Value added tax as medium of generating funds



Some years back, the agricultural sector was playing an important role in the Nigerian economy both in generating revenue and in the physical impact. This was before oil started its own impact on the economy. The impact created by the oil sector began to be more relevant within a short period of time. Other sectors of the economy became secondary in terms of their relevance. The sectors were neglected in favour of oil.


Oil thus became the leading factor and the leading product in term of revenue generation and foreign exchange contribution. The condition of the economy became vulnerable to the condition of the world oil market from 1970 till date. The fluctuation of oil price in the world market has adverse effect on the Nigeria economy. This is by diversifying the revenue generated based on the higher economy.


The financial requirements of the government have been increasing over the years in facilitating the accomplishment of government functions. Worthy of mention in this connection is the effective way of revenue generation and collection by the government. The idea of introducing value added tax (VAT) was therefore considered and the Federal government finally approved its introduction. Value added tax is therefore expected to increase and be effective, contribute towards enhancing the revenue generation base of the government. The system is expected to minimize or eliminate the corrupt practices associated with revenue assessment and collection.

The importance of revenue in any country and of course, Nigeria cannot be overemphasized. Revenue has been the bedrock of government performance. The history of revenue in Nigeria dated to the pre-colonial era when tax and levies were paid to the fathers or lords as the case may be, to

Oba’s, Kings, Emirs. The tax or levies were being paid in cash or in kind during the pre-colonial era. It was used to support the sustenance of the colonial administration. It has even been used to mobilize farmers into cash crop production mainly for the colonial export through the use of the cash taxes. Even after independence, tax has played an important role in generating revenue for the government. It is used for the running of the affairs of the post independence government in Nigeria.


Furthermore, it has also been used to achieve other policies such as the protection of the infant industries, income re-distribution, checking and controlling the consumption of some certain goods. Etc. it is therefore very much likely that it will continue to play a very important role in Nigeria economy.


Following the difficulties, irregularities, complaints associated with the assessment and collection of the said tax, operation committee was set up by the Federal government in 1991 to review the entire tax system in operation. The committee recommended the idea of introducing value added tax (VAT) in the country and another committee was set up to undertake the feasibility study and make recommendation on its implementation after which the Federal government finally approved the introduction of value added tax in Nigeria tax system with effect from 1st September 1993 and was incorporated into the 1994 budget.


This research is carried out to find out the position of value added tax on the overall Nigeria on taxation system. It is to find out the impact or role both in terms of generating revenue for the government and controlling irregularities widely believed to be associated with the said tax. It is also set to find out beyond Technical level practical problems associated with it and to make recommendation at the end of the study.




The objective of this study is to examine the introduction of the value added tax (VAT) as a system of taxation in Nigeria and also to look at the relationship between Value Added Tax and generation of revenue through other forms of taxations. It is also the objective of this study to find out the problem associated with the administration of VAT since its introduction and also to give recommendation on how to make VAT very effective and responsible to the needs of Nigerians. The study also intended to find out the advantages of Value Added Tax (VAT) in term of generating revenue in Ogun state.




The significance of the study is that government is in need of money to execute its increasing project by introducing VAT to replace the sole tax. The study is aimed at enhancing the effective implementation and achievement of the objective, as such; VAT collection should be encouraged and supported.

This study is very important, as the value added tax is a new or a modified system, which has a lot of significance. The public needs to be educated on its operations. The study will bring the understanding between the government, the populace (the tax payers) and the tax authorities together. Proper knowledge of the Values Added Tax would bring increase return to the government as a result of the compliance by the payer and proper record keeping by the officials.



                     An hypothesis is a tentative statement, which can be proved with

empirical evidence. There are two types of hypothesis namely;  Null hypothesis and alternative hypothesis

A null hypothesis is an hypothesis of no effect or no difference while an alternative is an hypothesis that may be accepted if the statically evidence is rejected by the sample evidence.


Data are collected, analyzed and interpreted with a view to accepting or rejecting hypotheses. The data for this research were collected from Federal Inland Revenue service Ogun office.

We have the hypotheses as follows;


Ho: The measures taken by the Federal Inland Revenue service (FIRS) to curtail the much pronounced Nigeria factor of competition and irregularities has not been achieved.


H1: The measure taken by the Federal Inland Revenue service (FIRS) to curtail the much pronounced Nigeria factor of competition and irregularities has been achieved.


Ho: Proper planning, assessment, collection and monitoring of the value added tax has not been achieved.


H2: Proper planning, assessment, collection and monitoring of the value added tax has been achieved.


Ho: The steps government has taken to compel all corporate bodies and businesses to fully register with VAT department have been attained.


        1.6    SCOPE OF THE STUDY


The scope of the study is to cover the introduction, the implementation, problems and prospect of VAT and its relationship with revenue generation in hospitality industry. The time frame is 1993 till date. In addition to this time, all data and information used were from area office of the Federal Inland Revenue service Ogun State office.




The study is concentrated on the advantages of value added tax (VAT) in terms of revenue generation and its operation in Federal Inland Revenue service Ogun State office. The study was faced with some problem which limited the research study. Some of the limitation are;


  • The effect of scanty data:

The issue of scanty data arose where some private organization refuse to disclose some information on their record keeping on VAT and especially on returns rendered to the Federal government. This made it very difficult to get the required information on VAT operation by the organization in respect to credit system of VAT.


  • Time:

Due to shortage of time, the study was carried out in Ogun state only. Time did not allow for wider research in other states of the federation. It was not easy to collect most of the questionnaire distributed due to the fact that the people who the questionnaire were given never got it ready at the appropriate time. They gave appointment for it to be collected. Some even said that they misplaced the questionnaire.


  • Interviews:

The interviews with sole trader were not at all that successful because it was very difficult to make them understand that the purpose of the study is not to bring them to book for tax purpose.


  • Unwillingness of Businessmen:

Another problem or difficulties faced within the course of this research is unwillingness of businessmen and people in position of such vital information to release them and some of them saw the researchers as spies or agent of tax authority.


        1.8    DEFINITION OF TERMS

The terms uses in this study are as follows;

  1. Value Added Tax: This is the tax imposed on the value of goods and services in the country either imported or exported which the suppliers of the goods add to it. ii. Economy: This means control and management of money on      goods and services in a country.
  • Goods: The term goods cover all tangible and intangible assets and commodities that are traded for considerations.
  1. Supply of goods: This includes delivery and transfer of goods arising from contractual or legal action or transaction though agents.
  2. I.R.S: Federal Inland Revenue service, it is the operational of arm Federal board of Inland Revenue.
  3. B.I.R: This means Federal board of Inland Revenue.
  • Legislation: This deals with the aspect of making laws in the system of taxation.
  • VAT on input: This is the VAT on the purchase of goods and services by a notable person.
  1. VAT on OUTPUT: This is the VAT charged on the sale of goods and services. It is the VAT paid to the F.I.R.S after VAT on the purchase of such good or supply has been deducted.
  2. Vatable person: This means any person, corporate or otherwise who trades Vatable goods and services for a consideration.