Effect Assessment of Value Added Tax (VAT) on Small and Medium Enterprises in Nigeria

Abstract

This study investigates the multi-faceted impact of Value Added Tax (VAT) on Small and Medium Enterprises (SMEs) within the Nigerian context, with a significant emphasis on both the revenue-generating advantages that it offers and the myriad challenges that it creates for the operational activities of these enterprises. As much as VAT is an important and essential source of income for the government, it must be noted that SMEs are confronted with excessive compliance expenses, complicated and laborious filing procedures, and the burden of multiple taxation systems. All these factors serve as significant obstacles that limit their growth prospects and create a threat to their overall financial sustainability in a competitive business environment. The study employs mixed-method research, analyzing secondary data and contrasting Nigeria's VAT regime with international best practices in the United Kingdom, New Zealand, and the European Union. The study finds that streamlining VAT processes, broadening the tax base, and leveraging digital tax administration can minimize SME tax burdens without compromising fiscal effectiveness. Policy recommendations include tax education programs, small business exemption programs, and gradual VAT modification to balance between revenue needs and economic feasibility. A VAT system that is streamlined to reduce the cost of compliance and enhance administration effectiveness can pave the way to a more SME-friendly environment and encourage business and national economic expansion.