This study begins with an introduction of the general principles of value added Tax, its origin and how it works and welcomes the introduction of value Added Tax into the Nigeria tax system while admitting, the fact that the new tax system called value added tax could raise prices , the study does not agree with a view expressed in some quarters in the economy given the low rate of value added tax.
As will be evident in the study, value added tax is administratively teasible and being broader than sales tax, could boost the revenue of the government.
The study concludes with the view that value added tax has so far and will continue to have a positive impact on
TABLE OF CONTENT
CHAPTER ONE
1.1 background of the study 2
CHAPTER TWO
LITERATURE REVIEW
2.1 administration and policy 9
2.2 taxable goods and services 10
2.3 value added tax on imports 11
2.4 vat exemption and zero =- rates goods 14
2.5 accounting for value added tax 15
2.6 offences and penalties 16
CHAPTER THREE
Research methodology
3.1 questionnaire method used 19
3.2 personal interview and observation 20
3.3 Examination of federal inland revenue service information circulars observation and comments 21
3.4 Observation and comments 22
CHAPTER FOUR
DATA PRESENTATION AND HYPOTHESIS TESTING
4.1 value added tax as a replacement of sale tax 23
4.2 value added tax implication for financial management
a over heads 25
b time link between sales and purchases
c cash flow 26
d imports and Exports 29
4.7 testing of hypothesis 38
4.8 personal interview conducted 39
CHAPTER FIVE
5.1 summary 43
5.2 conclusion 45
5.3 recommendation 46
CHAPTER ONE
INTRODUCTION
Value added tax was first advocated in Germany in 1919. the form advocated then was the addition type” in which the tax base would be the sum of wages and capital income in accounting sense, this is the difference between the sales and purchases of the taxable firm it is the value added. However, the origin of value added tax its modern form is from France, it was colled “production Tax in 1937, it was a type of excise duty. In 1948, it was transformed into a producers income based tax, which need the credit mechanism thereby moving it nearer the present day value added tax.
In 1954, the tax was changed into consumption type” it was made applicable to the industrial sector alone with services and distribution having alone with services and distribution having separate taxes. The French value added Tax, as adopted, gave full credit for tax. Paid on investment goods. France’s favourable experience in the administration of the tax persuaded the other original five member states of the European Community to adopt the value added tax. The adoption of the tax by European economic community countries was made obligatory under the treaty of Rome signed in January, 1957. There were other reasons that made the other members of the European Economic community favourable disposed towards value added tax. These include. The turnover tax levied in Belgium, Germany, Italy, Luxembourg and the Netherlands has Cascading effect of production and distribution, with no credit taxes collected and paid to government at earlier stages. The effect was that tax included in the final prices varied widely even for the same product taxed at the same product taxed at the same rate in the same country. It depended on the number of times a product changed hands before reaching the final consumer even more important (for the European Economic Community) was that the cascading tax under the former regime did not permit a reliable determination of border tax adjustment. Exports rebates could only be approximated because of the differing number of selling stages the goods went through before export and the fact that value added at those stages were not equal. If goods are nearer their final form they will change hands less number of time. This will mean that such goods required a higher rate tax to match the cumulative burden of tax on goods that is farther from their final form. But how much higher should the rate be, was hard to determine. This also made border tax adjustment between members of the union difficult. For these reasons, backed by reports of the Neumark and Jansen Committes, the European community Unanimously opted for value added Tax in 1967. Adoption of the tax later was because it was a condition for the European community membership. Even before 1967, many countries had adopted value added tax as their indirect tax of choice. Most of these countries are former French colonies whose economic are heavily influenced by France. Example is cote d’ Ivories- 1960, Senegal- 1961 and morocco- 1962. Of the 24 members so the organisation for Economic cooperation and Development, only7 the united state of America, Switzerland and Australia have not embraced value added tax fully. The state of Michigan in the united state of America has a value added tax. The other organization for Economic cooperation and Development countries which have embraced value added tax includes Denmark, France, Germany, The Netherlands, Luxembourg, Belgium, Ireland Italy, United Kingdom, Spain, Portugal, Greece which are in the European community (now European Union) and Sweden, Norway, Australia Turkey, New Zealand, Canada, Keland, Japan and Finland which are not members of the community these are very important countries that include the most industrialized and the most economically and militarily powerful in the world. Their introduction of value added tax (mainly7 between 1967 and 1970 has influence the rapid spread of he tax worldwide. In nearly all these countries, value added tax was introduced as a replacement of sales ( or some other forms of consumption) tax..
1.1 BACKGROUND OF THE STUDY
In Nigeria since 1987, there has been consistent advice from the international monetary fund (IMF) and international bank for reconstruction and Development (IBRD) on the need for tax reforms in Nigeria to lessen government dependence on revenue derived form petroleum. Such reforms were to include a deliberate low income tax regime shift from direct to indirect taxation. The idea of the new tax (VAT) system was mooted early in 1991 when he federal Government via federal ministry of finance decided that a comprehensive study be undertaken to review the indirect tax system in Nigeria, focusing particularly on measures that could be implemented at the federal level.
Consequently, the Federal Government set up two study groups to review entire Nigeria tax system to enhance its efficiency and increase revenue yield. The study group on indirect taxation recommended the introduction of VAT in Nigeria and was accepted by Government. It therefore, set up the modified value added tax (MVAT) committee to carry out a feasibility study on the implementation of the tax. The government accepted its report with some modification and there fore agreed to conviction to a fine of N30,000.00 or twice the amount of tax being evaded or impisoment for at term not exceeding three (3) years.
The law is even stricter in dealing with officers of he Board. According to section 32, sub section 1 of the VAT decree states that “ An officer of the Board of any other person who aids or abets the committing of any of ht offences under this decree, is guilty of an offence and is liable on conviction to a fine of N50, 000.00 (fifty thousand Naira Only) or to imprisonment for a term of 5 years. Other several penalties exist in the Decree. It is advisable for all the taxable persons to comply ventrally as regards value added tax so as to avert the wrath of the law
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