Value added tax vat and price stability in Nigeria (54 pages) CHAPTER 1-5

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Value added tax vat and price stability in Nigeria (54 pages) CHAPTER 1-5


Value Added Tax (VAT) is a consumption tax on the value added to a product in the process of production. Like all other indirect taxes, it is a tax that targets the final consumer of goods and services. The main purpose of VAT in Nigeria is to increase government (state and Local) revenue from the non-oil sector thereby reducing the government’s dependence on oil sales and the budget deficits. In this research work my aim is to determine the stabilizing roles of VAT in the Nigerian economy. The study employed multiple regression analysis as a method of study using the ordinary least square (OLS) regression technique in estimation. Result of the analysis revealed that price level is not stimulated by VAT in Nigeria.

The introduction of value added tax(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 in the set up to carry out feasibility studies on its possible implementation. In January 1993, the federal government agreed to introduce VAT by the middle of the year. But due to some logistic reasons for the relevant legislation to be made and proper ground work done. It was shifted to January 1st 1994. VAT replaced the former existing sales tax carried out by the different state3 governments, the wages first implemented in 1986 and operated under the federal government legislated degree no.7, of 1986. VAT replaced the sales tax because of the following reasons.
VAT is neutral in that a considerable part of the new tax is to be realized fr5om imported goods unlike the sales tax that targets only locally produced goods based on the general consumption behavior.

VAT is a consumption tax on all economic operation in the country including imports and has a zero rate for export. The federal Inland Revenue service (FIRS) is the main body charge with the administration of VAT in Nigeria custom service (NCS) for the collection of VAT on imports and the help of VAT on the locally produced goods and services. VAT has a single low rate of 5% with a zero rate for exports and is borne sole by the final consumers of VAT able goods and services like any other indirect tax, some essential goods and services are exempted from VAT that is they are not VAT able The main reasons that led the introduction of VAT are to be referred to as the main gains of VAT and they included.
I. Need for increased government revenue due to increased public expenditure.
II. Reduction in the over dependence on sales of crude oil with its attendant uncertainties in the international market.
III. Making the tax equitable for all the masses by curbing the rice, thereby reducing the gap between the very rich and the very poor.

IV. Reducing the rich’s materialistic tendencies for unnecessary luxury goods.

In terms of contributions the total federal collection revenue, VAT revenue at the time of inception in 1994 was anticipated to be much larger, indicating that Nigeria then may soon join the growing list of developing countries here VAT contributes at least 20% of total government re