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PROJECT TOPIC :IMPROVEMENT IN THE OPERATIONS OF VALUE ADDED TAX AS A SOURCE OF NATIONAL REVENUE GENERATION PROCESS.

PROJECT TOPIC :IMPROVEMENT IN THE OPERATIONS OF VALUE ADDED TAX AS A SOURCE OF NATIONAL REVENUE GENERATION PROCESS.

ABSTRACT
This project evaluates the improvement in operation of value added tax as a source of national revenue generation process through a systematic approach to study.
Value Added Tax is a consumption tax or tax on spending. Value added tax is borne by final consumer of goods and services.

The study of this project was carried out within the context of the Nigerian economy; however, references were made to other countries where effective VAT system is in operations. The idea of introducing VAT in Nigeria came from the report of the study group set up by the federal government in 1991 to review the entire tax system.

VAT system is administered by the Federal Inland Revenue Services. The research method adopted in this project is the survey method, which focuses on individuals, corporate organization who trade in vat-able goods and services. Research instrument was also used, but the major instrument that was used is questionnaire instrument. Data was collected by means of field study and were analyzed to derive meaningful information for making necessary recommendations and conclusions. Statistical analyses such as descriptive statistics were used to answer the research questions.

Conclusively, from the findings and recommendation, it was discovered that VAT has been able to generate fund for the government through Federal Inland Revenue Services and that VAT had adequately replace sales tax. Recommendations for VAT are that, the fund generated from/through VAT should be properly utilized to recoup their confidence in management of human and material resource abundant in the economy.

CHAPTER ONE

 INTRODUCTION

1.1 BACK GROUND OF THE STUDIES

A tax is a compulsory levy by the government of a country, through an appropriate agency, usually the Inland or Internal Revenue department now called Federal Inland Revenue Services, against the income or wealth of an individual, partnership or corporate body.

Taxes could be direct or indirect, depending upon the person who bears the ultimate burden.

  1. A) DIRECT TAX

It is a tax on income, which place the incidence on the tax payer (whether individual or corporate bodies) who bears the burden. The following are the various taxes in Nigeria:

  1. Personal income tax: Income Tax Management Act, (ITMA) of 1961 as amended.
  2. Company Income Tax Act (CITA) of 1979 as amended.
  3. Capital Transfer Tax (CTT) Act of 1979.
  4. Capital Gain Tax (CGT) Act of 1967.
  5. Individual Development (Income Tax Relief) Act of 1971.
  6. Petroleum Profit Tax (PPT) Act of 1959 as amended.
  1. B) INDIRECT TAX

It is a tax initially suffered by a taxpayer but the ultimate tax burden is borne by the final consumer of the goods and services. Examples of these are:

  1. Purchase tax
  2. Sales tax
  3. Customs and Excise tax
  4. Stamp Duties
  5. Value Added Tax

For the purpose of this project work, discussion is based on Value Added Tax as a means of effective national revenue generation process.

PROJECT TOPIC :IMPROVEMENT IN THE OPERATIONS OF VALUE ADDED TAX AS A SOURCE OF NATIONAL REVENUE GENERATION PROCESS.

1.2 BACKGROUND OF THE STUDY

The International Monetary Fund (IMF) and the World Bank, two agencies of the united organization, which are closely identified with the establishment and the continued operation and monitoring of Structural Adjustment programme. SAP in Nigeria had since in 1987 a year after the introduction of SAP, been advising the tax system in Nigeria needed reforms, so as to make the government revenue less dependent on revenue from petroleum.

Petroleum revenue in 1991 fiscal year, for instance (N54 billion) accounted for about 75% of total, federal, state and local government revenue. (N72 billion) even there were other forms of tax e.g. Income and cooperate tax, Capital Gain Tax, Capital Transfer Tax etc.

As one of the means of raising additional non-oil revenue locally, the introduction of Value Added Tax (VAT) was suggested to the federal government to replace the existing sales tax which though, a national levied tax, the revenue therefore is collected and retained by the state.

In furtherance of the tax reforms, the federal government set up two studies group in 1991. One was set up by the federal ministry of finance and economic development to study and recommendations on reforms needed in direct tax in Nigeria.

The other study group on direct taxation was setup by the federal ministry of budget and planning and it was inaugurated on the 26th of April 1991 by the honorable minister of budget and planning with the objectives among others to:

  1. Shift taxation towards consumption (indirect) rather that saving (direct).
  2. Reduce dependence on (petroleum) oil revenue.
  3. Provide incentives for export production.
  4. Improve the administration of indirect tax.
  5. Maintain a fairly even tax incidence across various lines, stages and elements of production, including non-production elements of taxation on imported goods.

It was this committee that gave a general guidance for the establishment of a modified value added tax system in Nigeria.

In the budget speech of the president and commander in chief of the armed forces in 1992, General Ibrahim Babaginda announced that in other to broaden the revenue of tax base, taxation should be shifted towards consumption rather than savings, reduce our dependence on oil revenue and encourage investment in the non- oil export sections, the government then set up the necessary machinery for the introduction of a modified Value Added System to replace the existing system of sales tax.

PROJECT TOPIC :IMPROVEMENT IN THE OPERATIONS OF VALUE ADDED TAX AS A SOURCE OF NATIONAL REVENUE GENERATION PROCESS.

The then proposed Value Added Tax scheme became fully operative in 1993. This was to allow adequate preparations involving administrative and legislative changes in the existing tax and procedures. Meanwhile, the base and the rate of the present sales tax will be reviewed to generate more revenue.

