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1.1  Background to the study

Tax, the whole world over is a major source of revenue to the government. The major reason why government imposes tax is for the generation of revenue in support of government programmes and to enable it continues to perform the legitimate functions of the state. Tax is also used by government as a tool for income redistribution and economic regulation which also affect the customer standard of living both positively and negatively. For these reasons, government imposes various forms of taxes grouped under direct and indirect taxes. Value Added Tax (VAT) falls under the indirect types of tax. Value added tax is a consumption tax that has been embraced by many countries of the world.

Traditionally, incomes have been the major tax reforms by many countries in recent times and have led to the discovery of consumption as having potentials for higher yield and greater chances of success than income. Thus, emphasis has been shifted from income-based to consumption-based taxes in developed and developing economics.

Again, of all the consumption-based taxes such as custom and exercise duties, import and export duties, sales and purchase taxes, VAT is rated the highest in terms of yield and ease of administration. It was in realization of these great potential of VAT and mainly to increase the revenue profile of government that led to the introduction of VAT by the Nigerian government in 1993, through Decree 102 of 1993. This Decree actually took effect from January, 1994, value added tax was to replace the sales tax, which was already in existence by operated on a very narrow scale by state government.

Since its emergence on the Nigerian fiscal scene about ten years ago, VAT has witnessed some teething problems and scathing criticisms. For instance, Lagos state government has threatened to re-introduced sales tax against the letter and spirit of the VAT degree. This in a way is a protest to the failure of the VAT policy in achieving it objectives. Therefore, increase economic consequence on the general standard of living of individual and the nation at large. This research is therefore to investigate the effect of VAT in consumer standard of living.

1.2  Statement Of The Problem 

When VAT was introduced into the Nigerian fiscal system in 1993, it was vaunted as the panacea for all governments problems concerning revenue generation, especially from indirect taxation which has been experiencing very low yield in terms of revenue. Prior to this time VAT came with a promise that it was the main (and only) answer to all indirect taxes, and that the administration and management of VAT would ensure that completely obviates the need for sales tax.

   This VAT come on board with an expounded (tax) based and enhanced list of goods and services subject to tax under the VAT system. In recent times however, there have been widespread complaints and criticisms about the collection and the general administration of VAT in the country and also affect consumer’s standard of living in responses to consumption of goods and services.


1)  To ascertain whether value added tax (VAT) affect consumers standard of living in the economy.

2) To acknowledge whether there is any relationship between VAT and consumer standard of living.

3)  To know the reaction of consumer’s toward VAT.

4)  To identify the problems of VAT in the consumer’s standard of living since its implementation of the policy in the economic of the country.

5)  To make recommendation based on useful findings.


1)  Does value added tax affect consumer’s standard of living?

2)  Is there any relationship between VAT and consumer’s standard of living?

3)  Is there any problem associated from the consumer’s standard of living as a result of the implementation of VAT system in economy?

4)  Is there any re-action by consumers toward VAT?


H0: There is no significance relationship between VAT and consumer’s standard of living.

Hi: There is significance relationship between VAT and consumer’s standard of living.

1.6  Significance Of The Study

This study is significant in the following ways:

(i) It will explore the working dynamics of VAT and create awareness on operation of this novel tax.

(ii) VAT payers and the general public would be better informed on valuable and non-valuable products and services and how to take advantages of VAT inputs.

(iii)  The findings of this study would be useful in fiscal policy formulation.

(iv) It would educate the consumer’s on the usefulness of VAT in economic development.

(v) The study would also bridge the gap in knowledge about the value added tax and serve as a source of reference for further research on the subject.


  Although taxation is a national fiscal tool but the scope of this study is limited to value added tax (VAT), because of limited resources in carrying out, a wicter study. There is no intention to generalize that finding of this study, because of limited scope already explained. But it is hoped that the findings of the study among other things would in store further research work on this subject, this time on a larger scale than this. The limitation was lack of funds and times to carryout the study effectively.


The following terms in the study are conceptualized as follows:

VAT-VALUE ADDED TAX:  VAT is a tax on the supply of goods and services which is eventually borne by the final consumer but collected at each stage of the production and distribution chain; (Oyo, 2003).

SALES TAX: This is a single-stage tax levied at one of the stage of sales outlets to a consumer. Usually, the rate of the tax is simply applied to the selling price when the goods or services passed into the hands of the consumer; (Osita, 2004).

       It is often imposed on selected items of goods and service narrow base it was done in Nigeria between 1986 and 1993 before the value added tax (VAT) was introduced; (Okpe, 1998).

THE CONSUMPTION VAT: Under the consumption VAT, capital purchase equitant to expending. One advantage of this is that the tax burden from capital expenses is shifted to the consumer in full immediately, instead of being borne wholly or in part by the company; (Gany, 1993).

GROSS PROFIT VAT: Under the gross product VAT no deduction on VAT on input of capital purchase is allowed against the firm liability. Nigeria has adopted the gross product type of VAT as the input tax and purchase can be capitalized and capital allowances claimed the expected live span of the fixed asset.

ZERO RATING: When goods are zero rated, they are VAT system in fact, zero-rating means that such goods are taxed but at zero percentage. The firm can this claim credit from the input tax since the goods are taxes at zero percent; (Osita, 2004).

INCOME (VAT): Under the income VAT paid on purchase of capital inputs is amortized (i.e.) credit against the firm’s VAT liability over the expected lives of the capital inputs.

OUTPUT TAX: Output tax is the tax due on valuable supplies. It is derived by multiplying the tax value of the aggregate by the tax rate.

INPUT TAX: The input tax is what is charged on business purchases and expenses. This includes goods and services supplied in Nigeria or imported.

VAT RETURNS: A manufacture or supplies of valuable goods and services is render a return to the VAT  directorate on or before 4th day of month next following that in which the supplying was made.

VALUABLE PERSONS IN NIGERIA: Valuable person is one who trades in valuable goods and services for a consideration.

VAT INVOICES: When a person supplies valuable goods and services to other persons he must issue a tax invoice in support of the transaction and retain a copy of it for his records; (Adesole, 1998).

This material content is developed to serve as a GUIDE for students to conduct academic research

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