Impact of value added tax on corporate organizations in Ebonyi state.
Background to the Study
Taxation is that source of government revenue which constitute a veritable activity. Tax is generally used to pursue the various policies of the government. For instance increased taxation in private sector withdraws money from circulation in the sector and this might keep inflation under control but will inevitably slow down the pace of economic activities in the affected sectors of the economy. On the other hand, reduced taxation increase money supply. It also stimulates activities in the areas affected with the abundant benefits.
The tax structure or combination of taxes in an economy at any particular time is known to reflect the future aspiration of that economy. Like in many other developing and developed countries there exist in Nigeria, a variety of taxes, which are paid by companies, other business firms and individuals. Among these are consumption taxes which although not meant to be borne by the companies, are collected by them. Under the consumption tax category is found the Value Added Tax (VAT), whose impact on the Nigeria corporate organization we are studying.
Countries seeking to improve their revenue generation would opt for a concept enabling them to best realize their objectives with due regards to their peculiar socio-economic make-ups. One of these ways is by taxation (Olaoye, 2009). Value Added tax (VAT) is a tax on estimated market value added to a product or service at each stage of its manufacture or distribution and the additions are ultimately added to the final consumer.
VAT is an indirect tax collected from someone other than the person who actually bears the cost of the tax (Ochei, 2010) it is assessed and collected on the value of goods and services that have been provided every time there is a transaction (sale/purchase). It applies to all provisions of goods and services. The seller charges VAT to the buyers, and the seller pays this VAT to the government. If, however, the purchaser is not an end user, but the goods or services purchased are costs to its business, the tax it has paid for such purchases can be deducted from the tax it charges to its customers. The government only receives the difference in other words it is paid tax on the gross margin of each transaction, by each participant in the sales chain.
Value Added Tax is a consumption tax that is relatively easy to administer and difficult to evade and it has been embraced by many countries worldwide (Federal Inland Revenue Services, 1993). In Nigeria the VAT rate is 5%.
Government generate funds through taxation which part of it is used as a means of providing communities with basic amenities such as access roads religious facilities, security amongst others from time immemorial (Obadimi, 1994).
Musa (2009) opined that economic and social development laws and policies provide the basis for effective state action that lifts society from under development, improves the standard of living and facilities for the realization of the millennium development goals. In the views of Igbonyi (2008), taxation is the process or machinery by which communities or group of persons are made to contribute in some agreed quantum and method for the purpose of the administration and development of the society.
The value added tax is one of the major sources of financing in many developing countries. In 1994, the VAT in Nigeria contributed 4% of the total revenue raised by the federal government while in 1995 the rate of contribution was 5. 93%.
As much as N404.5 billion was collected on VAT (5.1% of total revenue) in 2008. Some of the countries where VAT has become a major source of revenue are Benin, Kenya, Madagascar, Mauritius, Niger, Senegal, Togo and lately, Nigeria (Ajakaiye, 1993), (FIRS, 2008). From the foregoing, it could be said that Value Added Tax influences corporate organizations hence, this study is set to ascertain the impact of Value Added Tax on corporate organizations in Ebonyi State.
Statement of the Problem
Value Added Tax is a good source of government revenue, hence it has impact on the tax bearer. This has posed the question of how companies dealing on goods and services which are subject to VAT are going to be affected by the tax system, given the present economic situation and industrial conditions. Again, the question of how a company’s pricing policy are most likely to be affected by the difficulties encountered by firms in holding down costs and given the incentives in VAT according to firms operating at minimal cost.
However another problem this study tried to rectify is the impact of value added tax on Nigerian economy from the time of its successful Imposition with special reference to corporate performance.
Purpose of the Study
The Value Added Tax (VAT) is a consumption tax, the burden of which is not expected to be borne by business (acting as more collecting agent for the government) but to be shifted forward to the final consumers in the form of an increase in the prices of goods and services equal to the amount of the tax. This study tried to find out the impact of Value Added Tax on co-operate organizations in Ebonyi State.
Specifically, it is meant to:
- Ascertain the extent Value Added Tax will achieve its objective as business benefit tax.
- Determine how people consider the present rate of 5% of the tax on value added.
- Ascertain the extent Government can improve on value added tax for growth and development.
- Determine how companies engaged in VATable goods and services are affected by the tax system.
Significance of Study
The findings from this study will be of immense benefit to scholars, researchers, government, tax payers, corporate organizations as well as other users of information.
It is of academic significance in the sense that it will contribute to the understanding of value added tax and its impact on the economy with special reference to corporate performance. But the practical significance in addition to the above, lies in the fact that the work would highlight the extent to which company executive could take tax advantage of the opportunities in the system to improve that corporate image. Even the greater importance is the unintended adverse effects of the tax on some industries. The study will act as eye opener to the beneficiaries of value added tax.
To researchers, it will add to the available resources on Value added tax and to some co-operate organizations, it will help them in effective planning.
The following research questions were formulated to guide the study:
- To what extent will Value Added Tax achieve its objective as business benefit tax?
- How do you consider the present rate of 5% of the tax on value added?
- To What extent can the Government improve on value added tax for growth and development?
- How are companies engaging in VATable goods and services being affected by the tax system?
Scope of the Study
This study on impact of Value Added Tax on co-operate organizations is limited to Ebonyi State. Ebonyi State is a state in Nigeria, in the South Eastern region. It is inhabited and populated primarily by Igbos. Its capital and largest city is Abakaliki. In Ebonyi state, there are registered and non-registered business organizations. This study is restricted to the co-operate organizations within Ebonyi state.