Consequently, the then honorable minister of finance Alhaji Abubakar, appointed twenty members modified Value Added Tax committee on 19th may, 1992 to undertake the following assignments:

 

  1. Planning and execution of the computerization of sales tax administration.
  2. Recruitment and training of tax administration and collection.
  3. Registration of taxable persons for sales and tax and later to be use for modified value added tax.
  4. Modified value added tax legislation.

 

  1. Preparation of invoices forms design etc.
  2. Special training of administrators and collectors.
  3. Public enlightenment, campaigns, workshops, seminars etc.

1.3 STATEMENT OF PROBLEMS

  1. The administration and implementation of Value Added Tax system in third world county economy like Nigeria is faulty in effective and inefficient. This is due to lack of workable variable in the economic as regard taxation.
  2.  The inadequacy of manpower and technical know how in the administration of Value Added Tax.
  3.  The classification of vatable and non vatable goods and services is quite ambiguous that the problem of which goods and services are vatable and non vatable will arise.
  4. Furthermore, a successful implementation of Value Added Tax requires completeness and standardization. The main purpose of this is ti identify the management of value added tax for effective revenue generation.

1.4 RESEARCH QUESTIONS

In furtherance of analysis to the study, an attempt will be made to provide answers to the following research questions.

  1. What is the level and importance of VAT on the consumption?
  2. What is the level of awareness of Nigeria in respect to VAT?
  3. What are the effects of vat on sales?
  4. What are the effects of VAT on economy?
  5. Should VAT vary from goods to goods?
  6. Can VAT correct the failures sales tax?
  7. How would the tax authority prevent against VAT evasion?
  8. Can VAT breach the income gap and generate income for government?
  9. How reasonable is the current VAT rate of 5%?
  1. What is the people’s opinion on VAT?
  2. Can Nigerians differentiate between vatable goods and non-vatable goods and services?
  3. How would the tax authority ensure that all VAT are remitted to the government?

1.5 OBJECTIVE OF THE STUDY

The main objectives of the study are:

  1. To determine the effect and implication of VAT on the average Nigerian Populace.
  2.  To recommend solution to the problems of VAT evasion, avoidance and collection in Nigeria.
  3. To determine how VAT has been managed to generate adequate revenue for the government.
  4. To study the policies and strategies adopted by the objectives in the proper and effective management of VAT.

PLACE UNDER STUDY ARE:

  1. The level of turnover – it effects on level of sales to the retailers, wholesalers, and manufacturers.
  2. After effect of VAT on industries.
  3. The rising cost of living.
  4. This problem, which arises as after effect of VAT.
  5. To determine the impact of VAT on sales level from individuals and vatable persons as well as response of customers to vatabe goods.
  6. To determine the adequacy of VAT rate whether it is adequate or there should be variation in the rate from goods to goods and from services to services.
  7. To broaden the base of extent of sales tax that was narrowed as it covered only nine categories of goods plus sales and services in registered establishment.
  8. The VAT base is broader and includes most professional high profit generating sectors of the economy.

1.6 SCOPE AND LIMITATION

The study was carried out within the context of the Nigeria economy. However, references are made to other countries where effective VAT system in operation. The study focuses on all full scale value added system form the manufacturer through the wholesaler to the retailer, and finally to the ultimate consumer in the chain of distribution to identify the possible effect and implication of value added tax on:

  1. The consumption level of individuals.
  2.  The cost of living.

To determine and identified the possible effect and implication of VAT on:

  • Industries
  • To the economy as a whole.
  • To identify the possible effect and implication in the administration and effective of VAT. However, findings of this project will be difficult to generalize across the board due the following limitations imposed on the topic:
  1. It is believe that it was not practicable as Present because it is likely to be full of evasion and avoidance due to poor to record keeping the large number of illiterate, small retailer and small businesses.
  2. The preponderance of the informal sector in the chain of the distribution.
  3. The likely high cost of collecting VAT from the large number of veritable retailer
  4. The geographical restriction: this will affect the generalization of VAT because the research is limited to Lagos being the commercial nerve- center of Nigeria economy. Furthermore, the method adopted for data collection and for testing hypothesis is limited by so many factors.
  5. The sampling plan is design in such a way to give room for the researcher’s convenience because the individual and vatable persons that make up the population are not representatives of Nigeria individuals and vatable persons residing in Lagos.

The most appropriate selection ought to have been probability sampling considering the convenience of the researchers; the non-probability sampling method was adopted.

  1. The cost of study is also considered, if the most appropriate method of selection was used the researcher would have had to travel to nearly all the 36 state of the country and in fact all vatable person would be involved in the study and all these would cost more. It is due to this that the convenience sampling method was adopted in other to minimize cost.
  2. Due to the limited time available to both the researcher and party concern it was not convenient to travel to many other organization in other to carryout the study and there compare their findings, as it would have consumed more time.

1.7 SIGNIFICANCE OF STUDY

This study will be both theoretically and practically significant to the economy as a whole and the reader in particular.

THEORITICALLY:

  1. It will help to refine and elaborate the tax system in Nigeria.
  2. It is also for the purpose of economy recovery and revival.
  3. It is a better replacement for sales tax because more goods and services are veritable.

The finding of his project will be useful to the government in the management of Value Added Tax for effective revenue generation, as it is a variable means of generating additional revenue and thereby reducing the incidence of tax avoidance and evasion. Furthermore, since it is tax paid on consumption rate of citizenry, VAT tends to make more people honor one of their civic duties, which is the payment of taxes.

PROJECT TOPIC :IMPROVEMENT IN THE OPERATIONS OF VALUE ADDED TAX AS A SOURCE OF NATIONAL REVENUE GENERATION PROCESS.

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