AN EVALUATION OF TAX PAYERS PERCEPTION ON THE VALUE ADDED TAX IN NIGERIA

By

ANI PROMISE NNEKA

Presented To

Department of Accountancy

RESEARCH PROPOSAL

The introduction of Value Added Tax (VAT) is on the consumption of goods ad services and the tax rate is 5%. The promulgation of this Decree (VAT Decree) came about as a result of the sale dependence on oil (crude oil) as the main stay of the country's economy. Other methods of tax collection (company income tax, pay as you earn, petroleum profit tax etc) were quite expensive to administer. Besides, there were observed lapses in the collection and remission of such taxes. Moreover, all these tax were not necessarily mindful of the segment of the masses upon which they apply. This informed the mind of the policy makers in exampling certain categories of goods and services from VAT application.

The importance of VAT, which the government is expected to derive is enumerated among several others are:

i. Increase in revenue, generation

ii. Facilitation of administrative enforcement

iii. Reduction in revenue losses through tax evasion.

iv. Enhancement of documentation transact ion

v. Encouragement of rapid industrial growth by allowing credit for input-taxes for capital goods.

vi. Maintenance of neutrality in tax payment since it is based and has a single tax rate.

Three samples will be used in these studies namely: consumers, producers and tax officials. The two hypothesis test will be in favour of VAT providing that VAT is a fair and an equitable system and it is perceived to favour tax payers

This study is excluded from these limitations

(a) Finances required for an extensive work is not

available and I had to concentrate on specific areas

(b) The possibility of inaccurate in responses cannot be ruled out.

(c) No assess to some information due to the restrictions in organisation concerned.

(d) Time factor.

In conclusion, the government has conveyed the above mention benefits to the public and as organized workshops and seminar to educate the producers, suppliers, consumers, tax officials and the general public on VAT system in Nigeria. However, the perception of tax payers is necessary at this stage and this is what the research is to find out.

In carrying out this research, both primary and secondary data will be used. Data will be obtained through personal interviews with experienced tax personnel, through the administering of questionnaire as well as from already produced and already documented materials on VAT such as decrees, Journals, daily publications, Textbook, annual reports.

What I intend to achieve at the end of these research work will be to identify factors like curbing tax evasion, farness to tax payers and perception to favour tax payers.

However, these study have to investigate further if any of the views had more importance than others (i.e producers, consumers and tax officials).

ABSTRACT

This work was aimed at evaluating tax payers perception on value added tax system in Nigeria.

In 1993 the Federal Government promulgated a Decree in respect of the introduction of VAT, which is a tax on the consumption of goods and services. This was in view of the numerous benefits, which could be derived from the exercise.

Prior to the introduction of VAT sales, tax system was in operation but tax experts see it as being too narrow and also unable to generate the expected revenue for the government. This also led to the need for an alternative tax system VAT.

However all the above are the views of all government the research finds it necessary to evaluate the opinions of tax payers who are the incidence bearers of VAT in order to make a comparative analysis with the opinions of the government. Three samples were used in this study namely; consumers, producers and tax official. The two hypothesis test where all in favour of VAT proving that VAT is a fair and equitable system and it is perceived to favour tax payers.

In order to enhance the performance of the VAT system, the researcher made some recommendations to the Federal Government.

