The introduction of tax came into Nigeria in 1904 by Lord Lugard.  The government has certain functions to perform for the benefits of those it governs.  The scope of this function will depend among other thing on the political and economic orientation of members of a particular society at a given point in time.  Thus among the traditional function of the government is the provision of collective or public goods that is goods that cannot be divided separate members of the society, but which must be used for the benefits of all and such goods and services includes the maintenance and order.  Defense against external aggression and internal subversion and the regulation of trade and the business to ensure growth and economic justice.

It is an important sacrifice we make towards the upliftment of ones country in the payment of tax losses incurred by government in recent time through tax evasion will continue to increase annually at an alarming rate prior to economic reconstruction, rehabilitation, development and deficit budgeting which the country is passing through.

Several reports in h dailies reveal that the federal government losses a huge sum of money yearly through tax evasion by the taxpayers coupled with the fraudulent practices of the tax officials.  However, tax evasion appears to be more rampart in the Nigerian taxation system.  There are various types of taxes, import duty is a tax levied on imported goods, export duty is a tax levied on export goods and excise duty is a tax levied on goods produced within a country.  Consumption tax generally is tax levied/imposed on consumers of certain goods and services, stamp justice, payable on legal documents, income tax levied on earned income i.e. pay as you earn.  

In Nigeria, very different goods luxury, normal etc are consumed.  Tax experts see consumption as the actual liability and as such the heed to shift the tax base from income tax to consumption tax.  However the federal government can be said to have perceived this fact which previously may have necessitated the introduction of sales tax in the Nigeria taxation system but of recent, the government sees sales tax as a narrow tax incapable of generating enough revenue, because it does not cover a lot of goods and services that are supposed to be taxed adequately.  All these problems move the federal government to initiate the introduction of value added tax system in Nigeria.  It found its way into the economic agenda of Nigeria in 1986, but was later sanctioned by Dr Chukwu Okongwu in 1991.  The system of value added tax has been in operation in some European Economic Community (EEC) Countries as far as the mid 50s.  It was introduced in France in 1954 and it spread rapidly to other Western Europe after its adoption by West Germany in 1968.  In 1991, however, the federal government in resolving to overhaul the Nigerian Tax System set up committees to review the entire Nigeria tax system to enhance its efficiency and to increase revenue yield.  The study group or indirect tax comes in with VAT, which appealed to the government and hence was acceptable to it.  The federal government therefore set up the modified value added tax committee to carry out a feasibility study on the implementation of the new tax in Nigeria.  The committee submitted its report with some modification, which government accepts and therefore agreed to introduce by the middle of 1993.  The VAT, which eventually took effect in Nigeria form 1st January 1994 replaced the sales which had been in operation under the federal decree of 1986.  According to the statement of standard accounting principles, SSAP No. 5 issued at the United Kingdom in April 1974, VAT is a tax on the supply of goods and services which is eventually borne by the final consumer.  It has a flat rate of 5% with zero rate for export as with sales but borders and include most professional and banking transaction which are in high profit generating sector.  

The need to replace sale tax with the Vat was predicted on a number of factors viz.

VAT essentially a self-assessment tax that is paid on the purchase of goods and services.  It has a refund of credit mechanism built in such that VAT is paid on purchase of goods (input tax) and recover back as output if the goods are for sale.  If in the course of the transaction, higher amount constitute the net VAT.  Conversely, if input tax is greater than output (which rarely occur), the difference is paid back to the vatable individuals.

In essence, it is the output at less the input that constitutes the VAT payable as output – input tax VAT payable as output – input tax VAT payable.  The VAT system in Nigeria is administered by the federal government by using the existing tax machinery of the federal Inland Revenue service (FIRS), which is centrally located in Abuja (Headquarter) with network of zonal and local VAT offices throughout the federation.  The administration is carried out on the close co-operation with the Nigeria custom service (NCS) and the State Internal Revenue Services (SERS) by the operation of VAR, there are seventeen (17) categories of goods and twenty-four (24) categories of  services that are vatable through item 7 in schedule 1 and then 24 in schedule 11 of VAT decree of 1990 accord a power to the Federal of Internal Revenue (FBIR) to include other items in the list.  As well as a good number of goods and services are exempted from VAT.

Several benefits to be derived from Value Added Tax system were enumerated by the federal government.  These are as follows:

It is worthy to note that no system no matter how well it is planned is without any setback.  The VAT system is invariably faced with a thousand and one obstacles to its effective implementation.  Hence the Federal Inland Revenue Service and the Nigeria customs are to be working hand in hand  (and) with State Internal Revenue Services to ensure efficiency in the operation of the VAT.

The federal government further explained that since VAT taxes are economic actives, it envisage to generate a lot of revenue for the government of which 20% of the realized revenue will be referred by the Federal Government to cover the cost of collection and the remaining 80% will be distributed among state governments in agreed formular apparently in return for scraping some of their taxes on companies.  The Federal Inland Revenue also expects that the revenue that will accrue from VAT will be much higher than the state government and individual that pay tax.  Several workshop are seminars to educate the producers, suppliers, consumers, tax officials and the general public on VAT system are in progress in the states of the federation.