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VALUE ADDED
TAX AS A MEANS OF GENERATING REVENUE FOR THE GOVERNMENT
ABSTRACT
The research work is carried out
specifically to appreciate value Added Tax as an important source of revenue to
the government in Nigeria and its importance to the development of business
organisation. The research work analyse the purpose, problems, significance and
also the questions relating to the importance of value Added Tax as a source of
revenue to the government in Nigeria. In view of this, the research work is
discussed under five chapters. Chapter one, focuses on the general introduction
of the topic under view, stating the questions and hypothesis. Chapter two
deals with the review of the related literature, philosophy and the history of
VAT in Nigeria, along with some specific government responsibilities, and also
general appraisal of VAT administration in Nigeria, scope, nature and
operational character. Chapter three is about research methodology, to see the
important of Value Added Tax as a source of revenue to the government in
Nigeria, the research design is used, data collection instrument and sampling
techniques. Chapter four deals with classification of responses, the
information gathered from questionnaires and how such information are tested
using hypothesis. Chapter five focused on the summary of findings, conclusion,
scope and limitations and finally recommendations..
CHAPTER ONE
1.0
INTRODUCTION
Taxation is an important factor in
Economic planning and also an agent for social change. It is perhaps the last
to understand and most unappreciated instrument among other government policies
by the citizens, yet they expect government to provide some services. This must
probably owing to the fact that most people, particularly in developing
countries like Nigeria, have very little knowledge of how the machineries of government
operate.
Thus, the taxman is seen by an
average Nigeria as a monster always ready to prey on its victims, or a plague
that must be avoided at all cost.
Benjamin Franklin, Philosopher,
observed that “in this world nothing is certain but death and taxes.”
The certainty of taxes have been
established long in Nigeria. Before the arrival of the Colonial Masters,
Nigeria had been paying taxes in kind by giving farm products to their rulers
and rendering free services such as clearing the bush, digging pit toilets,
well e.t.c., for the benefits of the community as a whole.
Income tax was first introduced in
Nigeria in 1904 by the Late Lord Lugard, various types of taxes there after
come into being through subsequences government.
Despite the fact that there are other
sources government could generate revenue to fashion a society everyone can be
proud of.
Taxes are not new in Nigeria but
Value Added Tax (VAT) is the most recent form of tax known to Nigerians.
The idea of introducing VAT in
Nigeria came from the report of the study groups set up the Federal Government
in 1991, review the entire fan system VAT was proposed and a committee was set
up by carrying out feasibility studies on its implementation. In January 1993,
government agreed to introduce VAT by the middle of the year, it was later
shifted to 1st September 1993, by which time the relevance legislature (Decree
No 102 of 1993) would have been made and proper ground work done. VAT, which replaces
sales tax in Nigeria, is administered by the Federal Inland Revenue Services
(F.I.R.S) through VAT directorate in close co-operation with the Nigeria custom
services (NcS) and the State Inland Revenue Services (S.I.R.S).
The rationale behind replacing sales
tax with the VAT is in formed by a number of factors and consideration notable:
i. The base of sales tax in Nigeria s
operate under Decree No 7 of narrow. It covers only nine categories of goods
plus sales and services in Registered hotels, motels and similar
establishments. The narrow base of the tax which negated the fundamental
principles of consumption tax which by nature is expected to cut across all
consumable goods and services, VAT base is border and included most professional
services and banking transaction which are profit generating sectors.
ii. Only locally manufacturer good were
aimed by the sales tax Decree 1986, although this might not have been the
intention of the law. Vat is neutral in this regard. Under VAT, a considerable
part of the tax to be realised is form imported goods. This means that under
the new VAT, locally manufactured goods will not be placed at a disadvantages
relative to imports.
iii. Since VAT is based in general consumption
behaviour of the people, the expected high yield from it will boost from the
payer of the tax. In the light of the foregoing, a seminar of this among the
people to the effect that government derives the bulk revenue required for
meeting its obligation to the people through taxation.
