THE IMPACT OF VALUE ADDED TAX ACT ON SMALL AND MEDIUM ENTERPRISES (SMES) IN NIGERIA: A CRITICAL ANALYSIS

Abstract

Despite its intended purpose of broadening the tax base and increasing government revenue, the Value Added Tax (VAT) in Nigeria which was introduced by the Value Added Tax Act of 2004 (as Amended) has posed significant challenges to Small and Medium Enterprises (SMEs), threatening their survival and hindering economic growth. This study investigates the impact of VAT on SMEs in Nigeria, with a focus on compliance costs, competitiveness, cash flow constraints, and regulatory challenges. Using a mixed-methods approach, this research reveals that VAT has increased the financial burden on SMEs, reduced their competitiveness, and constrained their cash flow. This study finds that the current VAT Legal regime is unfavorable to SMEs and recommends a review of the VAT rate, simplification of VAT regulations, and provision of support for SMEs to mitigate the negative impacts. The findings of this study have important implications for tax policy and SME development in Nigeria.