MANAGEMENT OF VALUE ADDED TAX AND ECONOMIC DEVELOPMENT OF BENUE STATE, NIGERIA

MANAGEMENT OF VALUE ADDED TAX AND ECONOMIC DEVELOPMENT OF BENUE STATE, NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

Value Added Tax (VAT) is a form of taxation levied on various commodities consumed by people. The introduction of VAT like every other economic policy generated both positive and negative responses from economic observers. Most of the observers were forecasting that VAT could influence the overall consumption habits of people and increase the cost of production. The implication is that it will ultimately worsen the rate of inflation in the economy. Apart from generating revenue for the government, VAT which shifted taxation from production to consumption, could thereby cause cost-push inflationary effects on taxation and on production (Adeniyi, 1993:134).

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 carry out feasibility studies on its implementation (Philips, 1991: 102).

Value added tax (VAT) has become one of the major sources of revenue in many developing countries in sub-Saharan Africa, for example, VAT has been introduced in Benin Republic, Coted’ivorie, Guinea, Kenya, Madagascar, Niger Republic, Senegal, Togo and Nigeria. Evidence suggests that in these countries,

VAT has become an important contributor to total government tax revenues (Ajakaise, 2000). Shalizi and Squire (1988), find out that VAT accounted for about 30% of total tax revenues in Coted’ivoire, Kenya and Senegal in 1982. The oil producing countries are not excluded from the list of countries introducing this tax hurdle. This impressive performance of VAT in virtually all countries where it has been introduced clearly influenced the decision to introduce VAT in Nigeria in 1994 (Ajakanje, 2000: 203).

Value added tax (VAT) is a consumption tax that is relatively easy to administer and difficult to evade and it has been embraced by many countries World- wide (Federal Inland Revenue Service, 1993; 560). Evidence so far supports the view that VAT revenue is already a significant source of revenue in Nigeria.

Anyanwu (1993), stresses that, tax is a deliberate effort by the monetary authorities (the Central Bank) to control the money supply and credit conditions for the purpose of achieving certain broad economic objectives.

One of the fiscal instruments employed by the government to influence economic activities in the countries is taxation, put simply: “Taxation is a compulsory payment made by individuals and organization to the relevant Inland Revenue Authorities at the federal, state or local government level”, (Anyato, 1996: 1O8).

Similarly, Udu and Agu (2001), define tax as a “compulsory made by each eligible citizen towards the expenditure of the State.” A tax is levied by the government without regard to the specific benefits that individual taxpayers may receive.

Value added tax (VAT) is a tax on estimated market value added to a product or service at each stage of its manufacture or distribution and the additions are ultimately added to the final consumer. End users of products and services bear the tax burden.  In Nigeria, the VAT rate is 5%. An attempt to rise to 10% met stiff resistance from Nigerian Labour Congress (NLC). The cost of VAT collection is most often borne in mind by the business organizations and individuals.

Following the historical global perspective of value added tax, Wilhelm was the first person to advocate for value added Tax followed by Maurice Laure who was the first to introduce VAT in France. They argued that Value Added Tax is better than sales taxes, because to them, “sales taxes and tariffs encourage cheating and smuggling”.

The goods and services tax (GST) is a levy on value added that results from each exchange.  It is an indirect tax collected over someone other than the person who actually bears the cost of the tax or the tax burden.  The first among developing countries to implement VAT was Brazil when the state government abolished the multiple sales tax system in order to ensure financial and economic co-ordination among 26 states in the country.  The latest countries that imposed VAT were India and China both in 1990.  Nigeria introduced VAT in 1st September, 1993 and was imposed on 1^st January, 1994.  In the United States, in spite of the autonomy of the states in tax matters, the state that operates value added tax is Michigan which was replaced in 1974 and was reintroduced in 1981. All other states still operate the sales tax system.

MANAGEMENT OF VALUE ADDED TAX AND ECONOMIC DEVELOPMENT OF BENUE STATE, NIGERIA