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This project work “The Analysis of the Impact of Value Added Tax in Revenue Generation in Nigeria (2000 – 2009)” was necessitated by the need to assess the performance of Value Added Tax and ascertain it impact on revenue generation in Nigeria.

It focused on the effect of VAT on vatable persons especially as it relates to the demand and sales of it product, its profitability, contribution to the total revenue generated by the Federal Government, the entire economy and finally a comparison of the observed effect relative to what the desired effect should be.Chapter one of this study will serve as introduction and other steps the research has adopted in the cause of carrying her investigation such are: background of the study, statement of problem, objective of the study, research question, hypotheses, scope, significance, limitation of the study and definition of terms.Chapter two reviewed some related literatures; the need is for the researcher to see the view of other writers on the topic under study. It made up of theoretical and empirical review of related literature.Chapter three deals on research design and methodology used in collecting data such as design, area of study, population of study etcChapter four treated presentation and analysis of data.Chapter five sees for summary of findings, conclusion and recommendation.



1.0   Introduction

1.1   Background of the Study

1.2   Statement of Problem

1.3   Objective of the Study

1.4   Research Questions

1.5   Hypothesis

1.6   Scope of the Study

1.7   Significance of the Study

1.8   Limitation of the Study

1.9   Definition of Terms



2.0   Review of Related Literature

2.1   Theoretical Review of Related Literature

2.1.1  History of Value Added Tax

2.1.2  Meaning and Reasons for VAT

2.1.3  Nature of Value Added Tax

2.1.4  Operation of Value Added Tax

2.1.5  Administration of VAT in Nigeria

2.1.6  Registration of VAT   VAT Registration Number VAT Returns and Remittance

2.1.7   Assessment of VAT

2.1.8  Type, Rate and Method of Calculation VAT  Types of VAT  Rates of VAT  Methods of Calculating VAT

2.1.9   VAT and other Form of Tax

2.1.10  Merits and Demerit of VAT  Merits of VAT  Demerits of VAT

2.1.11   Detailed List of Items and Services Exempted from VAT

2.2 Empirical Review Related Literature



3.0   Design and Method

3.1   Research Design

3.2   Area of Study

3.3  Population of Study

3.4  Sources of Data

3.5  Sampling Method

3.6  Research Instrumentation

3.7  Validity and Reliability of Research Instrument

3.8   Methods of Investigation



4.0   Presentation and Analysis of Data

4.1   Presentation and Analysis of Result

4.2   Test of Hypotheses


5.0   Summary of Finding, Conclusion and Recommendation

5.1   Summary of Findings

5.2   Conclusion

5.3   Recommendation


Appendix I

Appendix II




Prior to 1993, only very little was known of Value Added Tax (VAT) in Nigeria. The idea of VAT started with the acceptance of the recommendation of Dr Sylvester Ugoh led study group on Indirect Taxation in November 1991. The decision to accept the recommendation was made public in the 1992 Budget speech. (Okpe, 2001). In addition, according to Obianwuna (2005), the Federal Government set up two study groups in 1991, one was set up by the Federal Ministry of Finance and Economic Development to study and recommendation on the reform needed in direct taxes in Nigeria. The Federal Ministry of Budget and Planning set up the other group on indirect taxation. As the group recommended the introduction of VAT in Nigeria, this made the Federal Government to set up a committee who will carry out a feasibility study on its implication in Nigeria. This committee gave the general guideline for the establishment of a Value Added Tax in Nigeria and its administration was given to the Federal Inland Revenue Services, which was already charged with the responsibility of administering most other taxes in Nigeria.

The introduction of VAT in Nigeria through Decree 102 of 1993 makes the phasing out of the Sales Tax Decree No. 7 of 1986. The decree took effect from 1st December 1993 but by administration arrangement invoicing for the purpose did not commence until 1st January 1994, (Okpe 2004).

Value Added Tax (VAT) was introduced in Nigeria in 1993 at a flat rate of 5% on all the vatable goods and services. The rate was increased to 10% by the Federal Ministry of Finance with effect from May 2007. However, following a series of meeting between representatives of the Federal Government of Nigeria (FGW) and the Nigeria Labour Congress (NCE) / Trade Union Congress (TUC), the FGW revoked the increase in the VAT rate. The proceed of the VAT system are to be share in the following proportions: 20% and 80% for the Federal Government and State Government respectively. In the same vein, the state share from VAT proceeds was distributed according to the following; State of Origin 30%, Consumption/Destination 30% and Equality of State 40%. (FIRS 2008).

According to Okpe 2001, the introduction of VAT became necessary because government expenditure was steadily over-shooting revenue, resulting in the wide deficit financing. In addition, records show that between 1960 – 1971, income from indirect taxes in Nigeria constituted the single most important of government revenue. However, with the oil boom of the 1970’s, it contributions declined. It came down from 85% in 1970 to 12% and 13% in 1980 and 1990 respectively. The share of direct taxes rose from 23% in 1970 to 60% in 1980 but came to 45% in 1990.

Similarly, the revenue variable from oil and present non-oil source mainly taxes are not sufficient to meet public needs as expenditure continuous to rise because to pressing and economic needs.

Therefore, if government must have additional revenue to meet up with growing public expenditures, it can only come from taxes by increasing both individual and company taxes, which under the present circumstance is neither feasible nor advisable. Unfortunately, in Nigeria only a small proportion of the population mostly civil servants pay income tax because of tax evasion and the avoidance by a greater proportion of business class. So increasing it is not likely to increase government revenue significantly.

