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The study is to determine the role of the impact of value added tax (VAT) on Nigeria growth and development.  The objective ofthe same are in suitable the effective of VAT as a suitable alternative to sales tax in Nigeria; to identify the methods of collecting value added tax and to identify possible lapses and loopholes in VAT and its application in Nigeria.

The study employs primary and secondary sources of data. The primary source of data was employed to elicit information from the respondent on the concept considered. Based on this information source, survey analysis of inferential methodology using chi-square analysis was adopted as a method of hypotheses testing.

From the analysis of the study, it was found out that value added tax contributes to the growth of Nigerian economy, that value added tax is a good source of revenue generation to the Nigerian economy and that there is proper and adequate accounting records as far as VAT is concerned. The study suggested that monthly and quarterly publication of VAT collections and disbursement in a least one or two national dailies as this will serve as a watchdog and promote accountability which will consequently prevent diversion of public funds.  Also the computerization of all level and department of tax must be highly favoured.




There are three types of VAT; consumption income and gross product types, the difference between them is only on how purchases of new capital inputs (i.e. plant, furniture, equipment etc) are treat d in the determination of the tax base for the purpose of this study, emphasis witbe placed on consumption type.

With consumption as the base of the value added tax, consumption can therefore be defined as the purchase and utilization of goods and services for the qualification of desires of an individual, business organization or any other body which could either be private or public. The three major features of VAT that must always be emphasized in its definition are:

i.       That VAT is a consumption tax (Federal Inland Revenue Service (1993) (FIRS, Information Circular)

ii.       That VAT incident is on the final consumer and

iii.      That VAT is a multi stages tax.

In view of the dwindling oil revenue accruing to the government, she in 1991 set up a study group to review the e tire tax system.

As one of the means of raising additional non oil revenue locally, the introduction of the Value Added Tax was suggested to the Federal Government to replace the existing sales tax which through a nationally levied tax, the revenue there from is collected and retained by the state government.

In 1991, two study groups were set up by the Federal Government for tax reforms in Nigeria. The first group (on the direct taxes) was set up by the Federal Ministry of Finance and Economic Planning.   The other group on the indirect taxation was set up by the Federal Ministry of Budget and Planning, and was inaugurated on April 25th, 1991, by the then Honourable Minister of Budget and Planning, Alhaji Abubakar Alhaji.

The recommendations of this group gave the general guidelines that informed the abolishment of sales tax as operated under decree No. 7 of 1986.

In this Budget speech in January 1 92, Retired General I. B. Babangiga, the then President and Commander in Chief of the Armed Forces of the Federal Republic of

Nigeria, announced that the government will set up the necessary machinery for the introduction of Value Added Tax to replace the existing sales tax in order to broaden the tax revenue base, shift taxation towards consumption rather than saving, reduce dependence on oil revenue and encourage investment in the non oil export sectors of the economy.

Non oil sources have always contributed small amounts to revenue customs duties (taxes on imported goods) which used to be an important source of revenue in the eighties have dwindled significantly.

More importantly, Individuals and Corporate Income Taxes have also declined as sources of non oil revenue. For example Custom Duties provided about 20.6% of Federal receipts in 1988 but decreased to 11.6% in 1992. Company income tax receipts which accounted for 5.6% of federally collected revenue in 1988 fell to 3.9% in 1992.

Hence if the Government must ha e additional revenue to meet growing public expenditure, it can only come from tax, by increasing both individual and company taxes, which under the present circumstances is neither feasible nor advisable. In Nigeria only a small proportion ofthe population (mostly civil servants) pay Income tax, so increasing it is not likely to increase government revenue significantly. Furthermore, real income has not increased for a very long time. The bulk of the self employed, traders, farmers and businessmen evade tax and would only pay flat rate levels when compelled. This gives personal income tax a narrow base that cannot easily be elongated to yield higher revenue.

Company tax cannot be Increase either, because of the need to encourage industries. In the 1993 Budget, government reduced company tax rate from 40% to 35% as an incentive to local and foreign investors and tax holidays were granted to some companies operating in rural areas. Increasing corporate tax at this time will definitely have adverse effects on productivity and national output.

There is therefore, need for a tax increase a broad based consumption rather than an income tax will be more suitable, as more people will be able to pay.


Taxes from time immemorial, has been a powerful agent or instrument of revenue generation in Nigeria but when we look back to the efficiency and effectiveness of the entire taxation system, we could easily grasp that tax evasion and avoidance is  rife, thus, here lies the major problems that hinder the maximum collection of taxes from both individuals and Corporate b dies alike. There are other problems which militate against the effective implementation of the Value Added Tax system in Nigeria in general and on the banking sector in particular.

Such problems include:

i.        Shortage of manpower and facilities of proper administration collection of

ii.       There may be the problem of ascertaining which service s/ expenses of the

bank are VATable

iii.       Communication gap between the executors of VAT and the customers is wide

iv.      The raising and passing of counting entries relating to VAT at both the Head Office and the branches (especially where inter branch VATable transactions

are involved).

This research will also seek to answer and find solutions to the following problems:

a)       If VAT can actually broaden t e tax revenue base of the government.

b)      With VAT, has the burden f taxation been shifted from savings towards


c)       Is VAT self policing, giving it inputs – output mechanism?

d)      If VAT on banking services I ad to a reduction in the volume of transactions thereby reducing banks profit level.

e)       Does VAT have a single effect and does not add more than the specified rate to the consumer price/ services charge no matter the number of stages at which tax is paid.


The main objective of this research work is ‘to examine the impact of value added tax (V AT) on Nigerian economic growth and development.

Other objectives of the study are as follows:

i.                   To evaluate tax as a suitable alternative to sales tax in Nigeria.

ii.                 To identify the methods of collecting Value Added Tax.

iii.              To evaluate efficiency of VAT

iv.              To identify possible lapses and loopholes In VAT and its application in Nigeria.

v.                 To ascertain the awareness and compliance of VAT by Nigerians.


The study will be divided into the following problems:

i.        Is VAT suitable alternative to sales tax in Nigeria?

ii.       How efficient is its administration by the Federal Inland Revenue Service or

could the situation be different if administered by other independent bodies.

iii.      What are the methods for collecting VAT in Nigeria?

iv.      To what degree does the tax satisfy or negate the principles of taxation?

v.       To what extent has VAT contributed to growth and development of Nigeria?



Ho:    Value Added Tax does not contribute to the growth of Nigeria Economy.

Hi:     Value Added Tax contributes to the growth of Nigeria Economy.


Ho:    Value Added Tax is not a good source of revenue generation to the Nigeria


Hi:     Value Added Tax is a good source of revenue generation to the Nigeria economy.


Ho:    There is no proper and adequate accounting records as far as Vat is concerned.

Hi:     There is proper and adequate accounting records as far as Vat is concerned.


The study will highlight the importance of Vat when properly administered. These are in areas of increase in the level of revenue generation thereby promoting economic growth and the attendant effect of improved standard of living of the populace.

An understanding of this study will help to erase the erroneous impression in some quarters that VAT is not or cannot be properly administered by the Federal Inland Revenue Services. This study will also provide evidence of the increase in revenue generation by VAT and how it is being shared amongst the three tiers of government Federal, State and Local.



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