The Effect of Value-added Tax on Revenue Generation of Government
Objective of the study
The general objective of this study is to examine the impact of value-added tax on revenue generation in Lagos state from 1999 – 2019. While the specific objectives are:
- To determine the extent to which VAT affects revenue generation in Lagos state.
- to examine the perception of the VAT payers on Value Added Tax since the inception of VAT in Lagos state.
- To assess the impact of adequate accounting procedures on VAT efficiency.
Theory of taxation
According to Eftekhari, (2009) taxation has always been an issue for the government and taxpayers alike from the early years of civilization. The issue of taxation has generated a lot of controversy and severe political conflicts over time (Adebisi and Gbegi, 2013). According to its importance, several economic theories have been proposed to run an effective system. Taxes are generally classified under three different theories as given: ability to pay principle, benefit approach and equal distribution principle. However, in this paper is guided by the ability to pay principle‟‟.
As the name suggests, it says that the taxation should be levied according to an individual‟s ability to pay. It says that public expenditure should come from “him that hath” instead of “him that hath not”. The principle originated from the sixteenth century, the ability-to-pay principle was scientifically extended by the Swiss philosopher Jean Jacques Rousseau (1712-1778), the French political economist Jean- Baptiste Say (1767-1832) and the English economist John Stuart Mill (1806-1873). This is indeed the basis of „progressive tax,‟ as the tax rate increases by the increase of the taxable amount. This principle is indeed the most equitable tax system, and has been widely used in industrialized economics (Adebisi and Gbegi, 2013). The usual and most supported justification of ability to pay is on grounds of sacrifice. According to Adebisi and Gbegi, (2013) the payment of taxes is viewed as a deprivation to the taxpayer because he surrendered money to the government which he would have used for his own personal use. However, there is no solid approach for the measurement of the equity of sacrifice in this theory, as it can be measured in absolute, proportional or marginal terms. Thus, equal sacrifice can be measured as: (i) Each taxpayer surrenders the sane absolute degree of utility that s/he obtains from her/his income; (ii) Each sacrifice the same proportion of utility she/he obtains from her/his income; (iii) Each gives up the same utility for the last unit of income; respectively. The economists are not unanimous as to what should be the exact measure of a person‟s ability to pay. The main viewpoints advanced in this connection are as follows:
Ownership of property
Some economists are of opinion that ownership of the property is a very good basis of measuring one‟s ability to pay. This idea is out rightly rejected on the ground that if a person earns a large income but does not spend on buying any property, he will then escape taxation. On the other hand, if another person earning some income but buys property, he will be subjected to taxation.
Tax on the basis of expenditure
It is also asserted by some economists that ability to pay should be judged by the expenditure which a person incurs. The greater the expenditure the higher the should be the tax and vice versa. The viewpoint is unsound and unfair in every respect. A person having a large family to support has to spend more than a person having a small family. If we make expenditure as the test of one;s ability to pay , the fomer person who is already burdened with many dependents will have to pay more than the latter who has a small family. This is unjustifiable.
A research design is a procedure or process that guides the researcher in providing answers to research questions and meeting desired objectives. This study adopted descriptive research approach for the study the subject matter. This is a process where data are gathered through primary and secondary sources. Under this research design, data relating to the variables are collected at about the same time to basically describe the relationship between the variables under study.
Population of the Study
The population of this study covered Federal Inland Revenue Service (FIRS) headquarters in Abuja and its zonal office in Lagos Island region Ikoyi headquarters, Lagos Mainland region Ikeja headquarters,.
RESULT AND DISCUSSION
- Demographic Analysis
- Table 1
SUMMARY, CONCLUSION AND RECOMMENDATIONS.
The objective of this study was to examine the impact of VAT on revenue generation in Nigeria. Specifically, the study examined the perception of the VAT payers on Value Added Tax since inception of VAT in Lagos state, assess the impact of adequate accounting procedures on VAT efficiency and also investigated if VAT, and Company Tax jointly have significant impact on GDP. Data was collected with the aid of a structured questionnaire administered to two hundred and fifty eight (258) respondents randomly selected from different sector of economic. While secondary data was obtained from FIRS, CBN bulletined, and other relevant document. From the analysis of data performed using multiple regression analysis and Pearson Product Moment Correlation Coefficient, the relationship that VAT, and Company Tax had with economic growth was established.
Specifically, it was discovered that since inception of VAT in Lagos state there has been considerably high rate of acceptance and payment. It was also shown that adequate accounting procedure spurs VAT efficiency in the country. This implies that if adequate accounting procedure is maintain in high degree in the country, VAT efficiency will be on the increase. The study also revealed that VAT, Company Income Tax and Excise Duty were jointly and independently has significant impact on Revenue generation. This implies that the higher the Value Added Tax, Company Income Tax and Excise Duty the higher the Revenue generation.
On the basis of the findings of this study, it can be concluded that the level of VAT in Lagos state has influence on social welfare of the populace. This means that if government can maintain a good tax structure in the economic it has the potential of engendering increase in the dependence on external sources of budget financing. The study also found that VAT relatively contributed to revenue generation in the country.
Based on the research findings and conclusion, the following recommendations were made:
- That government should ensure to embrace strategies that will help to maintain adequacy of accounting procedure in the tax system in order to spur VAT efficiency.
- That government should increase the number of VAT agencies in the country to boost VAT
- That government should regulate the rise in the level of interest rate in the country in order not to provoke price instability in the
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