Stakeholders Opinion on Value Added Tax (VAT) on Government Revenue Generation Profile in Nigeria

Abstract
The paper sought to conceptually and examine Stakeholders opinion on
Value Added Tax (VAT) on government revenue generation profile in
Nigeria being one of the sources of government revenues and also an
important variable in fiscal policies. This is a library study where existing
literature on the subject matter were reviewed so as to examine
stakeholders opinion on the effects of value added tax on government’s
revenue generation and how it can be enhanced so as to boost the
government revenue generation profile in Nigeria in an effective and
efficient manner. The paper concluded that value added tax has positive
effect on government revenue generation profile in Nigeria thereby
contributing to its economic growth and development. The paper
recommended that government should improve the living condition of
citizens by the judicious utilization of value added tax proceeds in an
effective and efficient manner. The paper also recommended that the value
added tax bases be widened to bring the informal sector into the value
added tax net so as to stem possible evasion even by the so faithfully
complying.

CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Taxation forms the most important sources of revenue to the government.
Tax is a compulsory payment imposed by various tiers of government on
individuals and corporate organizations. Also there is no „quid pro quo‟
between tax payer and how the government spends the tax paid. In other
word the governments need not to explain to a payer how his own particular
payment will be utilized (Umeora, 2013). Tax revenue, all over the world
plays a vital role in the development of an economy, this facilitated many
nations to introduce value added tax on goods and services. Tax imposition
and its collection, mostly depends upon a country’s economic structure, its
developmental phase, growth of its service sector, extent to which the

country has been industrialized, and its employment level (Qamruz, Okasha,
& Muhammad, 2012).
VAT is a consumption tax levied at each stage of the consumption
chain and borne by the final consumer of the product or service. Each
person is required to charge and collect VAT at a flat rate of 7.5% on all
invoiced amounts, on all goods and services not exempted from paying VAT,
under the Value Added Tax Act 1993 as amended. Where the VAT collected
on behalf of the government (output VAT) in a particular month is more
than the VAT paid to other persons (input VAT) in the same month, the
difference is required to be remitted to the government, on a monthly basis,
by the taxable person (Oserogho & Associates, 2008). Where the reverse is
the case, the taxpayer is entitled to a refund of the excess VAT paid or more
practically, to receive a tax credit of the excess VAT from the government.
All exports are zero rated for VAT, i.e. no VAT is payable on exports. Also,
VAT is payable in the currency of the transaction under which goods or
services are exchanged (Umeora, 2013). Value added tax is a consumption
tax, levied at each stage of the consumption chain and borne by the final
consumer of the product or service. Value added tax has become a veritable
source of revenue in many developing countries in Sub-Saharan Africa; it
has been introduced in several countries. Nigeria can be traced to the
report of the committee set up by the Federal government in 1991 to review
the entire tax system with a view to expanding the financial base for
revenue generation so as to enhance the economic growth of Nigeria. The

introduction of VAT in Nigeria through decree 102 of 1993 marks the
phasing out for the sales tax Decree No. 7 of 1986. The Decree took effect
from 1st December 1993, but by administrative arrangement, invoicing for
the purpose did not commence until 1st January 1994 (Gendron, 2005).
The tax is charged on the supply of goods and services, the vendor
has the responsibility to collect VAT from the purchasers of goods and
services (individuals or companies), on behalf of the Federal Inland Revenue
Service (FIRS). The tax is charged and payable on the supply of all goods
and services, other than those exempted. The honourable minister of
finance may by order of the federal government to publish in Gazette amend
the rate of tax chargeable and also modify the list of exempted goods and
services. From the perspective of the seller it is a tax on the value added to
a product or services while from that of the buyer it is a tax on purchase
price. The producer or the service provider remits to the government the
difference between the VAT output and VAT input and retains the rest to
offset the taxes they have previously paid on the inputs. VAT has become a
major source of revenue in Nigeria; its adoption with the enactment of
Value Added Tax Decree in December, 1993 with an effective date of 1st
January 1994 was an important landmark in tax reforms in Nigeria
(Ajakaiye, 2000). The Nigerian economy has been plagued with several
challenges over the years such as the dwindling crude oil price, corruption
and over dependence on crude oil revenue. In spite of many, and frequently
changing, monetary, fiscal and other macro-economic policies, Nigeria is

yet to harness her economic potentials for rapid economic development
(Ogbole, Amadi & Essi, 2011). The objective of this paper is therefore to
examine the effects of value added tax on government revenue generation
and how it can be improved upon so as to meet the requirements of equity,
effectiveness and efficiency on value added tax administration.
1.2 STATEMENT OF THE PROBLEM
By virtue of section 7 of the Value Added Tax Act, the Federal Board
of Inland Revenue is responsible for the assessment and collection of VAT
and shall account for all amounts collected in accordance with the
provisions of the Act. Notwithstanding the fact that VAT was to be collected
and enforced by an organ of the Federal Government, VAT was excluded
from the jurisdiction of the Federal High Court by the 1999 Constitution.
The reason for this may not be far-fetched: by the sharing formula
provided in section 40 of the Act, it can be very well argued that the Federal
Government’s tax administrative machinery was used to collect VAT on
behalf of the state governments, as they had had jurisdiction over the sales
tax that was being introduced by Finance Decrees (Miscellaneous Taxation
Provisions) Nos 30, 31 and 32 of 1996 and Nos 18 of 1998 and 30 of 1999.
In contrast, revenues derived under the Sales Tax Act accrued exclusively to
the state governments while the VAT revenue is now shared by all levels of
government.

Section 40 of the Act provides as follows: Notwithstanding any
formula that may be prescribed by any other law, the revenue accruing by
virtue of the operation of this Act shall be distributed as follows, that is- (a)
5 percent to the Federal Government. (b) 50 percent to the State
Governments and the Federal Capital Territory, Abuja; and (c) 35 percent to
the Local Governments: provided that the principle of the derivation of not
less than 20 percent shall be reflected in the distribution of the allocation
amongst States and Local Governments as specified in paragraphs (b) and
(c) of this section. The Need to Embrace True Fiscal Federalism: The long-
disputed call for fiscal federalism was again brought to fore in a recent suit
filed by the government of Rivers State against the Federal Inland Revenue
Service, wherein the state government challenged the collection of VAT by
the agency. The Federal High Court, Port Harcourt Division, delivered its
judgment in the suit and held that it is the Rivers State Government, RSG,
and not the Federal Inland Revenue Services, FIRS that should collect
Valued Added Tax, VAT, and Personal Income Tax, PIT, in the state. The
Court further issued an order of perpetual injunction restraining FIRS and
the Attorney General of the Federation, both first and second defendants in
the suit, from collecting, demanding, threatening, and intimidating
residents of Rivers State to pay to FIRS, personnel income tax, and VAT.
Follow-up to the judgement of the Federal High Court, Governor of
Rivers State, Nyesom Wike, reportedly advocated for states to fully oversee
the collection of revenues accruing from Value Added Tax in their states.