends among other things, on its revenue base, the fiscal resources available to it and the way these resources are generated and utilized. It is therefore, the duty of the government to adequately mobilize potential revenue across the country to prevent economic stagnation. This mobilization involves the adoption of economically and politically acceptable taxes that would ensure easy administration, accounting, verification, auditing and investigation based on the equality, neutrality and other attributes of a good tax. Consumption taxes have a wider coverage since the cause of adverse variance can be adequately controlled under proper administration (Leach, 2003). The revenue generated from consumption taxes can help to boost the financial base of any economy. This however involves exploiting the potential and adopting the type of consumption tax that will recognize the tax payers as utility minimizing individuals and safeguarding their evading behaviour. The essential consideration in choosing a consumption tax option from other tax options includes; assessment of administrative feasibility of each tax and determining its relative revenue potentials, its degree of voluntary compliance, its relative neutrality, its equity essential for regressiveness and the efficiency of these criteria, one can easily see the under lying reasons why government replaced a Retail Sales Tax (RST) with Value Added Tax (VAT) as consumption tax.
Thus, the introduction and full recognition of the potential value of VAT in revenue generation after planning its adoption into the Nigerian tax system has become a controversial issue that forms debate among several authors that the purpose of the introduction of the value added tax as one of the method of taxation in the Nigeria economy has not yet been known. In view of this, this study intends to avert all the prevention deficiency deduced by the researcher and thereby revealed the benefits of the value added tax as our revenue generation in this country (Nigeria). This would be achieved by the effects or roles of VAT on Nigerian economy since it inception in January 1994 to date and how it has superseded its predecessor (sale Tax).
In Nigeria, value added tax is one of the instruments the Federal government introduced in 1993 to generate additional revenue. Yet, most prominent Nigerians and interest groups had spoken against its introduction. It would appear that VAT is froth with some problems. After its adoption into the Nigeria tax system, it has become a controversial issue that generates debate among several authors like Naiyeju (2009) that the purpose of introducing value added tax as one of the methods of taxation in Nigeria economy has not yet been known. Based on this the background the researcher wants to investigate the effect of value added tax in revenue generation of South Western State in Nigeria
Statement of the problem
Each time goods are passed from one stage to the other, intermediary value is added to it, it is this value that is being taxed and borne by the final consumer. In this country, VAT is a gross product type of tax imposed on the destination principle. At the moment, there are seventeen categories of goods and twenty-four categories of services that attract VAT. The goods and services exempted by the act are purely those that bother on peoples welfare and whose requirements are necessary for improving human development. These include medical and pharmaceutical products, basic food items, educational materials, agricultural services and equipment, etc. However, there is much confusion over which goods or services should be in the exemption list. Furthermore, Nigeria adopts the same 5% VAT charges on all goods and services, either domestic or imported. It was increased to 10% on May 23, 2007. But, Nigerians rejected the hike in the VAT rate and the Nigerian Labour Congress went on a five day strike which eventually jeopardized the economy. And this made the Federal government to reverse to the old VAT rate. Nigeria also imposes a zero rate on export commodities with a view to encouraging favourable balance of trade. It would seem, however, that the benefits of VAT outweigh its demerits. What is only required is a measure of commitment and transparency in the mobilization and allocation of VAT proceeds in South Western state in Nigeria
Objective of the study
The objectives of the study are;
- To ascertain the relationship between value added tax and revenue generation in Lagos state
- To ascertain the relationship between value added tax and revenue generation in Ogun state
- To ascertain the relationship between value added tax and revenue generation in Osun state
- To ascertain the relationship between value added tax and revenue generation in Ekiti state
- To ascertain the relationship between value added tax and revenue generation in Oyo state
The following research hypotheses are formulated;
H1: there is no relationship between value added tax and revenue generation in Ogun state
H2: there is no relationship between value added tax and revenue generation in Lagos state
Significance of the study
The study will be very significant to students, lecturers, policy makers and the government of South Western Nigeria. The study will give a clear insight on the effect of value added tax in revenue generation of SouthWestern Nigeria. The study will also serve as a reference to other researchers that will embark on the related topic
Scope of the study
The scope of the study covers the effect of value added tax in revenue generation of SouthWestern Nigeria from 2011 to 2016. The study will be limited to government of South Western part of Nigeria. The information will be gotten from CBN.
Adgegbie, F.F and A. S. Fakile (2011): ―Company Income Tax and Nigeria Economic Development‖, European Journal of Social Sciences, 22(2)
Adekanola, O. (2007): Taxation as a means of Economic Revitalization: Limitation and Prospects in a Developing Economy. Journal of the Institute of Chartered accountants of Nigeria. Vol 40 (4): p55.57
Adesola, S.M. (2000): Tax Laws and Administration in Nigeria. Third revised edition, Obafemi Awolowo University Press, Ile Ife.
Babington, A. (1995): ―Value Added Tax in Nigeria, Problems Sources and Prospects second series of Seminar Lecture Lagos.
Bird R. M. (2005) Value Added Taxes in Developing and Transitional Countries: Georgia State University Working Paper No 05-05.
Bleaney, Y. M., N. Gemmel and D. Greenaway(1995): ―Tax Revenue Instability, with Particular Reference to Sub-Saharan Africa‖, The Journal of Development Studies, 31, 883-902. Central Bank of Nigeria (2010) Statistical Bulletin
Gendron, P.P. (2005) Value Added Tax Treatment of Public Bodies and Non- Profit Organizations. Bulletin for International Fiscal Documentation, 59 (11): 514-526
Chelliah, R.J, Bass; H.J and Kelly, M.R (1975): Tax Ratios and Tax Effort in Developing Countries, 1967-1971 IMF Staff Papers, 22 (1): 187-205.
Desai, M.A; Foley, C.F and Hines, J.R (Jnr) (2004): Foreign Direct Investment in a World of Multiple Tax, Journal of Public Economics, 88: 11
Diallo, O.(2009):―Tortuous Road toward Countercyclical Fiscal Policy: Lessons from Democratized sub-Saharan Africa‖, Journal of Policy Modeling, 31, 36-50 2727-2744.[email protected].[email protected].