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An important landmark in tax reform in Nigeria was the adoption of the value-added tax (VAT) through the VAT Act No. 102. Its implementation actually began in January 1994. Since its introduction, 15 of the 42 sections of the Act have been amended. Replacing sales tax, VAT was originally imposed on 17 categories of goods and 24 service categories. Such items as basic foods, medical and pharmaceutical products, books, newspapers and magazines, house rent, commercial vehicles and spare parts and services rendered by community and people’s banks, were VAT- free. The revenue generated from VAT was to be shared 20:80 between the federal and state governments; respectively. VAT is a tax on the amount expended by the final consumers of goods or services. It is collected whenever goods or services are transferred for value during the production or wholesale or retail processes respectively. Whenever a trader pays for any commodity liable to VAT, he must pay the supplier a price which includes the appropriate rate of VAT on the chargeable price. In turn, the trader when selling such item to his customers includes the charge on the taxable sales price (Ofurum and Ferry, 2009).

All business climate, whether developed or developing require some degree of government intervention with a view to facilitating economic growth and development in their domains. This is particularly so as certain essential goods and services such as education, security, electricity, water and health facilities among others are mostly provided by the government. However, in providing these goods and services government has to source funds (revenue) from various sources including taxation, Ogundele (1996). New form of taxes are selectively being introduced particularly by the developing countries so as to boost their revenue earning capacity with the aim of ensuring rapid economic growth and development of their countries. The Value Added Tax (VAT) is one of such taxes recently initiated by governments to raise revenue for smooth government operations.

Value Added Tax (VAT) in Nigeria is a Federal Government tax, which is administered using the existing machinery of the Federal Inland Revenue Services (FIRS). VAT has a directorate within the frame work of the Federal Inland Revenue Services (FIRS) with the head office in Abuja.   VAT is a consumption tax at each stage of the consumption chain and is borne by final consumer. It requires a taxable person upon registering with the Federal Board of Inland Revenue to charge and collect VAT at a flat rate of 5% on all vatable goods and services. The registration of Value Added Tax (VAT) is to cover all the business activities of the vatable persons. Therefore all domestic manufacturers, wholesalers, distributors, importers and suppliers of goods and services in Nigeria are expected to register for VAT within six months after the commencement of the decree or six months from the commencement of business, whichever is earlier. Vat in Nigeria were created as replacement or substitution for the sales taxes that were in operation before. They were imposed on all goods that were manufactured in the country as well as goods that had been made outside the country and were selling there. Value Added Tax (VAT) seems to be the best among other types of taxes. It is against this background that we are going to analyze VAT and to see the impact it has on the nation‘s economy.



Value Added Tax has become important source of revenue to the Nigerian Government (both Federal and state level). The Federal government of Nigeria intends increasing percentage of VAT imposed on goods and services because of its relevance to income base and economic growth and development through a shift from direct tax regime to indirect tax regime anchored on consumption, in accordance with best global practice, to achieve stable non-oil revenue flow and to lower companies income and personal income tax.  But the citizens’ perceptions are different (such as: too much burden on the final consumers, inflation, and a rise in fuel pump price to mention). This popular opinion of majority of Nigerian citizens has made it pertinent to carry out a research to examine the impact of VAT on the consumption goods of Nigeria. Thus, there is need to understand with empirical facts the impact of VAT on the consumption goods of Nigeria from year 2000 to 2017.



The main objective of this study is to ascertain whether Value Added Tax has impact on consumption goods of Nigeria. Specific objectives include:

  1. To determine the economic impact of value – Added tax on the consumption patterns of Nigeria.
  2. To assess the impact of value added tax on the Nigeria Economy.
  3. To examine the impact of value added tax on the prospective businesses, firms, organizations and industries in Nigeria
  4. To identity the potential problems confronting the implementation and administration of Vat in Nigeria


In carrying out this research certain questions need to be answered and these questions are: As a follow up to the objectives of this study are the following research questions:

  1. To what extent does value added tax impacted on the consumption patterns of Nigeria?


  1. Does Value Added Tax (VAT) have any positive impact on the Nigeria Economy?


  1. To what extent has VAT improved the performance of businesses, organizations and industries in Nigeria?


  1. Are there problems confronting the implementation and administration of VAT in Nigeria?


The researcher would like to test the following hypotheses, which would serve as a guide toward the realization of the aims and objectives of this research work, and is going to be in Null form:

Ho1: Value Added Tax (VAT) has no economic impact on the consumption patterns of Nigeria

Ho2: Value Added Tax (VAT) does not have positive impact on the Nigeria Economy.


Ho3: Payment of (VAT) has not improved the prospects of business, organizations and industries in Nigeria.

Ho4: There are no challenges confronting the implementation and administration of VAT in Nigeria.


The research is particularly interested in the effect of Value Added Tax on Nigerian business with reference to the Federal Inland Revenue Service (FIRS) Abuja. The data collected was restricted to FIRS, business registered and non-registered, consumers and wholesalers within Abuja, hence the findings of the study was generalized to cover VAT activities within Abuja.


This study will be of great importance to the government by highlighting the effect of VAT on the consumption goods 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 from this.


The researcher encountered a lot of hindrance and problems in the course of carrying out this research work. Among the major problems are the difficulties in getting and gathering information and others which include the following:

  1. FINANCE: Due to the nature of office and business within the scope, the researcher spends a lot of money on visiting, travelling from one location to another, from one office to the other and even had to repeat a visit more than three times to seek for information, all these involves money considering the financial constraint of the researcher and limited resources available to him.
  2. SOURCES OF INFORMATION: Many registered and non-registered business owners were reluctant to give out or provide information about the research, since they believe that tax payment is something very confidential and therefore could not open up to the researcher.
  3. INADEQUATE RECORD KEEPING: Some of the respondents visited were unable to present complete and comprehensive records of their business. While some were not keeping proper records of their business activities and as such could not give adequate and correct information on the effect of vat on their businesses rippling on the economy of Nigeria.
  4. TIME: Time constraint has been another vital limitation and obstacle towards effective realization of the main objectives of this study. Time was really not on my side since I have to combine the little time left with my academic work and preparation


  • Vatable Person (Registered Person): This refers to a manufacturer, wholesaler, an importer and a supplier of taxable goods and services. As a taxable person, he is a person registered under section 8 of the Decree.
  • Consumption goods: This is determined by the ability of a company to implement optimal organisation with the aim of offering a product or service that meets the expectations of consumers and customers.
  • Company: Company here as defined under the Companies and Allied Matter Decree 1990 and a cooperate body that may be formed under any other written law and include any association, whether incorporate in or outside the country (Nigeria).
  • Importer: This means a person who imports taxable goods
  • VAT: Value Added Tax
  • FIRS: Federal Inland Revenue Service
  • Invoice: This means any document issued as an evidence of demand for payment.
  • Manufacturer: Means any person who engages in the manufacturing of goods. It also includes a person who has manufactured for him or on his behalf by other goods made to his specification or design.
  • Manufacturing: Means the process by which a commodity is finally produced including assembling, packaging, bottling, repackaging, mixing, blending, grinding, cutting, bending, twisting and pining any other similar activity.
  • Tax Period: Means one calendar month commencing from beginning of the month to the end of that month etc.

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