TABLE OF CONTENTS

Certification

Declaration

Dedication

Acknowledgement

Abstract

Table of contents

CHAPTER ONE

1.0 Introduction

1.1 Statement of the problem

1.2 Purpose of the study

1.3 Significance of the study

1.4 Organisation of the study

1.5 Research questions

1.6 Hypothesis

1.7 Definition of terms

1.8 Test of data

1.9 Limitation of the study

CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

2.2 Some definitions of Taxation

2.3 Importance of Taxes

2.4 Taxes evasion and avoidance

2.5 Value added tax

2.5.1 Background of VAT

2.5.2 Origin of VAT

2.5.3 Sales Tax

2.5.4 VAT as replacement of sales Tax

2.5.5 Position of VAT in sales taxes

2.5.6 Value added tax Nigeria sales tax

2.5.7 Forms of VAT

2.5.8 Major features of VAT

2.5.9 The Nature of VAT

2.6.0 Administration and Policy

2.6.1 Registration

2.6.2 Supplies

2.6.3 Schedules of VAT Decree 102 of 1993

2.6.4 Determination of value

2.6.5 Returns

2.6.6 Remittance of VAT

2.6.7 Liability to VAT

2.6.8 Records and Account

2.6.9 VAT Inspection

2.7.0 Offences and penalties

2.8.0 Administration of VAT on imports

2.8.1 Registration

2.8.2 Vatable imported services

2.8.3 Determination of values

2.8.4 The right of Appeal

2.8.5 Assessment

2.8.6 Payment

2.8.7 Input tax

2.8.8 Evidence of input tax

2.8.9 Rendition of collection: Return by Nigeria Custom

2.9.0 Advantages of VAT

2.9.1 Demerits of VAT

2.9.2 Merits of VAT in Nigeria Economy

CHAPTER THREE: METHODOLOGY

3.1 Introduction

3.2 Sampling procedure

3.3 Method of data collection

3.3.1 Questionnaire design and administration

3.3.2 Personal interview

3.3.3 Survey of the existing documents

3.3.4 Statistical technique

CHAPTER FOUR PRESENTATION AND ANALYSIS OF DATA AND FINDINGS

4.1 Introduction

4.2 Presentation and analysis of data

4.3 hypothesis testing

CHAPTER FIVE: FINDINGS, RECOMMENDATION AND CONCLUSION

5.1 Findings

5.2 Recommendation

5.3 Conclusion

5.4 Recommendation for further research

REFERENCE

BIBLIOGRAPHY

CHAPTER ONE

1 INTRODUCTION

Taxation has long been practice in Nigeria Initially, only men were expected to pay taxes but now all people working and anybody found in the capacity of paying tax are obligated to pay tax

Tax in a mandatory levy on income charged for the purpose of carrying out government activities losses incurred by government in recent times through tax evasion are increasing rapidly despite the pathetic financial and economic state of the country There are daily report on newspaper and magazines that government losses billions of naira yearly due to tax evasion and the fraudulent practices of the tax officials This has attributed to many factors Most people attribute this to the fact that the country's tax system in highly income base and since income is taxed only at one point or stage, a lot of evasion results

In Nigeria, many different goods are consumed For this reason, tax experts see consumption as the actual habit and as such, the need to shift tax base from income tax to consumption tax This necessitated the introduction of sales tax in Nigeria through degree N0 7 of 1986

However, it was discovered that sales tax is narrow because it does not cover a lot of goods and services This prompted the introduction of Value Added Tax (VAT) in Nigeria

The idea of introducing VAT in Nigeria came from the report of the study group set up by the Federal Government in 1991 to review the entire tax system, VAT was proposed and a committee was set up to carryout feasibility studies on its implementation In January 1993, government agreed to introduce VAT through instrumentality of the VAT Degree 102 of 1993 This was meant to be effective from January 1 1994 It came on stream as a replacement to its antecedent, the sales tax, which was characterized by a lot of lapses inadequacies and restrictive coverage VAT is a consumption tax imported on all manufactured goods, industrial raw material and other imported into or product in Nigeria a single rate of five percent Potentially, its draguel cover virtually everybody, since one thing or the other except in the cases of specific items that are exempted

Several benefits which the government expected to derive from value added tax (VAT) were enumerated During several others they are

i Increase in revenue generation

ii Facilitation of administrative enforcement

iii Reduction in revenue losses through tax evasion

iv Enhancement of documentation of transaction

v Encouragement of rapid industrial growth by allowing credit for input taxes for capital goods

vi Maintenance of neutrality in tax payment since it is broad based and has a single rate

The government has conveyed these benefits to the public and has also organized workshops and seminars to educate the producers, suppliers, consumers, tax officials and the general public on VAT system in Nigeria However, the perception of taxpayers is necessary at this stage and this is what this research is to find out

12 STATEMENT OF THE PROBLEM

The Federal Government has made prantic efforts to convince the public of the need for VAT system in Nigeria It has informed the public of the benefits which have been derived from VAT, for example, a reduction of tax evasion, increase in government revenue and so on This implies that the government sees VAT as a good tax system But the tax payer may not have the same view as the government, they may they will most definitely be reluctant to pay

The problem or the question therefore, is what is the perception of the taxpayers or the public on tax systems? Do they see it as being important as the government does? It is in view of the above questions that the researcher has decided to find out and evaluate the perception of the public or tax payers on the valued added tax in Nigeria

13 PURPOSE OF THE STUDY

It was the purpose of the study to evaluate the views of the tax payers on Value Added Tax (VAT) On the basis of this, the researcher will be able to say if VAT has done more harm than good on the part of the tax payers The finding will also enable me make recommendations that will bring about modification if necessary, that will strengthen the machinery for the administration of VAT and also to its acceptance by the public

