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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY
The Nigerian economy is basically a mono-product driven economy. Crude oil has been its main stay since 1956 when it was discovered in commercial quantity in Oloibiri, in the present Bayelsa State. Revenue from petroleum profit tax is the most significant source of revenue of the Nigerian government, accounting for over 80% of government revenue and over 90% of its total foreign exchange earnings (Soyode & Kajola, 2006). Over the past half century, Nigeria has mostly depended on oil for its revenue source. This scenario is not good for the economy, as any misfortune in the petroleum sector will translate to calamity for the nation. This is worsened by the fact that crude is not a renewable energy source, which means it is possible to dry up at any time.
In a bid to diversify the sources of revenue for the country, the Federal Government set up a committee in 1991 to review the system of indirect taxes in the country, with a view to broadening it. This culminated in the introduction of the Value Added Tax, via the instrument of the Value Added Tax Act of 1993. This new tax, which became effective on January 1, 1994, replaced the former sales tax, which had a narrower base (Gyang, 2012). Moreover, VAT, as a form of indirect tax, is acclaimed to be easier and more convenient to collect than other direct taxes like income, profit, capital gains, etc taxes.
The intention of this study, therefore, is to establish what contributions the Value Added Tax (VAT) has made to the growth and development of the Nigerian economy. This is with the intention of seeking to establish if the VAT can be used by the government as a veritable alternative source of revenue that can foster development.
1.2 STATEMENT OF THE PROBLEM
The volatile nature of oil prices in the international market coupled with the security challenges in the country, with particular reference to the Niger Delta, which disrupts and sometimes makes production activities of the oil companies almost impossible is a matter of concern to all well meaning Nigerians. In addition to these, the drive by the world community, especially the United States of America, to develop an alternative source of energy for fuelling industry is an issue for worry for economies around the world that depend on oil exports to sustain themselves. The development of vehicles that do not use fossil fuel to run by the advanced countries, who constitute the bulk of the consumers of our oil, should alert us to start looking for alternative sources of revenue for national development in time.
The recent discovery of oil in such countries like Niger and Ghana, in commercial quantities, which hitherto had none of the precious commodity is also an indication that the world oil market will sooner or later become saturated and demand for petroleum products will drastically fall to unbearable extents for oil exporting countries.
In addition to the above, Basila (2010) complained that all levels of government have turned to the borrowing business, as a means of financing government expenditure. He argued that this makes VAT relevant as the scheme is designed for the benefit of the states and local governments.
Furthermore, Akintoye & Tashie (2013), in an effort at justifying their proposal for tax policy reforms put forward the following four arguments:
i. That there is a compelling need to diversify the revenue portfolio for the country in order to safeguard against the volatility of crude oil prices and to promote fiscal sustainability and income viability at lower tiers of government;
ii. Nigeria operates on a cash budget system, where proposals for expenditure are always anchored to revenue projections. This, they argued, facilitates determining the optimal tax rate for a given level of expenditure.
iii. Nigerian tax system is concentrated on petroleum and trade taxes while direct and broad-based indirect taxes like the value added tax (VAT) are neglected, and
iv. The widening fiscal deficit that over the years has threatened macroeconomic stability and prospects for economic growth makes the prospect of tax reform very appealing.
Given the foregoing scenario, this researcher is of the view that it is high time that the Nigerian Government began critically thinking of alternative ways of generating revenue to cater for the needs of the economy. This revenue means must, as a matter of fact, be viable and sustainable and not an ad-hoc approach.
VAT has come a long way in Nigeria. Its contribution to the revenue of the country has been rising and is becoming significant since it became effective in January 1994.
This study is, therefore, intended to investigate whether VAT has made any significant contribution to the development of the Nigerian economy. This is with a view to forming an opinion as to whether the VAT can become a veritable alternative source of revenue for the Government, in her search to diversifying her revenue sources in a viable and sustainable way.
From the foregoing, the problem of this research is to investigate into the effect of Value Added Tax (VAT) on economic growth and development in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The objective of this study is to
i. Establish the amount of VAT Revenue generated by the Government from 1994 to 2012.
ii. Evaluate the contribution of VAT to the revenue diversification drive of Nigeria from 1994 to 2012, as reflected in its contribution to Government Revenue during the period,
iii. Evaluate the contribution that VAT has made to economic growth of Nigeria from 1994 to 2012, and
iv. Evaluate the contribution that VAT has made to the economic development of Nigeria from 1994 to 2012, as reflected in its relationship with the Gross Domestic Product (GDP) of the country for the period.
