ABSTRACT

This research work aims at evaluating the role and significance of the Value Added Tax (VAT) Act in Revenue Generation in Nigeria. This examines the role played by the Value Added Tax as one of the source of government‟s revenue. It also assesses the fact whether it has achieved the essence of its introduction. In this research doctrinal method of research was adopted in discussing the subject matter. This work delved into the legal framework of value added tax in Nigeria. The institutional structures for the administration of Value Added Tax were analysed with the aim to assessing their efficacy in revenue generation. It also took a cursory look at the assessment procedure of Value Added Tax. It was discovered in the course of the research that the law in Nigeria on VAT is faced with the problem of absolute tax practices, whereby taxes overlap, so that a single transaction may be subjected to a series of taxes e.g VAT on imported goods and Excise and Custom duty. The work found out that the punitive measures under the taxing law is not for deterrence but aimed at extinguishing small scale enterprises. The work recommended that the National Assembly should review the punishments in the Value Added Tax Act to accommodate it basic reasons which are reformation and deterrence. The punitive measures should aim at reforming the vatable persons to ensure voluntary tax compliance than pushing them out of the business. This work shall be of immense benefit to students of law, legal practitioners, legislators, academia and judges.

CHAPTER ONE 1.0 GENERAL INTRODUCTION 1.1 Background to the Study Taxes are levied by government to raise revenue that will help in the administration of government-such as paying salaries and allowances to civil servants. Revenue raised by taxation enable the government to provide infrastructural facilities like schools, hospitals, housing, roads, defence, law and order and other socio-economic and cultural facilities1. According to Feyikemi Balogun, Ajumogobia and Okeke2, the issue of taxation is fast gaining relevance in the Nigeria society in recent times as it has become a viable alternative source of government revenue, a tool of social engineering and societal class structural adjustment by the various tiers of government. Nigeria introduced the Valued Added Tax Act in 19933 to impose and charge value added tax on certain goods and services and to provide for the administration of the tax and matters related thereto. Value Added Tax (VAT) was introduced by the Federal Government of Nigeria in 1993 to replace Sales Tax. The aim was to increase the revenue base of government and make funds available for developmental purposes that will accelerate economic growth4. Propelled by the objectives of imposing tax government at various levels device different methods of generating revenue in other to attain and sustain its set objectives. The state governments in particular are looking inwards towards taxation to augment the revenue received from the federation account to meet their ever increasing capital and recurrent expenditure. If only the government will judiciously utilise the revenue generated from Value Added on goods and services the infrastructural position of this country would have improved beyond what it is now. 1.2 Statement of the Research Problem The tax system plays an important role in enhancing rapid development. Value Added Tax is a consumption tax payable on the goods and services consumed by any person whether government agencies, business organisations or individuals. The target of VAT is consumption of goods and services…5 Among other the problems with respect to this research include: 1. The law in Nigeria on VAT6 is faced with the problem of absolute tax practices, whereby taxes overlap, so that a single transaction may be subjected to a series of taxes e.g VAT on imported goods and excise and custom duty. 2. Also there are inherent inadequacies in some of the provisions of the Value Added Tax Act7. By virtue of section 46 of the Act the term supplies is shrouded with ambiguity, contrary to the general tax rules, and as such calls for a more apt definition as to such ambiguities. 3. The structure for VAT administration leaves much to be desired. The Federal Inland Revenue Service8 operates under the auspices of the ministry of finance with attendant bureaucratic bottle neck of civil service; this is a clog in the wheel of progress. 4. The punitive measures under the taxing law should be for deterrence not extinguishing small scale enterprises. By virtue of the provision of the Act9, tax evaders are to pay fine or be imprisoned for a period of three years. Of concern also is that the Act10 authorises the FIRS to seal up the premises from where economic activity is carried on within the territory of Nigeria for failure to register with the Board. These suggest a punishment which could hamper the development of small scale businesses with the capability of incarcerating their productive capacity if not folding the business. With the problem of absolute tax practices which result to tax overlap, does the law permit double taxation on a single transaction in the instant case the payment of VAT and Custom duty on imported goods. Would the ambiguity in the Value Added Tax Act as to definition of terms as against the general tax rule not result to the loss of revenue by government and would the taxable persons not leverage on it to avoid payment of tax. If the premises where economic activity takes place are sealed up due to failure of registration by the taxable person would that not defeat the essence of the law by slowing down the development of small scale businesses from where the revenue is to be generated? 