VALUE ADDED TAX AS A TOOL FOR REVENUE GENERATION

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF STUDY

Some years back, the agricultural sector was playing an important role in the Nigeria economy both in generating revenue and in the physical impact. This was before oil started its own impact on the economy. The impact created by the oil sector begging to be more relevant within a short period of time. Other sectors of the economy become secondary in terms of their relevancies. The sectors were neglected in the favour of oil. Oil thus becomes the leading factor and the leading product in term of revenue generating and foreign exchange contribution. The condition of the economy became vulnerable to the condition of the word oil market form 1970 till date. The fluctuation of price in the world of oil market in the Nigeria economy is a significant factor to the revenue to be generated.

This is by diversifying the revenue generated based on the higher economy. In addition to the above mention situation, the Nigeria state was increasingly acquires ring national responsibilities along with the traditional role of the government. The financial requirement of the government has been increased over the years in facilitating the accomplishment of government functions. Worthy of mention is this connection in the effective way of revenue generation and collection by the government against responsible for the task. The idea of introducing Value Added Tax (VAT) was therefore considered and the federal government finally approved its introduction. Value added tax is therefore expected to increase and be effective, contribute towards enhancing the revenue generation based on the government. The system is expected to minis of eliminate the corrupt practices associated with revenue assessment and collection. The important of revenue in any country and of course Nigeria cannot be overemphasized. Revenue has been the bedrock of government performance.

The history of revenue in Nigeria dated to the pre-colonial era when tax and levies were paid to the fathers or lord as the case may be to Oba’s, Kings, Emirs. The tax or levies were to be paid in cash or in kind during the pre-colonial era. It was used to support the sustenance of the colonial administration. It has even been used to mobilize farmers into cash crop production mainly for the colonial export through the use of the cash taxes. Even after independency, tax has played in important role in generating revenue for the government. It was used for the running of the affairs of the post independence government in Nigeria. Furthermore, it has also been used to achieve other policies such as the protection of the infant industries, income re-distribution, checking and controlling the consumption of some certain goods, etc. it is therefore very much likely that it will continue to play a very important role in Nigeria economy. Following the difficulties, Irregularities, complains associated with the assessment and collection of the said tax, operation committee was set up by the Federal government in 1991 to review the entire tax system in operation. The committee recommended the idea of introducing Value Added Tax (VAT) in the country and another committee was set up to undertake the feasibility study and make recommendation on its implementation after which the government finally approved the introduction of value added tax in Nigeria tax system with effect from 1st September 1993 and was incorporated in the 1994 budget. Therefore, this study seeks to examine Value Added Tax as a means of revenue generation for economy development.

1.2 STATEMENT OF PROBLEM

There have been efforts by the Federal government to increase the revenue base of the economy for better development, and approval growth of the Nation economy. Therefore, this research is carried out to establish the position of Value Added Tax on the overall Nigeria tax system. The ineffective impact of generating revenue for the government and controlling irregularities wildly believed to be associated with the said tax.

1.3 RESEARCH QUESTIONS

The following questions were asked during the research of this project. They are: 1) How successful has the introduction of value added tax (VAT) been in Nigeria. 2) What are the relationship between value added tax(VAT) and other forms of taxation. 3) What are the problems associated with the admission of value added tax(VAT)? 4) And how can we make it very effective to the needs of Nigerian? 5) What are the advantages of value added tax (VAT) in generating revenue in Edo state?

1.4 OBJECTIVE OF THE STUDY

The objective of this study includes: 1) To examine the introduction of the value added tax (VAT) as a system of taxation in Nigeria. 2) To investigate the relationship between Value Added Tax and generation of revenue through other forms of taxations. 3) To find out the problem associated with the administration of VAT since its introduction and also to give recommendation on how o make VAT very effective and responsible to the need of the Nigerians.

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