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This research work aims at evaluating the role and significance of the Value Added Tax
(VAT) Act in Revenue Generation in Nigeria. This examines the role played by the Value
Added Tax as one of the source of government‟s revenue. It also assesses the fact whether
it has achieved the essence of its introduction. In this research doctrinal method of
research was adopted in discussing the subject matter. This work delved into the legal
framework of value added tax in Nigeria. The institutional structures for the
administration of Value Added Tax were analysed with the aim to assessing their efficacy
in revenue generation. It also took a cursory look at the assessment procedure of Value
Added Tax. It was discovered in the course of the research that the law in Nigeria on
VAT is faced with the problem of absolute tax practices, whereby taxes overlap, so that a
single transaction may be subjected to a series of taxes e.g VAT on imported goods and
Excise and Custom duty. The work found out that the punitive measures under the taxing
law is not for deterrence but aimed at extinguishing small scale enterprises. The work
recommended that the National Assembly should review the punishments in the Value
Added Tax Act to accommodate it basic reasons which are reformation and deterrence.
The punitive measures should aim at reforming the vatable persons to ensure voluntary
tax compliance than pushing them out of the business. This work shall be of immense
benefit to students of law, legal practitioners, legislators, academia and judges.
1.0 GENERAL INTRODUCTION
1.1 Background to the Study
Taxes are levied by government to raise revenue that will help in the administration of
government-such as paying salaries and allowances to civil servants. Revenue raised by
taxation enable the government to provide infrastructural facilities like schools, hospitals,
housing, roads, defence, law and order and other socio-economic and cultural facilities1.
According to Feyikemi Balogun, Ajumogobia and Okeke2, the issue of taxation is fast
gaining relevance in the Nigeria society in recent times as it has become a viable
alternative source of government revenue, a tool of social engineering and societal class
structural adjustment by the various tiers of government.
Nigeria introduced the Valued Added Tax Act in 19933 to impose and charge value added
tax on certain goods and services and to provide for the administration of the tax and
matters related thereto. Value Added Tax (VAT) was introduced by the Federal
Government of Nigeria in 1993 to replace Sales Tax. The aim was to increase the revenue
base of government and make funds available for developmental purposes that will
accelerate economic growth4. Propelled by the objectives of imposing tax government at
various levels device different methods of generating revenue in other to attain and
sustain its set objectives. The state governments in particular are looking inwards towards
taxation to augment the revenue received from the federation account to meet their ever
increasing capital and recurrent expenditure. If only the government will judiciously utilise the revenue generated from Value Added on goods and services the infrastructural
position of this country would have improved beyond what it is now.
1.2 Statement of the Research Problem
The tax system plays an important role in enhancing rapid development. Value Added
Tax is a consumption tax payable on the goods and services consumed by any person
whether government agencies, business organisations or individuals. The target of VAT is
consumption of goods and services…5 Among other the problems with respect to this
1. The law in Nigeria on VAT6 is faced with the problem of absolute tax practices,
whereby taxes overlap, so that a single transaction may be subjected to a series of
taxes e.g VAT on imported goods and excise and custom duty.
2. Also there are inherent inadequacies in some of the provisions of the Value Added
Tax Act7. By virtue of section 46 of the Act the term supplies is shrouded with
ambiguity, contrary to the general tax rules, and as such calls for a more apt
definition as to such ambiguities.
3. The structure for VAT administration leaves much to be desired. The Federal
Inland Revenue Service8 operates under the auspices of the ministry of finance
with attendant bureaucratic bottle neck of civil service; this is a clog in the wheel
4. The punitive measures under the taxing law should be for deterrence not
extinguishing small scale enterprises. By virtue of the provision of the Act9, tax
evaders are to pay fine or be imprisoned for a period of three years. Of concern
also is that the Act10 authorises the FIRS to seal up the premises from where
economic activity is carried on within the territory of Nigeria for failure to register
with the Board. These suggest a punishment which could hamper the development
of small scale businesses with the capability of incarcerating their productive
capacity if not folding the business.
With the problem of absolute tax practices which result to tax overlap, does the law
permit double taxation on a single transaction in the instant case the payment of VAT and
Custom duty on imported goods.
