CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Value Added Tax (VAT) is a system of tax recently introduced in Nigeria, which is based on imposition, and charging 5 percent tax on certain goods and services imported or produced locally in Nigeria.  The idea of introducing Value Added Tax in Nigeria came from the report of the study groups set up by the Federal Government in 1991 to review the entire Tax System.

Value Added Tax was proposed and a committee was set up to carry out feasibility studies on its implementation.  In January 1993 government agreed to introduce Value Added Tax by the middle of the year and it was later shifted to 1st September, 1993.  Value Added Tax is a replacement of the existing sale’s Tax, which has been in operation under Federal Government Legislated Degree N0. 7 of 1986.

In some advanced countries of the world, this system of taxation had been in operation and its enormous benefits being harvested.  These countries are United States of America Britain, China and a host of others.  Nigeria on her own wants to take the bull by the horn by introducing value added tax like other benefiting countries earlier mentioned above despite all pitches that may appear to impede the good intentions of government to introduce and implement the system.

The value added tax system has been introduced and made to get its location offices in all the 36 states of the Federation and Abuja.  To ensure that the system works most effectively and efficiently so that the main purpose or goal for which the system was introduced is achieved, the then federal military government made a decree that backs its smooth take off.  The value Added Tax System has taken off in earnest and its application on various sectors of our economy in Nigeria and some states.

Especially Enugu, seems to be producing good and bad effects on the economy generally.

The good effect of value added tax include the reduction of the tax evasion, provision of incentives to exporters, reduction of government excessive dependence on the oil sector as well as enhancing the provision of social infrastructure.

It produces bad effect on the general economy on the ground that in some sectors of our economy like manufacturing, its application especially on industrial machines, raw materials and other manufacturing inputs would cripple the growth of the real and exports sectors.

Despite this and high hopes in official circles that the newly introduced Value Added Tax would rest government’s over dependence on the oil revenue for its programmes, its implementation appears to hit the brick walls.  This is because there is fear that the tax policy may actually escalate the rate of socio-economic disequilibrum in the economy.

Enugu State, which is the scope of this project, was created on 27th August 1919 with particular reference to Enugu North Local Government Council, which was also created in 1991.

1.2     STATEMENT OF PROBLEM

Value Added Tax and its introduction into the economy is a giant revenue generating mechanism, which will go a long way to boast revenue generation in the economy.  It is based on this premise that there becomes the need to examine critically the mechanism or how far the imposition system of value Added Tax in various sectors of the economy has failed.  The study will therefore address the following issues.

1.          How the money is being collected

2.          How t he money is disbursed

3.          What the money is used for after disbursement

  PURPOSE OF THE STUDY

The following are the purpose of the study of Value Added Tax:

1.          To discover the techniques used in collecting the revenue.

2.          To determine the type of products and services which are vatable non-vatable.

3.          To understudy the distribution and usage of the money collected from Value Added Tax.

1.3     RESEARCH QUESTION

The following research questions were used for the purpose of this project.  They include:

1.          How is Value Added Tax collected and at what percentage.

2.          How is the money collected disbursed and at where is it disbursed;

3.          When does each money collected by Value Added Tax officials be disbursed?

4.          At what percentage is the money collected be disbursed to states and local government councils.

5.          Who is in charge of collecting both state and local government councils share;

6.          How is the money collected after sharing by each state and local government council used.

1.4     SIGNIFICANCE OF THE STUDY

The study would be useful in modifying the economy of Enugu State as it stands the chance of adding more revenue to the already existing revenue of the state.  The study also stands as an eye opener to the citizens of Enugu State in highlighting them the amount that comes into the state purse through Value Added Tax.

1.5     SCOPE AND LIMITATION

The scope of this project is Enugu State with particular reference to Enugu North Local Government Council.

1.6     DEFINITION OF TERMS

1.    Value Added Tax (VAT):-   This is tax on spending.  The tax is born by final consumer of the goods and services because it is included in the price paid.

2.    Federal Inland Revenue Services (FIRS):-    This provides a free information and advisory services to help you.  Federal Inland Revenue Services also collect the money on value added tax and pays same to the Central Bank of Nigeria within the state it operates.  The Central Bank of Nigeria within the state pays same to Central Bank of Nigeria, Abuja.

3.    Registered Person (RP):-   This is any person registered under section 8 of the Decree.

4.    Authorized Office (AO):-    This means an officer who has been authorized by the board to perform any function under or in pursuance of this Decree.

5.    Board:-  This means the Federal Board of Inland Revenue.

6.    Tax Period (TP):- This means one calendar month commencing from the beginning of the month to the end of that month.

7.    Product

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