1.3 Aim and Objectives of the Research The aim of this research is: a) To evaluate the general principles of the Value Added Tax law in Nigeria with the aim of identifying the lacunae contained in the law and to proffer suggestions to remedy the deficiencies identified towards a more robust revenue system. The objectives of the research are as follows: a) This research examines the effect of ambiguous definition such as the term supplies in the VAT Act as against the general principle of taxation and consider whether such definition is capable of causing loss in revenue generation. b) The research also highlighted the practical problems associated with the effective administration of VAT law in Nigeria. An attempt would be made to proffer pragmatic methods of achieving total autonomy of the FIRS. The hope at the end of the day is that VAT law in Nigeria will be more efficient in achieving the desired governmental and social objectives. c) This work critically analyse the punitive measures as enshrined in the VAT Act and the consequences of such punishment on small scale business in Nigeria and also devising a better way out. 1.4 Scope of the Research This research work shall cover the taxation imposed and charged on the value-added to goods and services as encapsulated under Value Added Tax Act, Cap V1 Laws of the Federation of Nigeria, 2004. This work shall endeavour to discuss and highlight the5 various legal and administrative facets, economic and technical issues significant and applicable to the operation of the Value Added Tax law in Nigeria. The research also made recourse to related area such as the practice and procedure of Tax Appeal Tribunal and its jurisdiction over VAT. 1.5 Research Methodology The methodology adopted in this research is mainly desk based otherwise known as doctrinal method of research. This research shall strictly be library based through the thorough x-ray of the research materials. In this research, references are made to statutes and case books which are the principal sources of materials. The secondary sources are textbooks, articles, magazines, journals, newspapers and the internet. The relevant assembled authorities are utilised to answer the research questions this work. 1.6 Literature Review This research ventured into reviewing series of available literatures ranging from primary to secondary among which are textbooks, statutes, casebooks, journals, newspapers and magazines. According to Abdulrazaq, M. T.11 in his book titled Revenue Law and Practice in Nigeria stated that “the yield from VAT is a fairly accurate measurement of the growth of an economy since purchasing power (which determine yield) increase with economic growth, VAT is a self-assessment tax that is paid when returns are being rendered”. The author succinctly discussed VAT in his book but did not discuss the impact of some of the exemptions granted by the law. This work would vividly discuss some of the exemptions and their consequential impact. The measurement of the economic growth is hinged on the fact that VAT is a consumption tax charged on goods and services. To ensure proper growth of the economy the law should compel all persons, irrespective of their status or positions, to pay VAT. In the work of Ola, C. S.12 Nigeria Income Tax Law and Practice, where he opined that “Inland revenue division resembled a declawed footless pussycat if they are not independent like the audit department. They should constitute an independent department of their own to avoid political interference”. This was brilliantly analysed by the author but did not looked at the attendant bureaucratic bottle necks of civil service. The research will endeavour to consider the effect of bureaucratic bottle necks and the importance of the independence of the tax authority such as FIRS for effective generation of revenue. Abdulrazaq, M.T.13 in his book Principles and Practice of Nigeria Tax Planning and Management, where he asserted that tax system determines the directions in which people may become wealthy by determining the direction in which they may not. It is therefore, impossible to regard taxes as merely a means of obtaining revenue; and Nigerian tax offences and penalties, where he opined that fiscal offences should be met with fiscal punishment in other not to incarcerate or stultify the productive capacity of tax evaders. The author has eruditely elucidated the issue but did not specifically treat the effect of imprisoning taxable persons or sealing up the premises of business and there is need to proffer pragmatic solutions. This work would make effort to practically discuss the effect of such punishments on small scale enterprises.