An Examination of the Impact of VAT on Business Performance: Evidence from Retail Chains in Lagos
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Background of the Study
Value-Added Tax (VAT) is a significant revenue source for governments worldwide. In Nigeria, VAT serves as a consumption tax applied at various stages of production and distribution. Retail chains in Lagos, a commercial hub, are particularly affected by VAT policies due to their high transaction volumes and customer base.
While VAT contributes to government revenue, its impact on business performance is contentious. Proponents argue that VAT is a neutral tax, while critics highlight its potential to increase operational costs and reduce consumer spending (Adewuyi, 2023). Retail chains in Lagos face challenges in managing VAT compliance, passing costs to consumers, and maintaining profitability. This study examines how VAT influences their business performance.
Statement of the Problem
Despite its revenue-generating potential, VAT poses challenges for retail chains in Lagos. High VAT rates can discourage consumer spending, reduce sales revenue, and increase compliance burdens. The lack of clarity in VAT regulations further complicates tax administration, leading to inefficiencies and potential penalties.
Retail chains often struggle to balance VAT compliance with maintaining competitive pricing. Limited research exists on how VAT specifically affects the performance of retail businesses in Lagos, creating a need for empirical investigation (Oluwaseun, 2025).
Objectives of the Study
- To assess the impact of VAT on the sales revenue of retail chains in Lagos.
- To evaluate the challenges faced by retail businesses in complying with VAT regulations.
- To recommend strategies for optimizing VAT compliance while maintaining business performance.
Research Questions
- How does VAT affect the sales revenue of retail chains in Lagos?
- What challenges do retail businesses face in complying with VAT regulations?
- What strategies can optimize VAT compliance and enhance business performance?
Research Hypotheses
- VAT significantly affects the sales revenue of retail chains in Lagos.
- Retail businesses face substantial challenges in complying with VAT regulations.
- Effective strategies can optimize VAT compliance and improve business performance.
Scope and Limitations of the Study
The study focuses on retail chains in Lagos from 2023 to 2025, exploring the effects of VAT on their business performance. Limitations include access to specific financial data and variations in VAT enforcement across regions.
Definitions of Terms
- Value-Added Tax (VAT): A consumption tax levied on goods and services at each production and distribution stage.
- Compliance Burden: The administrative and financial costs associated with adhering to tax regulations.
- Sales Revenue: The income generated from goods and services sold by a business.
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