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 Taxation in Nigeria, has given rise to several problems that has threaten the profitability of many companies in Nigeria. Among this problems include trained personnel, corruption, lack of tax management and poor implemented policies. The population covers the entire United Cement Company of Nigeria Limited Cross River State. Samples of 200 persons were selected, the research uses a descriptive research design. The instrument used for data collection was from questionnaire. The result obtained shows there is a significant relationship or effect of value added tax on profitability and cost of production, this means that value added tax can systematically reduce the profitability of manufacturing firms and increase cost of production, based on the major findings, it’s recommended that value added tax should be easy to comply with and should interfere as little as possible with the free functioning of business to enable them survive.

                        CHAPTER ONE
1.1   Background of the study
The Federal Government of Nigeria in 1991 set up a study group to look into and give recommendation of the administration and reform of indirect taxation. This was as a result of the inadequate revenue yield from non-oil taxes in Nigeria and the overdependence of the government on oil revenue. This group was to review the indirect taxation system in Nigeria, study the feasibility of the introduction of Value Added Tax and make recommendation. According to Ajakaiye (2000) the recommendation accepted by the government included the following:

  • Detailed action programme for the preparatory work on VAT

When VAT is introduced it should pay special attention to the government’s fiscal relationship because it will replace sales tax which is a stage tax.

  • Have a single rate.
  • Cover manufacturing industry importers in form of goods.
  • Cover professional services excluding doctors and pharmacists.

Sales tax was the basic consumption tax by many countries. At the dawn of the 20th century, many countries embrace VAT as a replacement sales tax. The substitute of VAT for sales tax paid off tremendously though at varying degrees to various countries. The adoption of VAT was so pervasive that the adoption of it by European Economic Community (EEC) was made obligatory under the treaty of Rome signed in 1957. In spite of the wide acceptance, some countries like Japan, Australia and Canada have been reluctant of introducing the VAT.
The Standard Statement of Accounting Practice (SSAP) NO 5 (1993) defined VAT as a tax on the supply of goods and services which is eventually borne by the final consumer but collected at each stage of production and distribution.
Professor Aluko (1993) in his paper ‘Classical Value Added Tax (CVAT)’ defined VAT as a tax on the increase in the value of goods and services in the process of production and distribution.
Ayodele (2007) argued that VAT has become a major source of revenue for most developing countries like Nigeria. In view of this, there is penchant to increase the tax rate to get higher revenue.
First Tax Guide (2005) stated that the revenue from VAT was shared 20-80 percent between the state and federal government respectively. Currently, it is shared 15:50:35 among the federal, state and local government. The state collection was to be earmarked as 30% for state of origin, 30% for consumption/destination and 40% for equality of the state. VAT is levied at a single tax rate of 5% which makes it easier to administer. When paid by business on purchase, it becomes an input tax which is recoverable from VAT charge on company’s sales known as output tax.
In Nigeria, all goods and service are vatable with limited aid specific exemptions. All imports are vatable with imported raw materials or finished goods and VAT on imports are calculated on total revenue value at the total cost, insurance and freight. Exports are zero rated, implying that exporters do not impose VAT on exports, but they can claim credit for VAT paid on their inputs.
According to Ajaikaiye (2002) Nigerian VAT has a very wide base with relatively few exemptions, moreover VAT does not replace any of the usual indirect or income taxes. Sales tax revenue accrues exclusively to the state government, but shared by all levels of government. Thus, it can be assumed that VAT revenue is shared by all the levels of government. Though VAT revenue is not sterilized, it is injected into the economy through government final consumption expenditures.


Resistance to VAT in Nigeria at the early stage was very intensive and prolonged, in the sense that some manufacturing organizations do not want the tax, they felt that its implementation should not be given to any revenue agency. In the thrust of this it was argued that the VAT implementation would almost certainly be based on bureaucratic redtapism (Ogundele, 1996).

Naiyeju (1996) identified a spectrum of fear inherent in the introduction of VAT in Nigerian economy;

  • Anticipated high administration cost, especially the cost of monitoring the VAT implementation bearing in mind the Nigerian factor.
  • The established culture of tax evasion by some manufacturing organizations.
  • Effects on prices of commodities.
  • Fear of inability to administer VAT efficiently.
  • Compliance cost.


