The Advantage Of Value Added Tax In Terms Of Revenue Generation

THE ADVANTAGE OF VALUE ADDED TAX IN TERMS OF REVENUE GENERATION

The year 1991 is a major landmark in the administration of Nigeria. In the year, Professor Edozien led a study group on the review of the Nigeria tax system first identified on the need to transform the outmodes sole tax that was then administered by the government. Within the year 1991, a parallel study group on the effect of indirect taxation led by Dr. Sylvester U. Ugoh was giving the responsibility to study the feasibility of the value added tax in Nigeria as an improvement on the existing sole tax.

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After making series of empirical studies and research tours both within and outside the country, the Ugoh study group came up with a firm recommendation in November 1991 that VAT should be introduced in Nigeria after two years of preparatory work. As a follow up, by 1992, the Ijewere – led modified value added tax (MVAT) committee was set up to undertake the preliminary work for the introduction of the new tax. The committee was later to work in lose collaboration with the federal inland revenue service in 1993 for the later to take over the administration of the new tax which was scheduled to come in streams as VAT by 1st September 1993.

DEFINITION OF VALUE ADDED TAX

Amadi A. (1994) defines VAT as tax imposes on the value of goods and service before it is transferred form the supplier to the agent or a consumer. It is also introduced as a consumption to replace the sole tax and it a flat rate of 5%.

THE NATURE OF VAT AND ITS ADMINISTRATION POLICY

The successful execution of the fiscal policies depends not only on the quality of public administration but also on the election of policies that are realistically adapted to the available resources. The success or failure of any tax system depends largely on how it is properly managed. The extent to how the tax law is interpreted and implemented as well as the publicity brought into it will determine how a particular tax is able to meet its objectives. Hence one of the acid test in the determination of the success of a tax is the management of the policy. The chapter therefore attempts to determine the details on general feature of VAT in Nigeria

THE F.I.R.S SET UP

The administration and management of vat in Nigeria vested in the federal board of Inland Revenue (FBIR), which implements its day –to-day function through the executive agent known as the federal Inland Revenue service (FIRS). The FIRS operates through six operational departments. The VAT directorate is part and parcel of the first headquarters, which is centrally located at the office in Abuja with the administrative tentacles in the five zonal offices in Lagos, Ibadan, Enugu, Kaduna and Jos for the respective regional zones. Each have the VAT zonal office exert and executive control over a group of local VAT office (LVO) under its jurisdiction. For instance LVO’s in Ibadan, Osogbo, Benin, Akure, Warri, Illorin, and Asaba and under the west zonal coordinator (ZC) located in Ibandan and the ZC report the activities of the LVO’s to the VAT director at Abuja.

Similarly, administrative arrangement is maintain in all other zone. In terms of physical location, the local vat officers are suspected form income area office in most of the operational office of the FIRS. But the same zonal coordinators are maintaining for both the income tax and VAT at this level. Although the filed local VAT office are independent in the discharge of the duties, they relies o the area tax controller (ATC) of their income tax area office to source the basic information to close-check the retune of the income tax payers. The role of the area tax officer is to candid the successful implementation of vat that requires some intentions. He is the filed officer who gives the initial publicity and enlightenment campaign to the vat payers. Therefore the officer must be acknowledged in the product he offers for sale. The registration of the vat agent, that is suppliers of Vatable goods and services as well expansion of the vat officers. He is to receive the monthly VAT return together with the remittance and track down non-and stop fillers. He is also to carry out regular vat visited to ensure compliance and Educate VAT payer on their responsibility. The execution of the office and filed audit as well as VAT investigation is his routine assignment.

 

F.I.R.S AND N.C.S

Although vat is administered centrally by the FRIS, there is a close co-operation between the FIRS and the Nigeria custom service. FIRS have appointed. FIRS have appointed the NCS to be collecting VAT in all Nigeria boarders and ports on their behalf. This co-operation is very unique and lends greater support to the success of the Vat scheme in the country. With FIRS concentrating on the collection of VAT on non-import and assigning the collection of VAT on import to the NCS, it was possible to hence the techniquecally skills and professional experience of the two collection against the success of the tax. It was a common occurrence to help regular constitution on he area of logistics and interpretation particularly at the inception of the tax. There was many theory question raised by the field officers which called for prompt action by the VAT management of FIRS and that of the NCS helped a lot to throw more light into the grey area while implementing the new tax.

Beside the NCS, there are a lot of collection agent of the tax on the behalf of

the FIRS, the manufactures, the wholesaler, big –time enterprise, partnership, the professional firms, the government minister, agencies and peristalses and other suppliers of goods and service all are recognized as agents of FIRS in the VAT scheme. They raise indices and add VAT charges in their bills to customers and help to make remittance of net VAT proceed to the local VAT nearest to them. Their various roles make the VAT scheme a huge success.

 

ADOPTION OF VALUE ADDED TAX IN NIGERIA

Most countries adopted vat after the second world war of 1945 – 1993 and the economic depression that followed. The first country to adopt value added tax in 1955 was France. The state Michigan in U.S.A also adopted it in 1955. in 19967, the counsel of ministers European economic community (EEC) adopted a directive o harmonize their indirect taxation among themselves on the basis of VAT, however, the VAT adopted were not comprehensive and the first country to impose VAT in the comprehensive form was Brazil in 1967 by abolishing the antilogous turn over tax. Denmark adopted a comprehensive system of taxation in late 1967 at the national level. France and Jermyn followed in 1968.