14 SIGNIFICANCE OF THE STUDY

Every research work has to be significant It must either create some form of new knowledge, or add to an already existing body of knowledge To this end, this study will serve as information to the government to known the perception of the tax payers on VAT It will also reveal areas in the VAT system that require correction in order to achieve a more effective and efficient tax system

15 ORGANISATION OF THE STUDY

For the information presented in a research work to be clearly understood and appreciated, a systematic and chronological presentation of the work is of greater importance In keeping with this, this research has been organized and presented in five chapters;

Chapter One: This is the introduction chapter and it informs the reader on what the entire study is about According to Ochei CA (1994:5) the chapter specifies the problems that prompted the study, the assumptions of the study and the operational definition of terms

Chapter Two: This contains the review of all related literature, or previously existing materials or the subject This chapter establishes clearly the nature of the already existing body of knowledge, thoughts, ideas, concepts on the subject thereby highlighting the new knowledge to be generated by the research

Chapter Three: information on the method employed in the collection of data and their analysis can be found in this chapter Also in this chapter, justification is provided for the adoption of the methods and analytical techniques employed

Chapter Four: this involves the presentation and analyses of data findings from the testing of hypothesis are also presented here

Chapter Five: This is the final chapter and it contains the summary of the entire work done, the conclusions down, and the recommendations made by the researcher based on the findings of the research work

Appendices: it is usual practice that in the final pages of research work, reproductions of some document such as questionnaire relevant tables, statute, letters and so on attached for a better appreciation of the research work by the reader This can also serve as a means of verification work done

16 RESEARCH QUESTIONS

The questions below are to be answered in the course of this work If at the end of this research, appropriate answers are provided to these questions, the aim of this research shall have been realized The questions are: -

1 To what extent has VAT curbed tax evasion?

2 To what extent has the government been able to generate excepted revenue?

3 Is the administration of VAT in Nigeria preceded to be efficient?

4 To what extent is VAT a good replacement of sales tax?

5 Is VAT a fair and equitable tax?

6 What impact does VAT have on the revenue generation of the government?

7 Has the institution and implementation VAT affects con consumption habits of consumer

18 HYPOTHESIS

1 H⁰ : Value Added Tax is not expected tax evasion

2 H⁰: Tax payers are not perceived to be favoured

with VAT system

3 H⁰: Tax payers do not believe the merits of VAT affect their response to payments

18 DEFINITION OF TERMS

a VAT: This is a consumption Tax which is charged 5% on goods and services, which are not exampled by the VAT degree of 1993

b Vatable goods: These are goods and services, which VAT is paid

c Supplies: This refers to any transaction whether it is the sale of goods or the performance of a service for a consideration

d Vatable person: One who trades in vatable goods or services for a consideration

e Output VAT: This is VAT that is due on vatable supplies It is derived by multiplying the tax value of the aggregate supply by the tax rate

f Input VAT: This is charge on business purchases and expenses

g Federal Inland Revenue Service (FIRS): This is the authorized body for the collection of taxes

19 TEST OF DATA

Since this study involves the significance between two means, which are summary measures of continuous variables, the Z test, which is a parametric test, will be used The formular is:

X - U

 Z = r

 n

where X is the means, U is the assume d mean or assumed value, r is the standard deviation, n is the sample size The study has three different samples; the producers, consumers and VAT officials This means of each sample will be compared with assumed mean to find out is the different respondents in each category have the same view or not

110 LIMITATION OF THE STUDY

Nobody can claim to have knowledge of and access to everything, nor can anybody claim he can get whatever he wants at anytime he wants it This study is therefore, cannot be exclusive from these limitation which are stated below:

1 Finance required for an extensive work are not available and I had to concentrate on specific area

2 The possibility of inaccuracies in respondent cannot be ruled out

3 There will be no access to some information due to restriction in the organization concerned

4 Time factor was another factor

According to Baridam (1980:18) people who make up organisations may behave differently if they become aware of the researcher's hypothesis all them, these people being hum an beings are always sensitive to their environment "such awareness according to Belling (1980:486) may create self fulfilling prophecies whereby participants change their behaviour to increase the chances of support the hypothesis"

However, inspite of these problems, relevant information were got from the respective bodies

1 Baridam DM (19900 Research methods in Administration Sciences

2 Behling O (1980) The case for the natural science model for research in organisation behaviour and organisation theory

3 Ochei CA (1994) A study of the impact taxation on the growth and developments of company in Nigeria

4 Federal Inland (1999) Information circular on revenue service VAT (N0 9901)

5 VETOWELL Consultants (995) Development Course for VAT Inspectors