The main objective of the study is to assess the effects of value Added Tax in revenue generation of manufacturing firms in Nigeria. Specifically, the study attempts To examine how VAT has influence the productivity of manufacturing organizations in the Nigerian economy.

i)     To investigate the effects of VAT revenue in the GDP of the Nigerian economy.

ii)   To determine how the productivity of manufacturing organizations in Nigeria has enhance the GDP of the Nigerian economy.

iii)  To enumerate goods and services covered by VAT and those exempted from VAT.

iv) To identity the potential problems confronting the implementation and administration of Vat in Nigeria.


1.   How has VAT influence the productivity of manufacturing companies in the Nigerian economy?

2.   Is there any significant relationship between VAT revenue and the gross domestic product (GDP) of UNICEM?

3.   Does the productivity of manufacturing organizations in Nigerian enhance the gross domestic product (GDP) of Unicem and Sumal Food Ltd?

4.   What are the problems confronting the effective implementation and administration of VAT in manufacturing firms?

5.  And to what extent has VAT impacted on the business organization, firms and industries in Nigeria?


This research work will be an invaluable source of literature for researchers, student, marketing practitioners, accountants, bankers, companies, government agencies and related field who might be interest in knowing much about the concept of VAT. It‘s findings will contribute immensely to the economic development of Nigeria and manufacturing firms. It‘s advantages and disadvantages, types of taxes, the origin of VAT, its application, impact and administration were thoroughly analyzed which will be an indispensable material to the above mentioned beneficiaries. It will also help the government in her policy formulation to suggest alternative strategies that can aid effective administration and monitoring of the VAT process and procedures. The list of vatable goods and services will also be mentioned in subsequent chapter together with the countries that had practiced this system of taxation with the date of adoption. All these will contribute immensely to the knowledge previously had by some of the beneficiaries mentioned above.


Thescope of this study covers the Nigerian economy as a whole (The Federal, State and Local Government) but with particular reference to United Cement Company of Nigeria and Sumal Food Ltd.  The researcher encounters some constraints which limited the scope of the study;

FINANCE:Due to the nature of office and business within the scope, the researcher spends a lot of money on visiting, traveling from one location to another, from one office to the other and even had to repeat a visit more than three times to seek for information, all these involves money considering the financial constraint of the researcher and limited resources available to her.

SOURCES OF INFORMATION: Many registered and non-registered business owners were reluctant to give out or provide information about the research, since they believe that tax payment is something very confidential and therefore could not open up to the researcher.

INADEQUATE RECORD KEEPING: Some of the respondents visited were unable to present complete and comprehensive records of their business .while some were not keeping proper records of their business activities and as such could not give adequate and correct information on the effect of vat on their businesses rippling on the economy of Nigeria.

TIME: Time constraint has been another vital limitation and obstacle towards effective realization of the main objectives of this study. Time was really not on my side since I have to combine the little time left with my academic work and preparation.


Vatable Person (Registered Person): This refers to a manufacturer, wholesaler, an importer and a supplier of taxable goods and services. As a taxable person, he is a person registered under section 8 of the Decree. Authorized Officer: This means an officer who has been authorized by the board of Inland Revenue to perform any function under or in pursuance of this Decree.

Board: This is the Federal board of Inland Revenue.

Chairman: This means the chairman of the Federal Board of Inland Revenue.

Company: Company here as defined under the Companies and Allied Matter Decree 1990 and a cooperate body that may be formed under any other written law andinclude any association, whether incorporate in or outside the country (Nigeria)

Importer: This means a person who imports taxable goods.

Invoice:This means any document issued as an evidence of demand for payment.

Manufacturer: Means any person who engages in the manufacturing of goods. It also includes a person who has manufactured for him or on his behalf by other goods made to his specification or design.

Manufacturing: Means the process by which a commodity is finally produced including assembling, packaging, bottling, repackaging, mixing, blending, grinding, cutting, bending, twisting and pining any other similar activity.

Owner: Means in respect of any goods, aircrafts, vessel, vehicles, plant or other goods, a person other than an officer acting officially, who hold out himself to be the owner, manufacturer agent or person in possession of or beneficially interested in, or having control of or power of disposition over goods, aircraft, vehicle, plant or other goods.

Supply of Services: Means any services provided for consideration.

Tax Period: Means one calendar month commencing from beginning of the month to the end of that month etc.


This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.

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