An Evaluation of VAT Compliance Among Retailers in Lagos Markets: A Case Study of Balogun Market
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Background of the Study
Compliance with VAT regulations is essential for the success of any tax system, particularly in developing economies like Nigeria. Retailers in Lagos, especially in bustling markets such as Balogun Market, represent a critical segment of the informal economy that is often difficult to regulate. The informal nature of most businesses in these markets poses a significant challenge to VAT collection, as many retailers operate without proper documentation or registration. This noncompliance undermines revenue generation and hinders the government's ability to fund public services.
Balogun Market, one of the largest markets in Lagos, is a hub for various goods and services, attracting both local and international buyers. However, the lack of a structured approach to enforcing VAT compliance among its retailers has created gaps in the tax net. According to Okonjo-Iweala (2024), informal businesses contribute significantly to Nigeria’s GDP but remain largely untapped in terms of tax revenue. This raises concerns about the effectiveness of current compliance strategies and the potential for policy interventions to address these challenges.
The Finance Acts of 2019 and 2021 aimed to broaden the tax base by mandating registration for businesses earning above a certain threshold. Despite these efforts, the compliance rate among small-scale retailers remains low, with many citing factors such as inadequate awareness, complex tax processes, and distrust of the government. This study seeks to evaluate the factors influencing VAT compliance among retailers in Balogun Market and identify practical solutions to improve adherence.
Statement of the Problem
The persistent low VAT compliance rate among retailers in Lagos markets, particularly Balogun Market, poses a significant challenge to Nigeria's revenue mobilization efforts. While these retailers contribute to economic activity, their noncompliance with VAT regulations limits the government’s ability to collect adequate revenue. The problem is compounded by factors such as limited taxpayer education, lack of enforcement, and a perception of corruption within tax authorities.
Despite the introduction of digital platforms and sensitization campaigns by the FIRS, many retailers remain outside the VAT system. Research by Adeyemi et al. (2023) highlights that over 60% of small-scale retailers in Lagos markets are noncompliant due to a combination of ignorance, fear of penalties, and distrust of government intentions. This noncompliance has significant implications for revenue generation, fiscal policy effectiveness, and the equitable distribution of tax burdens.
Objectives of the Study
- To examine the level of VAT compliance among retailers in Balogun Market.
- To identify the factors influencing VAT compliance among these retailers.
- To propose strategies for improving VAT compliance in Lagos markets.
Research Questions
- What is the level of VAT compliance among retailers in Balogun Market?
- What factors influence VAT compliance among retailers in the market?
- What strategies can be implemented to improve VAT compliance in Lagos markets?
Research Hypotheses
- H0: VAT compliance among retailers in Balogun Market is not significantly low.
- H0: Factors such as taxpayer education and trust do not significantly influence VAT compliance among retailers.
- H0: Proposed strategies will not significantly improve VAT compliance in Lagos markets.
Scope and Limitations of the Study
This study is confined to the VAT compliance behaviors of retailers in Balogun Market, Lagos, between 2020 and 2025. It examines factors influencing compliance, such as education, enforcement, and trust in tax authorities. Limitations include potential reluctance of retailers to provide accurate information and challenges in accessing reliable data due to the informal nature of their operations.
Definitions of Terms
- VAT Compliance: The adherence to VAT regulations, including registration, filing, and remittance of taxes.
- Retailers: Business operators who sell goods and services directly to consumers.
- Balogun Market: A prominent market in Lagos, Nigeria, known for its extensive trade activities.
- Informal Economy: Economic activities that operate outside formal regulatory frameworks.
- Tax Enforcement: Measures taken by authorities to ensure compliance with tax laws.
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