PROBLEMS AND PROSPECTS OF ADMINISTRATION OF VALUE ADDED TAX IN NIGERIA
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PROBLEMS AND PROSPECTS OF ADMINISTRATION OF VALUE ADDED TAX IN NIGERIA
Chapter one
INTRODUCTION/BACKGROUND OF THE STUDY
1.0 Introduction.
Taxation has a significant impact on the establishment of new sectors and overall economic growth. In low-income nations, infant industries play a key role in advancing the country’s socioeconomic development agenda. As a result, policymakers should prioritise aligning the tax structure with the environment’s special industrial growth needs.
Keeping this issue in mind, micro- and small businesses constitute a significant driver for economic development and industrialization in developing nations.
It is becoming increasingly clear that developing firms make significant contributions to job creation, economic growth, and poverty alleviation. According to the 2005 World Development Report, developing “sustainable jobs and opportunities for micro entrepreneurs are the key pathways out of poverty for poor people” (World Bank, 2004, p. 19).
High tax rates and tax evasion deter the establishment of emerging sectors and private sector investment (Oludele and Emilie, 2012, p14). As a result, taxes have an economic impact on the growth of a country’s economy.
From an economic standpoint, taxes raise the cost of producing products and services, resulting in higher prices for ultimate consumers. On the other hand, tax money is the primary source of funding for government spending (Toder, E and Rosenberg, J. 2010 p8).
If the tax system is not effectively built for the given environmental conditions, it may increase the burden on tax-paying organisations, ultimately harming the final consumer owing to tax shiftability.
Assessing the impact of tax systems on small and medium-sized businesses and other emerging industries entails more than just examining tax rates. Tax systems have a vital role in promoting growth, investment, and innovation while also facilitating international trade and mobility.
Key issues for firms include minimising administrative overhead while guaranteeing compliance, taking into account the drivers and implications of operating in the informal sector.
1.1 Statement of Problem
Despite the considerable money that pours into the government’s budget, some critics believe that VAT, like other indirect taxes, is regressive. Poor people spend a considerable part of their income on goods that are subject to VAT.
Furthermore, the attitude of Nigerians towards taxation is concerning, as many would prefer not to pay tax if given the choice. The economy continues to lose a significant amount of revenue as a result of the unwholesome practices of tax avoidance and evasion.
This loss of revenue has the potential to transform the fortunes of many economies. Particularly emerging countries such as Nigeria. This issue has been lingering for so long that it requires urgent attention and a solution because the cost of collecting taxes in Nigeria (both social and economic) is so high that if left unchecked, the cost will soon outweigh the benefit or value derived from such operations, which is not appropriate for the system.
In Nigeria, VAT is one of the tools used by the federal government to create more revenue. However, most prominent Nigerians and interest groups had spoken out against its implementation.
It appears that VAT is fraught with complications. Given these issues, the purpose of this study is to investigate the problems and potential for VAT administration in Nigeria.
1.2 Objectives of the Study
The aims of the study are as follows:
To determine the effect of VAT on economic growth and development.
To disclose the challenges with efficient VAT administration in Nigeria?
To demonstrate the future potential for VAT management in Nigeria.
Does lowering the VAT rate boost private investment?
How does VAT impact economic growth and stability?
1.3 Research Questions.
The following research questions were established to fulfil the study’s objectives:
How does VAT affect economic growth and development?
What are the future possibilities for VAT administration in Nigeria?
Does a cut in VAT encourage private investment?
How does VAT affect economic growth and stability?
1.4 Significance of the Study
The significance of the study is as follows:
It will highlight the impact of VAT on economic stability, growth, and development.
It will aid in analysing whether a cut in VAT stimulates private investment.
It will also highlight the issues and potential for value-added tax management in Nigeria.
Finally, the study will be a great resource for other scholars looking for information on the issue.
1.5 The scope and constraints of the study
This paper focuses on the issues and potential of value-added tax administration in Nigeria, utilising the Federal Inland Revenue Service as a case study.
1.6 Definition of Terms
Value added tax (VAT) is a tax on the value of goods and services consumed in the domestic market. It is hence referred to as a consumption tax.
A tax is a required levy imposed directly or indirectly by the state government on the income of an individual, partnership, or business organisation in order to provide social amenities for the benefit of the people.
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