CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Value Added Tax (VAT) is a system of tax recently introduced in Nigeria, which is based on imposition, and charging 5 percent tax on certain goods and services imported or produced locally in Nigeria.  The idea of introducing Value Added Tax in Nigeria came from the report of the study groups set up by the Federal Government in 1991 to review the entire Tax System.

Value Added Tax was proposed and a committee was set up to carry out feasibility studies on its implementation.  In January 1993 government agreed to introduce Value Added Tax by the middle of the year and it was later shifted to 1st September, 1993.  Value Added Tax is a replacement of the existing sale’s Tax, which has been in operation under Federal Government Legislated Degree N0. 7 of 1986.

In some advanced countries of the world, this system of taxation had been in operation and its enormous benefits being harvested.  These countries are United States of America Britain, China and a host of others.  Nigeria on her own wants to take the bull by the horn by introducing value added tax like other benefiting countries earlier mentioned above despite all pitches that may appear to impede the good intentions of government to introduce and implement the system.

The value added tax system has been introduced and made to get its location offices in all the 36 states of the Federation and Abuja.  To ensure that the system works most effectively and efficiently so that the main purpose or goal for which the system was introduced is achieved, the then federal military government made a decree that backs its smooth take off.  The value Added Tax System has taken off in earnest and its application on various sectors of our economy in Nigeria and some states.

Especially Enugu, seems to be producing good and bad effects on the economy generally.

The good effect of value added tax include the reduction of the tax evasion, provision of incentives to exporters, reduction of government excessive dependence on the oil sector as well as enhancing the provision of social infrastructure.

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