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The purpose of this study is to investigate the effect of Value Added Tax on the Nigerian economy as it relates to how it can improve government revenue and throws more light in its contribution to the economic growth and development of Nigeria. A review of literature relating to the impact, administration and collection of VAT in Nigeria was elucidated and questionnaires and oral interview were distributed.  A Simple percentage table presentation and chi-square were used to analyze and interpret on which random sampling techniques was adopted. The finding shows that:

  • VAT has economic impact on consumption patterns of Nigeria;
  • VAT has positive impact in Nigeria economy;
  • Payment of VAT has improved the prospects of business, organization and industries in Nigeria.

 A conclusion was drawn after the findings and the study strongly recommends that:

  1. There should be functional offices in every council area to coordinate a vigorous campaign to educate people and seek their cooperation.
  2. The above will no doubt erode the negative attitude that some of the tax payers have developed towards VAT.
  • Government should make adequate provisions, for retrieving the VAT proceeds from companies and other collection agents.

Key words: Value Added Tax (VAT)















Title page —————————————————————————–i

Dedication —————————————————————————ii

Certification ————————————————————————iii

Acknowledgement —————————————————————–iv

Abstract ——————————————————————————v

List of tables ————————————————————————vi

List of figures ———————————————————————-vii

List of appendix ——————————————————————–vi




  • Background of the study ———————————————————1
  • Statement of the problem ——————————————————-2
  • Objective of the study ———————————————————– 2
  • Research questions —————————————————————3
  • Research hypothesis ————————————————————–4
  • Scope of the study —————————————————————–4
  • Significance of the study ———————————————————4
  • Limitations of the study ———————————————————-5
  • Definitions of terms —————————————————————6



2.1     Value Added tax in Nigeria ——————————————————-8

2.2     Conceptual analysis of Value Added Tax ————————————–9

2.3     Nature and Administrative structure of Value Added Tax ————–10

2.4     Impact of Value Added Tax in Nigeria —————————————11

2.5     Functions of Federal Inland Revenue Service——————————-14

2.6    Aims of Value Added Tax in Nigeria ——————————————-15

2.7   Features of a good Value Added Tax system ——————————–15

2.8     Advantages and Disadvantages of VAT————————————–16

2.9     Registration of VAT in Nigeria ————————————————17

2.10   Remittance of VAT, Rate and Types of VAT ——————————–18

2.11   Accounting for VAT ————————————————————–20

2.12  Exempted and Zero rated items————————————————22

2.13   Taxable goods and services covered by VAT ——————————-22

2.14   Goods and services exempted from tax ————————————-24

2.15   Offence and penalties under VAT———————————————25



3.1     Introduction ————————————————————————27

3.2     Research design ——————————————————————-27

3.3     Population ————————————————————————–27

3.4     Sample size ————————————————————————27

3.5     Data collection techniques —————————————————–28

3.6     Data analysis techniques ——————————————————–28

3.7     Justification of the methods and techniques ——————————29





4.1     Introduction ————————————————————————30

4.2     Data presentation and analysis ———————————————–30

4.3    Test of Hypothesis —————————————————————–35

4.4    Discussion of findings ————————————————————42


5.1     Summary —————————————————————————-43

5.2    Conclusion —————————————————————————43

5.3 Recommendation——————————————————————–44

REFERENCES ————————————————————————–46

QUESTIONNAIRE ——————————————————————–49
















All economies, whether developed or developing require some degree of government intervention with a view to facilitating economic growth and development in their domains. This is particularly so as certain essential goods and services such as education, security, electricity, water and health facilities among others are mostly provided by the government. However, in providing these goods and services government has to source funds (revenue) from various sources including taxation, Ogundele (1996). New form of taxes are selectively being introduced particularly by the developing countries so as to boost their revenue earning capacity with the aim of ensuring rapid economic growth and development of their countries. The Value Added Tax (VAT) is one of such taxes recently initiated by governments to raise revenue for smooth government operations.

Value Added Tax (VAT) in Nigeria is a Federal Government tax, which is administered using the existing machinery of the Federal Inland Revenue Services (FIRS). VAT has a directorate within the frame work of the Federal Inland Revenue Services (FIRS) with the head office in Abuja.   VAT is a consumption tax at each stage of the consumption chain and is borne by final consumer. It requires a taxable person upon registering with the Federal Board of Inland Revenue to charge and collect VAT at a flat rate of 5% on all vatable goods and services. The registration of Value Added Tax (VAT) is to cover all the business activities of the vatable persons. Therefore all domestic manufacturers, wholesalers, distributors, importers and suppliers of goods and services in Nigeria are expected to register for VAT within six months after the commencement of the decree or six months from the commencement of business, whichever is earlier. Vat in Nigeria were created as replacement or substitution for the sales taxes that were in operation before. They were imposed on all goods that were manufactured in the country as well as goods that had been made outside the country and were selling there. Value Added Tax (VAT) seems to be the best among other types of taxes. It is against this background that we are going to analyze VAT and to see the impact it has on the nation‘s economy.



