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1.1.    Background of the study

An important landmark in tax reform in Nigeria was the adoption of the value-added tax (VAT) in January through the VAT Act No. 102 of 1993 but its implementation actually began in January 1994. Ajakaiye (1999) avers that since its introduction, 15 of the 42 sections of the Act have been amended. Replacing sales tax, VAT was originally imposed on 17 categories of goods and 24 service categories. Such items as basic foods, medical and pharmaceutical products, books, newspapers and magazines, house rent, commercial vehicles and spare parts and services rendered by community and people’s banks, however, were VAT-free.

Value added tax (VAT) has become a major source of revenue in many developing countries. In sub-Saharan Africa, for example, VAT has been introduced in Benin, d’Ivoire, Guinea, Kenya, Madagascar, Mauritius, Niger, Senegal, Togo and, lately, Nigeria (Landau, 1983). Evidence suggests that in these countries, VAT has become an important contributor to total government tax revenues. Naiyeju (1994) find that VAT accounted for about 30% of total tax revenues in d’Ivoire, Kenya and Senegal in 1982. The oil producing countries are not excluded from the list of countries introducing this tax handle. Schnepper (1996) shows that VAT has been in effect in Ecuador and Mexico since at least 1973, and by 1983 accounted for 12.35% and 19.71% of total government revenues in these countries, respectively.

The introduction of VAT requires a lot of preparation because of the complexity in the implementation of VAT which require the cooperation of the tax-payers. In January, 1994 when the implementation of the tax began there were no adequate machinery, public enlightenment and consumer education (Bargo, 1993). The problems created by inadequate preparation and lack of understanding of the workings of VAT coupled with administrative bottleneck.

Although prices of VATable goods are expected to rise, businesses are taking advantage of the existence of VAT to increase prices of goods and services arbitrarily. The excessive price increase has further led to higher inflation in Nigeria. The VAT rate in Nigeria at 5% is considered too low because of high cost of administration. At 5%, the cost as a proportion of revenue will be very high. Data on cost of introducing and administering VAT are not yet available but it is expected to be significant. It is believed that for most countries, a VAT is probably not worth introducing at less than 10% (Twins, 1993).

Specifically, the traditional incidence studies tend to concentrate on the issue of who pays the tax, so that the question of who gains or loses from the tax, whose income and welfare are reduced or increased, and whose employment opportunity is threatened or promoted are not sufficiently considered (Ajakaiye, 1999).

For efficient administration of VAT, businesses must keep proper source documents and books of accounts. Unfortunately, it is the very problem with most enterprises in Nigeria (Aruwa, 2006). The invoicing of all sales, the need to compel businesses to keep records of transactions and encourage consumers to demand receipts for every purchase have become mandatory.

This study would seek to provide the necessary impetus towards resolving some of these problems identified; to identify the factors contributing or mitigating the efficient administration of VAT in Nigeria and to suggest possible remedies to identified constraints in the VAT Act and its implementation and VAT administration in Nigeria.


Tax from time immemorial has been the major source of revenue in Nigeria, but when we reflect back on efficiency and effectiveness of taxation system we could easily see that tax has met with a number of difficulties in Nigeria especially in the area of tax evasion and avoidance.  Because of this problem militating against the tax system in Nigeria and problems peculiar to Vat administration policy, the federal government in 1991 set up a study group which was led by Sylvester Ugo to recommend the introduction of VAT in Nigeria.  Also in 1992, a modified Valued Added Tax committee led by TAE B.I. Ijewere was set up to carry out feasibility study on the implementation of Vat and how to solve the problem in Nigeria.

What I want to investigate is the problem in administration of Vat in Nigeria.  Why Vat is so difficult in administering in Nigeria economy.  They are:

1.  Evaluate the extent of coverage in the country.

2.  Suggest on how Vat can be administered in the country.

3.  Highlight the administration, efficiency and effectiveness of VAT in Nigeria.


If this study is successful conducted it will enhance efficient administration of Vat in Nigeria and also see that all the problems hindering Vat administration will stop in Nigeria.  For the more, if this study is successful conducted more income will be generate from VAT which will help to improve the economy of Nigeria.


