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1.1   Background of the study

Taxation is the central part of modern economic development. Their importance is not only due to the fact that it is by far the most important of all incomes, but also to the severity of the problems caused by the current high tax burden (Greene, 2011). The main objective of taxation is to generate revenue. In a welfare state, a large amount of tax is required to meet its obligations. According to Musgrave (2008), taxation is used as a means to achieve certain social goals, ie as a means of redistributing wealth and reducing inequalities. Taxation in a modern government is therefore not only necessary to generate the revenues needed to cope with the ever-increasing expenditure on administration and social services, but also to reduce income and wealth disparities. Taxation is also needed to withdraw money that would otherwise go into consumption and increase inflation.

In most countries around the world, the goal is to achieve rapid overall development through optimal tax collection and a broader income base. In order to achieve this goal, many countries of the world, especially developing countries, have selectively introduced new forms of taxation to boost their income opportunities in order to improve socio-economic conditions. their citizens and a rapid economic development. Countries (Iorun, 2012). One of these forms of taxation is value added tax (VAT), this impressive VAT performance in almost every country in which it was introduced. According to Ajakaiye (2000), he clearly influenced the decision to introduce VAT in Nigeria on 1 September 1993, although the actual transaction did not begin until 1 January 1994. VAT is a relatively simple excise tax to manage and difficult to avoid. adopted by many countries of the world (FIRS circular, 1999). To date, the evidence supports the view that VAT revenue is already a significant source of revenue in Nigeria and that VAT revenue is a fairly accurate measure of economic growth. A purchase that increases performance with the economy.

VAT is charged on the consumption of goods and services. This includes goods and services imported into the country. It is calculated throughout Nigeria at a fixed rate of five (5%). The 5% Exit Tax is calculated for all goods and services offered by a registered person and the tax burden is compensated by the end user (Ajakaiye, 2000). The broadening of the VAT base is leading to a sharp increase in federal revenue, indicating that the consumption patterns of the majority of Nigerians are increasing. The increase in consumption habits creates a market and has a positive effect on the economic activities of the country (Unegbu and Irefin, 2011). The study will examine the impact of VAT on Nigeria’s tax system.

1.2   Problem statement

Nigeria intends to increase the percentage of value added tax on goods and services due to its importance for income, economic growth and development by turning away from direct taxation a consumption based indirect taxation system in line with best practices worldwide, to achieve a stable flow of oil revenues and reduce corporate and income taxes. However, citizens have different ideas (including: too much burden on the end user, inflation and higher prices for fuel pumps). This view of the majority of Nigerian citizens made research on the impact of VAT on the Nigerian tax system relevant. It is therefore necessary to understand, on the basis of empirical facts, the impact of VAT on the Nigerian tax system.

1.3    Purpose of the study

The main objective of this study is to ascertain whether Value Added Tax has impact on tax system of nigeria. Specific objectives include:

i.  To ascertain the influence of Value Added Tax on tax collection.

ii.  To ascertain the influence of Value Added Tax on tax evasion.

iii.  To ascertain the influence of Value Added Tax on tax avoidance.

1.4 Significance of the study

This study will be of great importance to the government by highlighting the effect of VAT on the tax system of nigeria. This study will also help in shaping and providing a better understanding to citizenries on how VAT is charged and its contribution to the economy. More so, it will help other researchers to carry out further research on this subject area.

1.5   Study hypothesis

Ho1: Government tax collecction of Nigeria is not significantly influenced by Value Added Tax.

Ho2: Government tax evasion of Nigeria is not significantly influenced by Value Added Tax.

Ho3: Government tax aviodance of Nigeria is not significantly influenced by Value Added Tax.

1.6  Scope and Limitations of the Study

The scope of this study is to examine the impact of value added tax on Tax system of Nigeria using of revenue mobilization and fiscal allocation commission Abuja as case study. Limitation faced by the research was limited time and financial constraint

1.7   Definition of Basic terminologies

Value added Tax: Is an indirect form of taxation based on the general consumption behavior of the people. It is a tax on spending expected to be borne by the final consumer of goods and services. It covers manufactured goods, imports as well as professional and banking services.

Consumption Value Added Tax: Under the consumption VAT, capital purchases are treated the same way as input. It has some advantages, one of which is that it is easier to compute, as the firm does not have to separate expenditure on other items of purchases in determining the VAT base. The main disadvantage of this type of VAT is that it creates refined problems where very heavy and expensive machinery are involved.

Income Value Added Tax: With this type of VAT, the tax paid on purchases of capital inputs is amortized (that is credited against the firm’s VAT liability) over the expected lives of such capital inputs.

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