Wednesday, 16 January 2019

IMPACT OF VALUE ADDED TAX ON NIGERIAN ECONOMY

 IMPACT OF VALUE ADDED TAX ON NIGERIAN ECONOMY

ABSTRACT
The objective of the research study is an empirical analysis of value added tax on Nigerian economy collecting the period of 2008-2012. The proxy of taxation is the company income tax while the proxy used in measuring the growth of the economic is the gross domestic product. In other to establish the relationship between taxation and the growth of the economic, secondary data was collected from the central bank of Nigeria statically bulletin. The data were analyzed using the regression analysis with the aid of SPSS statistical tool. The data were tasted using the R2. The result of the analysis reveal that a significant positive relationship exist between company income tax and economic growth. We recommend that government should encourage Entrepreneurial development in Nigeria as this will increase government revenue and reduce unemployment.  
  
CHAPTER ONE
INTRODUCTION
1.1     BACKGROUND OF THE STUDY
Taxation is the central past of modern economic development. Its significance arises not only from the fact that it is by far the most important of all revenues but also because of the gravity of the problems created by the present day heavy tax burden (Green, 2011) the main objective of taxation is rasing revenue. A high level of taxation is necessary in a welfare state to fulfill its obligation. According to Musgrave (2008) taxation is used as an instrument of attaining certain social objective i.e. as a means of redistribution of wealth and thereby reducing inequalities. Taxation in a modern government is thus needed not merely to raise the revenue required to meet its ever growing expenditure on administration and social services but also to reduce the inequalities of income and wealth. It is also needed to draw away money that would otherwise go into consumption and cause inflation to rise.

The pre-occupation of most countries in the word is to strive to achieve rapid overall development through optimum tax collection and expanded revenue base in other to see that objective is accomplished, many countries in the world, especially developing countries selectively introduced new forms of taxes to boost their revenue capacity with the aim of improving the socio-economic development (Iorun, 2012). One of such forms of taxation is the value added tax (VAT).

There is impressive performance of VAT virtually in all countries where it has been introduced. Ajakaiye (2000) clearly indicated that the decision to introduce VAT in Nigeria was taken 1st September 1993 although actual operation did not begin until 1st January 1994. Value added tax is a consumption tax that is relatively easy to administer sand difficult to evade and it has been embraced by many countries of the world (FIRS circular, 1990). Evidences so far support that VAT revenue is already a significant  source of revenue in Nigeria and the yield from VAT is a fairly accurate measurement of growth of an economy since purchasing power which determine yield increase with economic development.

Value added tax is levied on consumption of goods and services. These cover the imported goods and service into the country as well. It is chargeable at a flat rate of five percent (5%) throughout Nigeria. The 5% VAT/called output tax) is calculated in the overall goods and service supplied by the registered persons and the tax burden are made good by the final consumer (Ajakaiye, 2000) there is a high increase in federal revenues resulting from expanding VAT base, this is an indication that consumption pattern of generality of Nigerians are on the increase. Increase is the consumption pattern creates market and induces positive spill-over effect on the economic activities of the nation (Unegbu and Irefin, 2011). Therefore this research examines the impact of value Added tax on Nigeria economy for a period of five years (2008-2012).

1.2     STATEMENT OF THE PROBLEM
Value added tax has become important issue to federal government of Nigeria. This is because without proper collection of the tax, there will be inflation in Nigeria economic, seeking for funds to carryout government’s  infrastructure. Because VAT is a consumption tax, that is why Ajakaiye (2000) mention that it is relatively easy to administer and difficult to evade. The primary goal of any developing country like Nigeria is to increase the rate of economic growth and per capital income which lead to a higher standard of living. Thus, tax can be used stimulus to accelerate such growth of the Nigeria economy. But the citizens’ perceptions are different (such as, too much burden on the final consumers, inflation and rise in fuel pump price to mention a few). This popular opinion of Nigeria citizens has made it pertinent to carryout a research to examine the impact of VAT on Nigeria economy.

Thus, there is need to understand with empirical evidence the aggregate influence of VAT on Nigeria economy from 2008-2012.

1.3     RESEARCH QUESTION
In carrying out this study certain question need to be answered as follows.
  1. To what extent does value added tax revenue significantly influence total government expenditure in Nigeria.
  2. To what extent does value added tax correlate with gross domestic product per capital.
  3. What is the relationship between values added tax and gross domestic product in Nigeria

1.4     OBJECTIVE OF THE STUDY
The main objective of this study is to determine value added taxes and their impact in the economy of Nigeria the specific objectives include:
  1. To analyze the influence of value added tax on total government expenditure.
  2. To access the relationship between values added tax and gross domestic product per capital.
  3. To investigate the relationship of value added tax and gross domestic product.
  4. To know how massive and growth value added tax have improve economy development in Nigeria.

1.5     STATEMENT OF HYPOTHESES
The hypotheses for this study are stated as follows:
  1. Total government expenditure in Nigeria is not significantly influenced by value added tax.
  2. Total government expenditure of Nigeria is significantly influenced by value added tax.
  3. There is significant correlation between values added tax and gross product per capita.
  4. The is no significant relationship between value added tax and gross domestic product.
  5. There is significant relationship between values added tax and gross domestic product.

 1.6     SIGNIFICANCE OF THE STUDY
The study will be of great importance to:
  1. The government by highlighting the effect of value added tax on the economic development of Nigeria.
  2. The study will help in shaping and providing a better understanding to the citizens on how value added tax is charged and its contribution to the economy.

1.7     SCOPE OF THE STUDY
The study focuses on examining the impact of values added tax in Nigeria economy. The study intends to determine whether value added tax is effectively in Nigeria government infrastructures. This study intends to cover a period of five (5) years from (2008-2012) looking at their aggregate cumulative of total co-operate tax to that of the growth of Nigeria economy. The independent variable is company income tax while the dependent variable is gross domestic product or the assessment collection remission of value added tax in Nigeria problems and prospects of value added tax in Nigeria. The advantage of VAT is that its help to rise funds to carryout government infrastructures.

INSTRUMENTATION: this study will adopt the secondary source of data collection which involves the uses of value added tax and other point material.

RESAERCH DESIGN: the study used a historical research design which is aim at examine the effect of value added tax on Nigeria economic. The historical research design is usually concern with examine a population with respect to important variables with measures emphasis been establishes between the variable the advantage of this research is the project is regression analysis.

1.8     DEFINITION OF TERMS
  1. Tax-Mba (2005) defined tax as a compulsory levy on the income of individuals and companies as provided by government legislation as well the consumption and production of goods and services.
  2. Value added tax, this is defined by ogundele in his book titled value added tax theory and practices as a multistage tax imposed on value of goods and services as they precede various stage of production, distribution and services they are rendered.
  3. Tax period-this refers to one calendar month from the beginning of the month to the end of the month e.g. 1st June to 30th June 2009.
  4. Tax administration this involves the interpretation and application of tax laws into practice.
  5. VAT able goods and services this include manufactured goods imports as well as professional and banking services that tax is been charged on.

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