Therefore, a tax increase on a broad based consumption rather than income tax will be suitable as more people will be able to pay. VAT is a consumption tax, which is the broad based. All the essential goods and services were exempted to reduce its burden on the poor and it is relatively easier to pay because it is included in the selling price.

The government believes that the propensity to consume is higher than the propensity save and tax is therefore meant to influence the consumption habit of people and it is directed especially to high income earners.


Value Added Tax has been administered in Nigeria for many years now. The public (vatable persons and organisations) have expressed their dissatisfaction for the system. Even the issue of cost of administration has been seriously questioned. The researcher embarks on an in-depth study of its administration, assessment and implementation with particular reference to the cost of administration vis-a-vise the yield. This is meant to help the policy makers and government appraise substantially and ascertain how effective it is for the revenue generation. The researcher established the general impact of the tax on the overall economy especially as it affects the poor or low-income group. This will enable government to make some adjustments in policy formulations. Also, the researcher will find out how Value Added Tax (VAT) will achieve those things other related forms of taxation could not achieve.


The objectives of the study are:

i. To ascertain the effectiveness of the VAT personnel and machinery for assessment, administration and implementation of VAT in Nigeria.

ii. To find out the nature of the effect of VAT on vatable goods and services.

iii. To ascertain whether VAT is really burned to the Nigerian economy.

iv. To find out whether VAT contributes significantly to the total revenue generated by the Federal Government for economic development.


The following research questions were formulated by the researcher for the conduct of this project.

i. How effective are VAT personnel and machinery for assessment, administration and implementation of VAT in Nigeria?

ii. What are the nature of the effect of VAT on vatable goods and services?

v. How is nature of the effect of VAT on vatable goods and services?

iii. How is VAT a burden to the Nigerian economy?

iv. How significantly does VAT contribute to the total revenue generated by the Federal Government for economic development?


These hypotheses are formulated to enable the research test if VAT has any impact on revenue generation in Nigeria.

i. Ho:. The personnel and machinery for VAT are not effect in assessment, administration and implementation of VAT in Nigeria.

Hi: The personnel and machinery for VAT is effect in assessment, administration and implementation of VAT in Nigeria.

ii. Ho: Vat does not adversely affect the sales of company’s goods and services.

Hi: VAT adversely affects the sales of company’s goods and services.

iii. Ho: VAT is not really a burden to the Nigerian economy.

Hi: VAT is really a burden to the Nigerian economy.

iv. Ho: VAT does not contribute significantly to the total revenue generated by the Federal Government for economic development.

Hi: VAT contributes significantly to the total revenue generated by the Federal Government for economic development.


The study was carried out to study the analysis of the impact of Value Added Tax on revenue generation in Nigeria for the period of 2000 to 2009. The researcher inquired in the factors related to the success of VAT in Nigeria. The researcher in addition review other related tax systems and their impact in economic development, received substantially relevant literatures that related to the research.


The significance of this study can be viewed from two major standpoints;

1.7.1   Practical Significance

This kind of study will assist in broadening understanding of the following groups with the following reasons.

a. To Government: The result from this study is expected to enable the government of Nigeria to know the loophole7s that exist in the administration Value Added Tax (VAT) and to determine how effective and efficient the revenue generation machinery of VAT is and make appropriate adjustment where necessary.

b. Also to the government, the study will afford them the opportunity to assess people’s feeling about the tax system and its implementation.

c. To the taxpayer and administrators; the study is expected to be empirical material aimed at enlightening both the taxpayer and administrators on the objectives of Value Added Tax.

d. To the citizens of Nigeria; it will reveal to them the impact of VAT has had on the revenue generation in this country.

e. The study will reveal to the taxpayer the vatable goods and services and their rate.

f. The study will reveal to the taxpayer the basic types of VAT in Nigeria and how they are administered and the method of calculating VAT

1.7.2 Academic Significance

In the academic arena, this study will prove to be significant in the following ways.

a. It will contribute to the enrichment of the literature on Value Added Tax.

b. It will make the students and lectures to know the origin of VAT in Nigeria.

c. It will throw more light on how to analyse VAT and to relate VAT with other forms of Taxations.

d. It will serve as a resource material for further work on Value Added Tax or Taxation generally.

e. The study will serve as a body of reserved knowledge to refer to by researchers.


For the purpose of this research, the following terms should be understood as define here under.

i. Value Added Tax

A tax on supply of goods and service, which is eventually borne by the final consumer, but collected at each stage of production and distribution.

ii. Vatable Goods and Services

Any goods and service that is subject to VAT. There are 17 goods and 23 services are vatable.

iii. Vatable Persons

Any person/business and organization that is authorized to collect VAT and trades in vatable goods and services. The organizations collect VAT from customers and remit to VAT office.

iv. Taxable Period

This is the period within which VAT is collected and remitted. The taxable period in Nigeria is made before the 21st day of the following the month of collection.

v. Tax Invoice

The tax invoice is the authority to make claims on VAT. It is the invoice or receipt given to the purchaser of vatable goods or services.

vi. Chi-Square

This is statistical method used in testing the hypothesis concerning the deviation or difference between frequencies of a sample.

vii. Level of Confidence

The level or limit within which we are confident that the population mean tries is true.

viii. Degree of Freedom

This is the range within, which the hypothesis is to be tested.

ix FIRS – Federal Inland Revenue Services.

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