THE EFFECT OF VALUE ADDED TAX (VAT) ON THE PROFIT MARGIN OF FINANCIAL INSTITUTIONS ( A CASE STUDY OF FINANCIAL INSTITUTIONS IN BAUCHI METROPOLIS

ABSTRACT This study examines the effect of value added tax (vat) on the profit margin of financial institutions ( a case study of financial institutions in bauchi metropolis). The research focused on identifying the extent to which VAT influences operational costs, pricing strategies, and overall financial performance of banks and other financial service providers. Using a structured questionnaire, primary data were collected from 109 respondents selected through a stratified sampling technique. The data were analyzed using descriptive statistics and regression analysis through SPSS version 26. Findings from the study reveal that VAT has a significant negative impact on profitability. Increased VAT obligations raise the cost of service delivery, which in turn affects pricing decisions and reduces net income for financial institutions. Additionally, the study discovered that many financial institutions in Bauchi lack adequate tax planning mechanisms, which leads to compliance challenges and tax-related penalties that further reduce profits. The study concludes that the implementation of VAT, though vital for national revenue generation, poses serious implications for financial service providers operating in competitive and cost-sensitive environments. It recommends that tax policies should be restructured to consider the unique nature of financial institutions and that tax education and awareness should be intensified across the sector. This research contributes to the literature on taxation and financial management by highlighting the localized effects of VAT on profitability and offering policy suggestions aimed at fostering both fiscal responsibility and institutional sustainability.