CHAPTER ONE 

INTRODUCTION

Background Of The Study 

Taxation is an important factor in Economic planning and also an agent for social change. It is perhaps the last to understand and most unappreciated instrument among other government policies by the citizens, yet they expect government to provide some services. This must probably owing to the fact that most people, particularly in developing countries like Nigeria, have very little knowledge of how the machineries of government operate. Thus, the taxman is seen by an average Nigeria as a monster always ready to prey on its victims, or a plague that must be avoided at all cost. Benjamin Franklin, Philosopher, observed that “in this world nothing is certain but death and taxes.” The certainty of taxes have been established long in Nigeria. Before the arrival of the Colonial Masters, Nigeria had been paying taxes in kind by giving farm products to their rulers and rendering free services such as clearing the bush, digging pit toilets, well e.t.c., for the benefits of the community as a whole. Income tax was first introduced in Nigeria in 1904 by the Late Lord Lugard, various types of taxes there after come into being through subsequences government. Despite the fact that there are other sources government could generate revenue to fashion a society everyone can be proud of.Taxes are not new in Nigeria but Value Added Tax (VAT) is the most recent form of tax known to Nigerians. The idea of introducing VAT in Nigeria came from the report of the study groups set up the Federal Government in 1991, review the entire fan system VAT was proposed and a committee was set up by carrying out feasibility studies on its implementation. In January 1993, government agreed to introduce VAT by the middle of the year, it was later shifted to 1st September 1993, by which time the relevance legislature (Decree No 102 of 1993) would have been made and proper ground work done. VAT, which replaces sales tax in Nigeria, is administered by the Federal Inland Revenue Services (F.I.R.S) through VAT directorate in close co-operation with the Nigeria custom services (NcS) and the State Inland Revenue Services (S.I.R.S). The rationale behind replacing sales tax with the VAT is in formed by a number of factors and consideration notable:i. The base of sales tax in Nigeria s operate under Decree No 7 of narrow. It covers only nine categories of goods plus sales and services in Registered hotels, motels and similar establishments. The narrow base of the tax which negated the fundamental principles of consumption tax which by nature is expected to cut across all consumable goods and services, VAT base is border and included most professional services and banking transaction which are profit generating sectors. ii. Only locally manufacturer good were aimed by the sales tax Decree 1986, although this might not have been the intention of the law. Vat is neutral in this regard. Under VAT, a considerable part of the tax to be realised is form imported goods. This means that under the new VAT, locally manufactured goods will not be placed at a disadvantages relative to imports.iii. Since VAT is based in general consumption behaviour of the people, the expected high yield from it will boost from the payer of the tax. In the light of the foregoing, a seminar of this among the people to the effect that government derives the bulk revenue required for meeting its obligation to the people through taxation.