Abstract
This paper discusses value added tax (VAT) administration in Nigeria and examines the relationship between irrecoverable invoices and VAT compliance. Twenty small and medium enterprises (SMEs) in the leasing, manufacturing and construction subsectors of the economy were sampled. Data were collected through a survey using questionnaire. Analyses were performed by means of descriptive statistics and Pearson product moment coefficient of correlation with the aid of statistical package for social sciences (SPSS). Findings indicate a statistically significantly moderate negative relationship between irrecoverable invoices and VAT compliance. The tax authority could use the findings to decide on the measures to adopt to achieve efficient VAT administration taking into consideration irrecoverable invoices. This study is of value for better comprehension of VAT administration, particularly by investors entering the Nigerian business environment for the first time. It also highlights irrecoverable invoices factor in enforcing VAT compliance in the context of SMEs.
Highlights
value added tax (VAT) has constituted a veritable source of revenue to the government since its inception in 1994 following the enactment of Decree No 102 of 1993, accounting for approximately 1.9% of Gross Domestic Product (GDP) in 2010 (FIRS, 2011)
The purpose of this paper is to identify the influence of irrecoverable invoices on VAT compliance by vatable persons
Irrecoverable invoices arising from credit transactions negatively impact VAT compliance
Summary
VAT has constituted a veritable source of revenue to the government since its inception in 1994 following the enactment of Decree No 102 of 1993, accounting for approximately 1.9% of Gross Domestic Product (GDP) in 2010 (FIRS, 2011). A further amendment was effected on 27th May 2007 as VAT (Amendment) Act, No. of 2007 This positive contribution of VAT to national income is applicable to other countries. Nations with high population and increased economic activities are likely to experience appreciable increase in VAT revenue since it is a consumption tax levied on “vatable” goods and services imported and produced in a country. This fact provides evidence that the burden of VAT is on the citizens, with low income earners at the highest receiving end. The taxpayer will resort to borrowing to ensure compliance and avoid penalties and prosecutions
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