Vat is one of the fiscal policy by government to generate funds for the welfare service of the population.  The significance of the research helps to explain the various Vat activities and access the extent to which they have been administered.  It also shade light on the efficiency and effectiveness of the administration of Vat and its benefit in Nigeria.  Vat is a tax imposed on consumable goods and services.  It has a built in self-assessment mechanism that allow a business to claim credit for tax paid on it’s input such as withholding tax.


It has been widely believed that every nation, irrespective of its status in the global economy aspires a major goal and enhances the economic well being of its citizens within it’s area of jurisdiction.  The nations goal can only be achieved through economic growth and development, which is attended by provision of social amenities.  Since the responsibilities and duties of every government is quite enormous, however, the problem remains how does the government generate resources to fund their activities.

The government being a non-profit making organization by nature does not make profit and so needs to generate revenue from tax and other revenue.  A tax system should encourage efficient and full use of a nation productive capacity without hinder allocation of resources.  It should yield the revenue needed to finance whatever government operation decided on without hindering economic growth and stability.

There are two major kinds of tax.  The direct and indirect tax.  In direct taxation, it is a kind of tax that imposed directly upon or on the property of the person paying the tax.  In the case of indirect taxation, the payer is different from the person who bears the burden of the tax.  Under indirect tax VAT comes in when taxes have been imposed on goods and services and the burden is transferred to another, most levies are paid which the Value Added Tax proceeds.  In realization of the above, the study group on indirect taxation recommend the introduction of VAT in 1993 by the Vat Decree 102 of 1993.  this Decree was executed on 1stSeptember 1994.  Value Added Tax replaced sale tax and was introduced as a means of generating additional on oil revenue.  Thus, for the government to meet growing public expenditure in the short run, it can only be derived from taxation hence the introduction of VAT.


VAT which full name is Value Added Tax is the tax added to the price of goods and services.  It is imposed on consumable goods and services.  Example of goods which VAT can be imposed on is cigarette, MTN Rechargeable Card etc.

Administration:         It is day to day running affairs of government.  It means how government plan, organize and control their activities in the country concerning issue of VAT.

Fiscal policy:  Means a deliberate government policy which is designed to change the level of government expenditure or varying the level of taxation or both, for the purpose of achieving some desired economic objectives.  Fiscal policy is implemented through changes in the budget.

Problem:        In this study means all the factors that militate against the administration of the VAT in Nigeria.  Things that mabs VAT to be difficult in administer.  Some factors that militates against VAT in Nigeria are: failure of some state such as shown states to comply, by opposing payment of Vat on alcohol and problem of non-compliance of government services industries like NEPA, NPA etc.

Economy:       In this study means the relationship between production, trade and the supply of money in a country.  It is also concern about how to run a particular country without waste or spend available resources.

Global:           It means that something is operates all around the world.  That’s VAT is being administer red all around the world not only in Nigeria.

Allocation:      Is an amount of money people or a government collects for a particular purpose.  In every country there is allocation which is been given to their people.  In Nigeria for instance federal, state and local government collects allocation from VAT.  The allocation state or local government receives helps then to improve their economic condition.

Evaluation:    Means to suggest or make an opinion of on a value or quality of a thing after carry on an examination carefully for instance in this study that I am conducting to evaluate means that after research I will known what VAT is saying in about and how well it will be administrate in Nigeria.

Efficiency:      It means how administration of VAT in Nigeria should be carried without much spending of time and money.  How it will be improve the economy of the country very well.

Hindering:      Means all the problems the militate against administration of VAT in Nigeria.  Some factors that makes administration of VAT in Nigeria to be so difficult is high imposed of price on goods and services.

Economic growth:     This is a rapid and sustained rise in real output per head and attendant shifts in technological, economic demographic characteristics of a society.

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