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            From the federal governmentunlike the individuals and organization collect their revenue from various sources which includes taxes, fees, fines, licenses, earnings, and sales, rent on the federal government property, interest, repayments and dividend and individual reimbursement, profit and gains from sales and sources from public economic and commercial activities and statutory and non-statutory allocation from the federal government.

            The purpose of this study is to consider in details the effect of value added tax.

Value added tax is a consumption tax, payable on all taxable goods and services supplied and consumed by individuals or group of individual. It is a tax imposed on the value, which is added to goods and services as they pass the various stages involved in a business up to the final consumers.

            It is collected by registered person and payable to the relevant tax authority. The value added tax rate is 5% at a flat rate.


Taxation is all embracing subject which affects the lives of nearly everybody. Benjamin Franklin, a statement and a philosopher, claims that “in this world, nothing is certain but death and tax”.

The government of every country engages in several activities which required the expenditure of finds in order for it to be able to undertake most of these activities, it raises fund via taxes.

More than decades now, the Nigeria economy is being flooded with tax evasion, non-effective ways to tax collection by the federal, state and local government and the cancelation of tax drive. The international monetary fund (IMF) and World Bank are two agencies of the United Nations Organization which are closely identified with the establishment and country operation and monitoring of Structural Adjustment Programme (SAP) in Nigeria has since (1987) been advising that the tax system in Nigeria needed to be refunded, so as to make the government less dependent on revenue derived from petroleum.

The federal government to replace the existing sales tax as a means of raising additional non-oil revenue locally through national levied tax; the revenue therefore is collected and retained the stage government.

In furtherance of the tax reform, the federal government also set up two tax study group in 1996, one was set up by the federal ministry of finance and economic development to study and make recommendations on the performance needed in the direct tax, while the other group is on direct taxation; was set up by the federal ministry of budget and planning and it was this committee that gave a general guideline for the establishment of value added tax (VAT) in Nigeria.


Sales tax has been in place in the economy before the need of substituting it with the value added tax (VAT) arose. Although its effect was foreseen before its introduction, the problem then became how it could be introduced in order to achieve this effect; two groups were set up one by the federal ministry of finance and the other one by the federal ministry of budget and planning. After these groups have submitted their reports, a committee recommendation was approved by the government and value added tax (VAT) was officially introduced into Nigeria economy on 1st December, 1993 that value added tax decree N0. 12 of 1993 was no longer news that has been in operation in Nigeria, but the question now is that are there effect attached to its introduction and implementation in Nigeria? This and other issues relating to value added tax that arose the researcher interest in this area of research work.


            The study aimed mainly at evaluating the effect of VAT on Nigeria economy. The specific objectives of the study include:

        i.            To examine the influence of revenue generated through VAT on wealth creation.

      ii.            To examine the effect of revenue generated through VAT on the overall tax revenue of Nigeria.


            In line with the objectives of the study, the following questions were raised:

        i.            To what extent does revenue generated through VAT influence wealth creation in Nigeria?

      ii.            What is the effect of revenue generated through VAT on the overall tax revenue in Nigeria?


            The study will assist the government in policy formulation as it relates to Value Added Tax and monetary policies. It will help to strengthen the operation of the relevant government agencies such as Federal Board of Inland revenue, Central Bank of Nigeria, Joint tax Board and others. This study will bring government attention to other sources of revenue apart overdependence on revenue from petroleum.


            The study will be restricted to the aspect of Value Added Tax that falls under the jurisdiction of the Federal Board of Inland Revenue (FBIR), Federal Inland revenue Service (FIRS). The study covers the tax revenue generated by the Federal government through VAT and the Gross Domestic Product for the period between 2001– 2010.


            The part of the study deals with the constraints which the researcher encountered within the course of the study that tried to hinder the smooth access to information required, this probably for fear of revealing government secretes on the part of the respondent. This attitude must change if research works are expected to be thoroughly conducted.

            Another constraint is financial problem, as the researcher has to travel to the board of Inland Revenue several times to collect information and gather data. All these made production cost expensive, hence, it was difficulty and too the mercy of God for it to be completed. Time was also a limiting factor militating against a detailed study.

            However, the above mentioned constraints did not in any, affect the research work.


Therefore, find it necessary to define some of the terms that were used in this write-up in order to ease understanding of the project work.

Non-vatable items: These are goods and services that are exempted from value added tax of basic food items and medical services.

Vatableperson:These are the persons who trade in vatable goods and service for a consideration.

Value added tax account: this is the account kept by the vatable person recording the amount received from the purchase of the vatable goods and services

Value audit and investigation: This is an institution on a regular basis by the headquarters (VAP) officers and the value it involves checking both the added tax (VAT) payers records and ensures strict compliance with law and accountability of value added tax (VAT) collected.

Federal Inland RevenueService (FIRS): This is the body empowered by the government to implement value added tax. This body is under the federal ministry of finance, it is also named as Federal Board of Inland Revenue.

Indirect tax: This is tax which the burden can be shifted by the manufacturers to the wholesalers, retailers and finally the consumers in other words, it is a tax which its incidence is borne by the final consumers.

Defaulters: These tax drives are conducted by the zonal co-coordinators. There taxes stimulate collection of value added tax from defaulters, and enforce prompt remittance to value added tax payable.

Input value added tax: This input value added tax is charged on purchases by business ventures as well as their expenses. These factors include goods and services supplied in Nigeria or imported.

Output value added tax: This is the value added tax imposed on vatable suppliers, it therefore means an amount expected to by pay on supplies made and in arriving at this output value added tax, value of the aggregate supply by the tax rate.

Zero rate: This is the percentage that is changed on exported and exempted goods and services, such as books and educational materials and services rendered by the Community Bank, the rate is zero (0)%.

Agent: This is a person, an organization or business undertaken which collects and renders returns to the Federal Inland Revenue Service.

Incidence of tax: This is the burden borne by the tax payer(s) is value added tax. It is borne by the final consumers.

Multi-stage tax: This is the system which involves both the output and input value added tax of various stages from the manufacturer to the final consumer. The amount paid by the consumer at various stages constituted the final amount paid by the consumer.

Zonal offices: There are four zonal officers nationwide, these officers co-ordinate the activities of the local value added tax offices under their jurisdiction zone.

Local value added tax offices: This is an arm of the federal Inland Revenue service which carries out the real implementation of value added tax (VAT). A local office is situated in each state capital and at present, each local government area nationwide shall soon have it situated in its headquarters.

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