Value Added Tax has become a major source of revenue in many developing countries. In Sub – Saharan Africa, for example, it has been introduced in Benin, Cote’ d’ Ivoire, Guinea, Madagascar, Mauritius, Niger, Senegal, Togo. Evidence suggests that in these countries, Value Added Tax has become an important contributor to total government tax revenues. This impressive performance of Value Added Tax in virtually all countries where it has been introduced clearly influenced the decision to introduce Value Added Tax in Nigeria in January 1994. Specifically, the Federal Inland Revenue Service pointed out that it is a consumption tax that is relatively easy to administer and difficult to evade and it has been embraced by many countries world – wide (FIRS, 1993: 4).
Value Added Tax is a tax on estimated market value added to a product or service at each stage of its manufacturing or distribution and the additions are ultimately added to the final consumer. End users of products and services bear the burden or the incidence because they cannot recover the tax paid on consumption of goods and services. On the other hand businesses can recover Value Added Tax they pay on goods and services because those goods and services are like intermediate goods and services. They use them to produce further goods and services that will be sold to other business in the supply chain or directly to final consumers.