The VAT replace several types of taxation for instance the local tax on retailer (France) turnover, (Denmark), Belgium, Holland< Sweden and Norway erected VAT to replace their initial sole tax (RST) in 1969 and in 1970 respectively. In 1973, Italy, Ireland, united kingdom (U.K.), in the developing countries of Latin America, Asia and Africa were traceable to all pioneering steps taking by brazil in case of Latin America and the storing influence of industrial countries with which they have historic trace of link. Example France.

Some of the developing African countries that have adopted VAT are Cote-Devoir in 1959, Senegal in 1976 Chile in 1975, Puni in 1982, Madagascar in 1984, Nigeria under the federal government decree No.7 of the 1986, Taiwan in 1986, kaya in 1989 and India in 1992. Available evidence from the studies and the experience of other countries indicate that there is no single value added tax suitable for all settings. To some large extent, the countries objective and level of development determine its choice of VAT.

 

Most countries have tended to choose Vat that is suitable foe its economic characteristics. In Nigeria as in most other developing countries, the government plays a lending role in planning and in implementing the programme for development.

THE FINANCING OF GOVERNMENT IN THE ECONOMIC DEVELOPMENT

Let’s Underscores the important of government role in mobilizing resources and the indirect tax is particular revenue for this purpose

 

  1. The countries objective to over house the indirect taxation system was real view to make it more efficient, simple, broad based, robust and most effective as mentioned earlier.
  2. Shift taxation towards consumption rather than income to boost he capital accumulation and investment
  3. Sole tax as presently constituted in Norway base and have failed to archive its objective enactment and the experience of most countries that have adopted VAT claimed substantial improvement in revenue because it covers much goods and services and have a broader base than sole tax.
  4. VAT stand out clearly as a better procedure for financing government expenditure than deviate financing which generally is k0nwn be more inflationary
  5. VAT has the advantage of economic neuritis and it has less tendencies of inducing structure distortion in the use of economic resources.
  6. VAT is a tax on consumption expenditure. In developing economic, struggling to push up growth rate, the most important allocation that needs to be affected is that between saving and consumption. A VAT design to promote saving has a greater potential to promoting economic growth.

 

VAT AS A REPLACEMENT OF SALE TAX

Sale tax is an indirect tax levied on luxury goods and services governed by the federal government decree No.7 of 1986, which sought to unify and structure the operation throughout the country. Vat on the top the hand as a form of taxation is different from sale tax. This is, the more you consume, the more you pay. VAT dose not make it easy for a person not o pay. Vat at one stage or the other unlike the sale tax where a person not concern about the end product of a good may not necessarily pay the sale tax.

Value Added Tax, according O.T Odienyi is a tax on the supply of goods and services, which is eventually born by the final consumer but collected at every stage of the production and distribution chain. The effect is that VAT is paid by the final consumer while the registered person play a role in the process of collecting the tax for the federal inland revenue service (FIRS).

The VAT, which too effect rom 1993 was to replace the then existing under the federal government, regulated decree No.7 of the 1986. The need for the replacement of sale tax with VAT is;

  1. The base of then existing sale tax was narrow as it cover only nine categories of the luxury goods.
  2. VAT is the broader covering the most professional goods, which will not be placed at the disadvantage, related to import.
  3. The narrow gate of the tax negates the basic principles of the consumption tax, which should cot across all consumable goods and services. The nature of VAT is such that it is the consumption that has been embraced by many costumers world wild. Bemuses it a consumption tax, it is relatively easy to administer and difficult to evade. VAT carries a single rate of 5% on all valuable goods and services

IMPLEMENTATION OF THE VALUE ADDED TAX IN NIGERIA

Value added tax, the Ugoh Slid group after making series of empirical research and tour both within and outside the country came up with a firm recommendation in November 1993 that should be introduce in Nigeria. As a follow up, the Jewere led modified value added tax (VAT) committee was inaugurated to prepare the ground work and appropriate machinery for the smooth take off o the VAT by 1st September 1993. However for logistic reasons could not take off until 1st Jan. 1994. The committee is made up of the government officials, retired academician and representative from the private sector of the economy covering all side of the opinion.

In coping out this task, the committee drew and accepted the following principle, namely;

  1. Nigeria with a peculiar economic characteristic undergoes a peculiar socio-economic experience and transaction will require a lot of resources to meet its responsibilities. Some of these characteristics are recorded transaction, poor record keeping. Low level of literacy, high propensity to evade or avoid tax. Pathetic attitude of the collection agents who may be corrupt. Vat is o replaces sale tax entirely and since it is a consumption tax, it will cover a wild range of goods and service more than the sale tax.
  2. The system should be as simple and practicable as possible and its administration less complex.
  3. Enough lead-time should be allowed to permit careful planning preparation and publicity and tax education. The committee members have the honor of leaving system of taxation that is result oriented, achievable and workable

LEGISLATION OF VALUE ADDED TAX

The legislation that gave the legal stand was assembled and submitted to the federal government on 30th September 1992, the trid running commenced 1st July 1993 and finally it became fully operative 1st January 1994. it was backed up by a commission fully independent and self-sustaining with the lead quarters in Abuja to be manage by a professional to the administrator

  1. VAT should be levied on goods after manufacturing and on whole seller service and import and all service except those exempted
  2. All good and service shall be subjected to VAT and the at the rate of 5% sale value
  • Banking transaction should be subjected to VAT at the rate of 5%

The following goods and services should be exempted;

  1. Medical and pharmaceutical products
  2. Basic food item purchase from the general market
  3. Baby product
  4. Medical service
  5. Books and educational material
  6. Service rendered by the community banks, peoples bank and the mortgage institution
  7. Fertilizer, agricultural and vetinary medicine
  8. All imported goods and services
  9. plays and performance by educational institution as a part of learning

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