CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

        The importance of taxation lies in it’s  ability to generate revenue for government, influence the consumption pattern of the people, regulated the economy such as income, employment, purchasing power, prices and other parameters present in the economy. The basic philosophy of taxation is embedded in the reason for the existence of the government. To explain this, human beings are not self sufficient in the society and hence certain crucial collective services or public goods in a community such as defence, roads, justice, law and order, education and health facilities etc are provided by the government.

        In modern times, government has to provide these goods and services and as a result has to be financed. From economic literature, texture is the oldest instrument of financing the public sector. The citizens, in sacrificing their resources to the state, expect the government to reciprocate such gesture by expending public revenue tin such a manner that enhance the citizen’s welfare. This has prompted some scholars to relax this issue in the aspects; what was termed “the principle of taxation and the principle of expenditure”. Adedeji 91969, p.7).

1.2 STATEMENT OF PROBLEMS

        This study is primarily concerned with the problem of perennial dwindling government revenue and the place of VAT. The Nigerian tax system has been racked over the years by high incidence of fraud and has lacked transparency and accountability. These have deprived the government of accrued revenues. This loss of revenue by government have led to fiscal imbalances and continued poor tax administration before VAT in Nigeria. For instance, the period, 1970 to 1992 was characterized by fiscal deficits in government’s operations, thus implying that the budget for each of the successive years ended up in a deficit. This according to Akpakpan (1994:62) “Shows that the government has consistently pumping money into the economy ……. Where the government is trying to get the economy out of a depression, but given what we know about government spending in the country, it cannot be said that is was the objective.

        From the above, there is no doubt that the economy was depressed for the period 1970 to 1992. This is evident in the low profit level of directly productive outfits, low investment, low output an low sales among other things. We may say in practice therefore, that government revenue is unable to sufficiently cover its expenditure because of the following reasons: