Background to the Study

Value added tax (VAT) is a consumption tax that is being charged and embraced by many developed and developing countries which is relatively easy to administer and very difficult to evade. The economic development and growth of any nation depends on the government’s ability to generate adequate revenue in order to effectively provide various infrastructural facilities to satisfy the needs of the population. Chartered institute of taxation Nigeria (CITN) (2002) explained that the idea of introducing VAT in Nigeria came from the report of the study group set up by the federal government in 1991 to review the tax system in Nigeria, hence, VAT was proposed and a committee reviewed its implementation. Value added Tax Act 1993 was passed and thereby repealed sales Tax Act of 1986.

According to Federal Inland Revenue Service FIRS (1995) as cited by Bassey (2013), value Added Tax is a consumption tax payable on the goods and services consumed by any person whether government agencies, business organizations or individuals. The dynamic operating mechanism of VAT is very easy because the yield from VAT is an accurate measurement of the growth of an economy since purchasing power increases with economic growth. Although VAT is a multiple stage tax, it has a single effect and does not add more than the specified value to the consumer price no matter the number of stages at which the tax is paid (CITN, 2002). From the explanations, VAT is levied at each stage at which suppliers change hands. Example is the case of a manufacturing concern which manufacturers’ claims that will pass through the wholesaler to the retailer, it is ultimately borne by the customer who does not register for VAT purpose and is unable to reclaim it. Hence, the incidence falls on the final consumer of the chain.

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