Would the ambiguity in the Value Added Tax Act as to definition of terms as against the
general tax rule not result to the loss of revenue by government and would the taxable
persons not leverage on it to avoid payment of tax.
If the premises where economic activity takes place are sealed up due to failure of
registration by the taxable person would that not defeat the essence of the law by slowing
down the development of small scale businesses from where the revenue is to be
1.3 Aim and Objectives of the Research
The aim of this research is:
a) To evaluate the general principles of the Value Added Tax law in Nigeria with the aim
of identifying the lacunae contained in the law and to proffer suggestions to remedy the
deficiencies identified towards a more robust revenue system.
The objectives of the research are as follows:
a) This research examines the effect of ambiguous definition such as the term supplies in
the VAT Act as against the general principle of taxation and consider whether such
definition is capable of causing loss in revenue generation.
b) The research also highlighted the practical problems associated with the effective
administration of VAT law in Nigeria. An attempt would be made to proffer pragmatic
methods of achieving total autonomy of the FIRS. The hope at the end of the day is that
VAT law in Nigeria will be more efficient in achieving the desired governmental and
c) This work critically analyse the punitive measures as enshrined in the VAT Act and the
consequences of such punishment on small scale business in Nigeria and also devising a
better way out.
1.4 Scope of the Research
This research work shall cover the taxation imposed and charged on the value-added to
goods and services as encapsulated under Value Added Tax Act, Cap V1 Laws of the
Federation of Nigeria, 2004. This work shall endeavour to discuss and highlight the5
various legal and administrative facets, economic and technical issues significant and
applicable to the operation of the Value Added Tax law in Nigeria.
The research also made recourse to related area such as the practice and procedure of Tax
Appeal Tribunal and its jurisdiction over VAT.
1.5 Research Methodology
The methodology adopted in this research is mainly desk based otherwise known as
doctrinal method of research. This research shall strictly be library based through the
thorough x-ray of the research materials. In this research, references are made to statutes
and case books which are the principal sources of materials. The secondary sources are
textbooks, articles, magazines, journals, newspapers and the internet. The relevant
assembled authorities are utilised to answer the research questions this work.
1.6 Literature Review
This research ventured into reviewing series of available literatures ranging from primary
to secondary among which are textbooks, statutes, casebooks, journals, newspapers and
According to Abdulrazaq, M. T.11 in his book titled Revenue Law and Practice in Nigeria
stated that “the yield from VAT is a fairly accurate measurement of the growth of an
economy since purchasing power (which determine yield) increase with economic
growth, VAT is a self-assessment tax that is paid when returns are being rendered”. The author succinctly discussed VAT in his book but did not discuss the impact of some of the
exemptions granted by the law. This work would vividly discuss some of the exemptions
and their consequential impact. The measurement of the economic growth is hinged on
the fact that VAT is a consumption tax charged on goods and services. To ensure proper
growth of the economy the law should compel all persons, irrespective of their status or
positions, to pay VAT.
In the work of Ola, C. S.12 Nigeria Income Tax Law and Practice, where he opined that
“Inland revenue division resembled a declawed footless pussycat if they are not
independent like the audit department. They should constitute an independent department
of their own to avoid political interference”. This was brilliantly analysed by the author
but did not looked at the attendant bureaucratic bottle necks of civil service. The research
will endeavour to consider the effect of bureaucratic bottle necks and the importance of
the independence of the tax authority such as FIRS for effective generation of revenue.
Abdulrazaq, M.T.13 in his book Principles and Practice of Nigeria Tax Planning and
Management, where he asserted that tax system determines the directions in which people
may become wealthy by determining the direction in which they may not. It is therefore,
impossible to regard taxes as merely a means of obtaining revenue; and Nigerian tax
offences and penalties, where he opined that fiscal offences should be met with fiscal
punishment in other not to incarcerate or stultify the productive capacity of tax evaders.
The author has eruditely elucidated the issue but did not specifically treat the effect of
imprisoning taxable persons or sealing up the premises of business and there is need to
proffer pragmatic solutions. This work would make effort to practically discuss the effect
of such punishments on small scale enterprises.