Value Added Tax has become important source of revenue to the Nigerian Government (both Federal and state level). The Federal government of Nigeria intends increasing percentage of VAT imposed on goods and services because of its relevance to income base and economic growth and development through a shift from direct tax regime to indirect tax regime anchored on consumption, in accordance with best global practice, to achieve stable non-oil revenue flow and to lower companies income and personal income tax.  But the citizens’ perceptions are different (such as: too much burden on the final consumers, inflation, and a rise in fuel pump price to mention). This popular opinion of majority of Nigerian citizens has made it pertinent to carry out a research to examine the impact of VAT on the economic development of Nigeria. Thus, there is need to understand with empirical facts the impact of VAT on the economic development of Nigeria from year 2000 to 2017.



The main objective of this study is to ascertain whether Value Added Tax has impact on economic development of Nigeria. Specific objectives include:

  1. To identify the effect of Value Added Tax on the Nigerian economy;
  2. To ascertain the influence of Value Added Tax on government capital expenditure;
  • To examine the impact of Value Added Tax on the prospective business, firms, organizations and industries in Nigeria;
  1. To identify the potential problems confronting the implementation and administration of value Added Tax in Nigeria.


In carrying out this research certain questions need to be answered and these questions are: As a follow up to the objectives of this study are the following research questions:

  1. Does Value Added Tax have any positive impact on the Nigerian economy?
  2. Does Value Added Tax have influence on government capital expenditure?
  3. To what extent has Value Added tax improve the performance of business firms, organizations and industries in Nigeria?
  4. Are there problems confronting the implementation and administration of Value Added Tax in Nigeria?


The researcher would like to test the following hypotheses, which would serve as a guide toward the realization of the aims and objectives of this research work, and is going to be in Null form:

Ho1:    Value Added Tax does not have positive impact on the Nigerian economy

Ho2:   Value Added Tax does not have any influence on government capital     expenditure

Ho3:   Payment of (VAT) has not improved the prospects of business, organizations and    industries in Nigeria.

Ho4:  There are no challenges confronting the implementation and administration of Value Added Tax in Nigeria


The research is particularly interested in the effect of Value Added Tax on Nigerian economy with reference to the Federal Inland Revenue Service (FIRS) Abuja. The data collected was restricted to FIRS, business registered and non-registered, consumers and wholesalers within Abuja, hence the findings of the study was generalized to cover VAT activities within Abuja.


This study will be of great importance to the government by highlighting the effect of VAT on the economic development of Nigeria. This study will also help in shaping and providing a better understanding to citizenries on how VAT is charged and its contribution to the economy. More so, it will help other researchers to carry out further research from this.


The researcher encountered a lot of hindrance and problems in the course of carrying out this research work. Among the major problems are the difficulties in getting and gathering information and others which include the following:

  1. FINANCE: Due to the nature of office and business within the scope, the researcher spends a lot of money on visiting, travelling from one location to another, from one office to the other and even had to repeat a visit more than three times to seek for information, all these involves money considering the financial constraint of the researcher and limited resources available to him.
  2. SOURCES OF INFORMATION: Many registered and non-registered business owners were reluctant to give out or provide information about the research, since they believe that tax payment is something very confidential and therefore could not open up to the researcher.
  3. INADEQUATE RECORD KEEPING: Some of the respondents visited were unable to present complete and comprehensive records of their business. While some were not keeping proper records of their business activities and as such could not give adequate and correct information on the effect of vat on their businesses rippling on the economy of Nigeria.
  4. TIME: Time constraint has been another vital limitation and obstacle towards effective realization of the main objectives of this study. Time was really not on my side since I have to combine the little time left with my academic work and preparation


  • Vatable Person (Registered Person): This refers to a manufacturer, wholesaler, an importer and a supplier of taxable goods and services. As a taxable person, he is a person registered under section 8 of the Decree.
  • Company: Company here as defined under the Companies and Allied Matter Decree 1990 and a cooperate body that may be formed under any other written law and include any association, whether incorporate in or outside the country (Nigeria).
  • Importer: This means a person who imports taxable goods
  • VAT: Value Added Tax
  • FIRS: Federal Inland Revenue Service
  • Invoice: This means any document issued as an evidence of demand for payment.
  • Manufacturer: Means any person who engages in the manufacturing of goods. It also includes a person who has manufactured for him or on his behalf by other goods made to his specification or design.
  • Manufacturing: Means the process by which a commodity is finally produced including assembling, packaging, bottling, repackaging, mixing, blending, grinding, cutting, bending, twisting and pining any other similar activity.
  • Tax Period: Means one calendar month commencing from beginning of the month to the end of that month etc.
  • IMF: International Monetary Fund, it is an international organization headquartered inWashington, D.C, of 189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
  • NBS: National Bureau of Statistics, it is in charge of statistics and economic accounting in Nigeria.










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