THE IMPACTS OF VALUE ADDED TAX ON REVENUE GENERATION IN NIGER STATE

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Background of the study

Prior to 1993, very little information on Nigeria's Value-Added Tax (VAT) was available to the public. The approval of a report made by a research committee on indirect taxation headed by Dr. Sylvester Ugoh in November 1991, which was led by Dr. Ugoh, was the impetus for the conception of VAT. In the speech that was given for the 1992 budget, the decision that was taken to adopt the advice was made public. (Okpe, 2016). Additionally, according to Obianwuna (2015), the Federal Government established two study groups in the year 1991. One of these study groups was established by the Federal Ministry of Finance and Economic Development to investigate and make recommendations regarding the necessary reform in regards to direct taxes in Nigeria. The other group focuses on indirect taxation, and it was established by the Federal Ministry of Budget and Planning. As a result of the group's recommendation to implement VAT in Nigeria, the Federal Government has established a committee that would carry out a feasibility assessment on the implications of such an implementation in Nigeria. This was done as a direct response to the group's recommendation. This committee provided the general guidelines for the establishment of a Value Added Tax in Nigeria, and the responsibility for administering the tax was given to the Federal Inland Revenue Services, which was already tasked with the responsibility of administering the vast majority of other taxes in Nigeria (Omeke, 2018). The Sales Tax Decree No. 7 of 1986 was gradually phased out due to the implementation of the Value-Added Tax in Nigeria that was mandated by Decree 102 of 1993.

The directive went into force on December 1st, 1993; but, due to a scheduling conflict with the administration, billing for the purpose did not begin until January 1st, 1994. (Okpe 2016). In 1993, Nigeria implemented a value-added tax (often known as VAT), which was set at a fixed rate of 5% and applied to all products and services that were taxable. The rate was raised to 10% by the Federal Ministry of Finance as of May 2007, when the increase went into effect. Nevertheless, the Federal Government of Nigeria (FGW) reversed its decision to raise the VAT rate after a number of meetings were held between members of the FGW and the Nigeria Labour Congress (NCE) / Trade Union Congress (TUC). The proceeds from the VAT system are going to be split between the state and federal governments in the following proportions: 20% goes to the federal government, and 80% goes to the state government. In the same spirit, the state's part of the revenues from the VAT was split as follows: 30% went to the state of origin, 30% went to the state of consumption or destination, and 40% went to equality within the state. (FIRS 2008). According to Okpe 2016, the implementation of VAT became essential due to the huge deficit finance that resulted from the fact that government expenditures were consistently exceeding revenue. In addition, according to the statistics, the income that was received through indirect taxes in Nigeria was the single most significant source of revenue for the government during the years of 1960 and 1971. Despite this, its contributions decreased during the oil boom that occurred in the 1970s. The number dropped from 85 percent in 1970 to 12 percent in 1980 and 13 percent in 1990, respectively. From 1970 to 1980, the proportion of revenue generated by direct taxes increased from 23% to 60%, but by 1990, it had fallen back down to 45%.

In a same vein, the revenue variable from oil and contemporary non-oil sources, principally taxes, are insufficient to cover public demands as expenditures continue to climb as a result of social and economic necessities. As a result, if the government needs extra revenue to keep up with expanding public spending, the only way to get it is to raise taxes, and doing so would require raising taxes on both individuals and businesses, which is neither realistic nor appropriate under the current circumstances (Patience, 2016). Due to the prevalence of tax evasion and avoidance among a larger segment of the business elite in Nigeria, only a tiny fraction of the population, which is mostly comprised of public workers, is required to pay income tax. Therefore, it is hardly expected that raising it will greatly increase the amount of revenue the government receives. Therefore, rather of raising taxes on individuals's incomes, it would be more appropriate to raise taxes on broad categories of consumption since more people would be able to afford to pay the higher rates. The most comprehensive kind of taxation is the value-added tax, sometimes known as VAT (Onyema, 2015). Because it is already included into the price of the item being sold, it is simpler for low-income people to make their payments, and the government exempted all of the necessary commodities and services from the tax. The government holds the belief that the tendency to spend money is greater than the tendency to save money. As a result, taxes are levied with the intention of modifying people's tax patterns, with a particular focus on those with high levels of income. In light of the aforementioned, the purpose of this research is to investigate how the value-added tax affects the amount of revenue brought in by the government of Niger State.

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