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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 organization. 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.



1.1      Background of the study

 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 certainties 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.


The introduction of Value Added Tax into Nigeria tax system was greatly antagonized by its critics, more and more organizations are being a registered person. Every organization 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 organization. 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 organization


The objectives of the study are;

1.    To improve the effectiveness of VAT in reducing over dependence on oil sector by the nation

2.    To determine the importance of VAT as a source of revenue to the government in Nigeria

3.    To ascertain whether the federal Inland Revenue Services can help the profit tempo in the nearest future

4.    To rectify the existing lapses in VAT administration so as to minimise the level of tax evasion.

5.    To  determine the efficiency of Federal Inland Revenue Services in effective administration of Value Added Tax in Nigeria

6.    To ascertain the extent to which VAT can provide revenue to finance basis infrastructure for industrial development


For the successful completion of the study, the following research hypotheses were formulated by the researcher; 

H0:  there is no importance of VAT as a source of revenue to the government in Nigeria.

H1:there is importance of VAT as a source of revenue to the government in Nigeria.

H02:there is no efficiency of Federal Inland Revenue Services in effective administration of Value Added Tax in Nigeria

H2:there is efficiency of Federal Inland Revenue Services in effective administration of Value Added Tax in Nigeria


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.


The scope of the study covers value tax as a means of generating revenue for the government. The researcher encounters some constrain which limited the scope of the study;

a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study       

b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities. 


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 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 includes well 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 goods 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.


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), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights 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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