1.1 Statement of the Problem
The introduction of Value Added Tax
into Nigeria tax system was greatly antagonised by its critics, more and more
organisations are being a registered person. Every organisation that trades in
goods and services for a consideration is obliged to register with the FIRS VAT
Directorate. The registration covers all the business activities of the
organisation. The following are some of the problems encountered in the
introduction of Value Added Tax:
i. Inaccurate computation of Value Added
Tax figures.
ii. Incompliance of infant industries with
Value Added Tax Directorate.
iii. Illiteracy of some rural areas about
Value Added Tax.
iv. Lack of information on VAT to new industries.
v. Incomplete information in the tax
invoice of a customer:
With these problems, the VAT
directorate found it rather difficult to balance the final account which
provides information to other VAT officials. Therefore, there is need for the
introduction of Value Added Tax for the progress of modern business
organisation.
1.2 Objective of the Study
The broad objectives of this project
work are summarised as follows:
To improve the effectiveness of VAT in
reducing over dependence on oil sector by the nation
To determine the importance of VAT as a
source of revenue to the government in Nigeria
To ascertain whether the federal Inland
Revenue Services can help the profit tempo in the nearest future
To rectify the existing lapses in VAT
administration so as to minimise the level of tax evasion.
To
determine the efficiency of Federal Inland Revenue Services in effective
administration of Value Added Tax in Nigeria
To ascertain the extent to which VAT can
provide revenue to finance basis infrastructure for industrial development
1.3 Significances of the Study
This research work would serve as a
reference to interested parties that is; student, researcher and so on.
It would also add to the body of
knowledge. This would enhance better understanding of the importance of Value
Added Tax as a source of revenue to Government in Nigeria.
Other corporate or manufacturing
organisations, the government and also the individual would understand more
about the following:
i. How VAT has been able to give a desire
impact by generating revenue, which is the beginning of reduction of over
dependence on oil revenue.
ii. How to evaluate the work of the F.I.R.S
and necessary suggestion about how to keep up with this great achievement in
the Nation Fiscal Policy.
1.4 Research Hypothesis
Hypothesis is a tentative statement
about the relationship among variables which is testable.
HO :
(Null Hypothesis)
HO :
There is no positive correlation between the operation of Vat introduction and its
acceptance by the industries.
Hii :
(ALTERNATIVE HYPOTHESIS)
Hi :
There is a positive correlation between the operation of VAT and its acceptance by
the industries.
1.5 Scope of the Study
The research for this study has
involved definition of the subject matter. Researcher has endeavour to reveal
its urgent report, its work among business organisation, benefits it entail and
its surrounding.
1.6 Limitation of the Study
The scope of study is limited by the following:
1. Availability of accurate data due to
inadequacy of most available of data being approximated. And for audited as far
as privacy imposed for logistics reasons by the case study in her vital document
and in information.
2. Time Factor: The time for the
commencement and completion of this project work allows only for a proper but
concise account of the subject matter such as contained in the write ups.
1.9 Conceptual Definition of Key Words
1. Value Added Tax: This is defined in the statement of Standard Account Practice (SSAP) No 5 issued
in the United Kingdom in April 11974 “as a tax on the supply of goods and
services which is eventually borne by the final consumer collected at each
stage of the production and distribution chain.
2. With Holding Tax: “This is an advance
payment of income tax and the purpose is to bring the prospective tax-payer to
the tax-net, thereby widering the income tax base.” That is, is used to track
down tax payers and the incomes, which may otherwise not be reported by them.
3. Vatable Person: This is a person who
trade on vatable goods and services for a consumption.
4. Vatable Goods and Services: These terms
refer to goods and services that will attract VAT at five percent (5%) on their
consumption.
5. Output Vat: This is the VAT that is due
on Vatable supplies. It is derived multiplying the tax value of the aggregate
supply by the tax rate.
6. Input Vat: This is charged on business
purchases and expenses according to section 10 2 of Vat Decree 1993. This
include good and services supplied in Nigeria or imported.
7. Vat Account: This is the summary of the
output tax in a normal ledger account form.
8. Zero Rating: This term is used to
indicate that the supply of good and services in a taxable supply but that the
tax is charged at a zero or nil rate.
9. Taxable Activity: This includes any
activity other than those in the exempted list, conducted as a business,
vocation trade and profession.
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