1.4 RELEVANT RESEARCH QUESTIONS
Research questions, if answered, help in resolving the problem of the study. ICAN (2006) said they are logically derived from the problem statement and the objectives.
If at the end of this work the following questions are answered, it is hoped that they will help in resolving the problem of this research:
i. How much has Government been able to generate as VAT Revenue over the years 1994 to 2012?
ii. Has VAT made any significant contribution to Government Revenue (GR) in Nigerian from 1994 to 2012?
iii. Has VAT any significant relationship with the economic growth of Nigeria from 1994 to 2012?
iv. Has VAT any significant relationship with the Gross Domestic Product (GDP) of Nigerian from 1994 to 2012?
1.5 STATEMENT OF HYPOTHESES
A hypothesis is a tentative answer to a research question which may be proved or otherwise, after testing. It is a statement of logical guess, which reflects the possibility in the occurrence of an event under investigation. It offers solutions to the research questions. It also tries to establish a relationship or difference between the variables involved in the investigation. A hypothesis is subjected to statistical test so as to prove if it will be retained or rejected (ICAN, 2006). Kerlinger (1973) simply put it as “a conjectural statement of the relation between two or more variables”. Hypotheses are normally postulated to guide the conduct of a research.
ICAN (2006) gave the characteristics of hypothesis to include: (i) they must have direct bearing on the problems stated; (ii) they should state the relationship or difference between two or more variables; (iii) they should be clearly and unambiguously stated; (iv) they should be testable such that their implications can be deduced; (v) the guessed solution in a hypothesis should be reasonable such that it does not form an open conflict with studies that have been confirmed, validated and established.
To achieve the objectives of this study, the following hypothesis has been put forward:
HO: Value Added Tax does not have any significant statistical relationship with the economic growth and development (GDP) of Nigerian from 1994 to 2012.
HI: Value Added Tax has a significant statistical relationship with the economic growth and development (GDP) of Nigerian from 1994 to 2012.
1.6 SCOPE OF THE STUDY
This study shall cover the contributions of VAT to economic growth and development of Nigeria in terms of the Gross Domestic Product (GDP) for the years 1994 to 2012 only.
Growth in the GDP of a country is and index of economic development over time, which justifies its selection in this study. The years 1994 to 2012 are relevant to the study because they cover the years of the VAT experience in the country from its inception to date. This is hoped will give a picture of the manner in which VAT has contributed to national development in Nigeria.
1.7 LIMITATION OF THE STUDY
This work was limited by time constraint. This was because it was carried out at a time lectures in other subjects were still ongoing. The challenge of sourcing for data relevant to the research was also a constraint.
1.8 SIGNIFICANCE OF THE RESEARCH
Every research is carried out to fulfill some purposes. These represent the importance of the research. This significance of this study lies in the fact that it is hoped:
i. That its successful completion will partially meet the requirement for the award of the Bachelor of Science (B.Sc.) Degree in Accounting;
ii. To provide policy decision makers in Government with recommendations that would help in policy decision making relating to Value Added Tax (VAT), specifically, and taxation generally, in Nigeria as they strive towards diversifying the sources of revenue accruing to Government;
iii. To add to the body of already existing knowledge on the subject matter of the research; and
iv. To provide a source of reference for students and up-coming researchers in relation to the subject matter of the research.
1.9 DEFINITION OF UNFAMILIAR TERMS
The following terms have been used in this research with the meanings attached to them here.
i. Value Added
This is the amount of value added in the process of production of goods or the rendering of a service.
ii. Value Added Tax
This is the amount of tax charged on the value added to a product at each stage of the production process
iii. Economic Development
Economic development here means increase in the production of goods and services in a country over time which results in a better standard of living for the citizens. For the purpose of this study, economic development shall be measured in terms of Government Revenue (GR) and the Gross Domestic Product (GDP).

iv. Government Revenue
Government revenue refers to revenue generated (or collected) by all the three tires of government, the Federal, State and Local Governments in Nigeria.
v. Gross Domestic Product
This represents the total production of goods and services in Nigeria over the given time period, measured at the current basic prices.

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