TABLE OF CONTENTS
CHAPTER
ONE
INTRODUCTION
1.1
Background to the Study
1.2
STATEMENT
OF RESEARCH PROBLEM
1.3 OBJECTIVES
OF THE STUDY
1.4 RESEARCH
QUESTIONS
1.5 HYPOTHESES
1.6 SIGNIFICANCE OF STUDY
1.6.1 Theoretical Significance
1.6.2 Practical Significance
1.6.3 Operational Significance
1.7 SCOPE
AND LIMITATION OF STUDY
1.8 SUMMARY OF RESEARCH METHODOLOGY
1.9 SOURCES OF DATA
1.10 OPERATIONAL DEFINITION OF TERM
CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION
2.1 History of Taxation in
Nigeria
2.2 Recent Tax Trend in
Nigeria
2.3 Tax
Morale
2.4 The Concept of Tax
Compliance
2.4.1 Taxpayers’ Typology
2.4.2 Factors Affecting Compliance
2.4.3 A Social Identity Approach in Understanding
Compliance
2.4.4 Perceived Representatives of Authorities
2.4.5 Social
Identity, Justice and Compliance
2.5 Attitudes
and Motivational Postures towards Tax.
2.6 Theoretical
Framework
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
3.1 Research Design
3.2 Population of
study
3.3 Sample Size and
Sampling Technique
3.4 Data Gathering
Method
3.4.1 Sources of Data
3.4.2 Instruments of Data
Collection
3.4.3 Description of
Questionnaire
3.4.4 Validity and
Reliability of Instrument
3.4.5 Administration of
Instruments
3.5 Methods of Data
Analysis
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND
DISCUSSION
4.0 Introduction
4.1 DATA
PRESENTATION (DEMOGRAPHIC, BACKGROUND
AND SOCIAL CULTURE ATTRIBUTES OF
RESPONDENTS
4.1.1 Demographic
and background characteristics of respondents.
4.1.5
Attitude towards legal system, government at
all levels, tax avoidance, Trust in fairness of tax officials and tax
administration
4.1.6. Tax Compliance
4.1.7 Attitude of taxpayer towards traditional
institution (Monarch)
4.2.1 Mean
comparison of tax morale according to exchanging or trading goods and services
with friends and neighbors
4.2.2: Mean Scores by Social norms
4.2.3: Mean Score
by Tax Evasion
4.3 DATA ANALYSIS - ADVANCE
4. 4 Hypotheses
Testing
CHAPTER FIVE
SUMMARY OF FINDINGS CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
5:1 summarizes
the theoretical findings;
5:2 presents
the empirical findings;
5:3 provides
the conclusion;
5:4 presents
the recommendations; while
5:5 is
all about suggestions for further study.
CHAPTER
ONE
INTRODUCTION
1.1 Background
to the Study
The
subject of taxation has received considerable intellectual and theoretical
attention in the literature. Taxation is one of the most volatile subjects in
governance both in the developing and developed nations. Tax refers to a
“compulsory levy by a public authority for which nothing is received directly
in return” (James and Nobes, 1992). According to Nightingale (2001), “a tax is
compulsory contribution, imposed by government, and while taxpayers may receive
nothing identifiable in return for their contribution, they nevertheless have
the benefit of living in a relatively educated, healthy and safe society”. She
further explains that taxation is part of the price to be paid for an organized
society and identified six reasons for taxation: provision of public goods,
redistribution of income and wealth, promotion of social and economic welfare, economic
stability and harmonization and regulation.
In other words, a tax is an imposed levy
by the government against the income, profits, property, wealth and consumption
of individuals and corporate organizations to enable government obtain the
required revenue to provide basic amenities, security and well-being of the
citizens. First detailed information about taxation can be found in Ancient
Egypt (Webber and Wildavsky, 1986). The Pharaohs appointed tax collectors
(called scribes) and paid them high salaries to reduce the incentives to enrich
themselves. Furthermore, scribes working in the field were controlled by a
group of special scribes from head office. Today, corruption of the tax agency
is still a problem, especially in developing countries
According to the traditional model of tax
compliance by Allingham and Sandmo (1972), taxpayers choose how much income to
report on their tax returns by solving a standard expected utility-maximization
problem that trade off the tax savings from underreporting true income against
the risk of audit and penalties for detected non compliance. In this framework,
both the threat of penalty and audit makes people pay their taxes (Allingham
and Sandmo, 1972).
Some preliminary tax morale research was
conducted during the 1960s by the Cologne School of Psychology, that tried to
narrow the bridge between economics and social psychology by emphasizing that
economic phenomena should not only be analyzed from the traditional
neoclassical point of view but also from social psychology perspective. In
particular, they saw tax morale as an important and integral attitude that was
related to tax noncompliance.
Tax
morale is defined as the “intrinsic motivation to pay taxes”. Torgler (2002)
and Fred (2003) stress its relevance to understand the high observed level of
compliance. Three key factors are important in understanding tax morale: they
are, moral rule and sentiments, fairness and the relationship between taxpayer
and government. According to James, Murphy and Reinhart (2005), tax laws cannot
cope with every eventuality and has to be supplemented with administrative
procedures and decisions and just as importantly, in order to work, it has to
have a reasonable degree of willing compliance on the part of the taxpayers
themselves.
Therefore, a more appropriate definition
of compliance could include the degree of willingness with tax laws and
administration that can be achieved without the immediate threat or actual
application of enforcement activity. Tax compliance may be viewed in terms of
tax avoidance and evasion. The two are
conventionally distinguished in terms of legality, with avoidance referring to legal
measures to reduce tax liability and evasion as illegal measures. Compliance might therefore be better defined in terms
of compliance with the spirit as well as the letter of the law (James, Murphy
and Reinhart 2005).
Nigeria is governed by a Federal system
and the government’s fiscal power is based on a three-tier tax structure
divided among the Federal, State, and Local governments, each of which has
different tax jurisdictions. The Nigerian tax system is lopsided. The federal
government controls all the major sources of revenue like import and excise
duties, mining rents and royalties, petroleum profit tax and company income
tax, value added tax among other revenue sources. State and local government
taxes are minimal, hence, this limits their ability to raise independent
revenue and so they depend solely on allocation from Federation Account.
In 1992, the government introduced self
assessment scheme, under which a taxpayer is expected to fill a tax assessment
form to determine his taxable income. Here, the intrinsic motivation to pay tax
(that is, tax morale) will determine the level of compliance with reporting
requirements. Which means that the taxpayer files all required tax returns at
the proper time and that the returns accurately report tax liability in
accordance with the law. The advent of democratic rule in 1999 has put greater
pressure on the three-tier of governments to generate enough revenue and meet
electoral promises in terms of provision of basic necessities and
infrastructure for the economic empowerment of the people. To achieve these
goals taxpayers must pay their taxes willingly as and when due. In other words,
a high tax morale is required from the taxpayer in order to achieve a high
degree of tax compliance.
Webley
et al. (1991), detect a positive relationship between government performance
and tax compliance But in spite of all the researches that have been done, more empirical work is needed
to confirm the existence of these relationships and to measure the strength of their influence
on tax compliance. This is particularly so, since tax compliance is of obvious
importance for most countries. This work aims to study tax compliance in
Nigeria, thereby supplementing empirical research on this important
international problem. This is therefore an opportunity to take a stroll
through theoretical and empirical findings in the tax morale literature,
focusing on Personal Income tax morale.
1.2 STATEMENT
OF RESEARCH PROBLEM
Low tax compliance is a matter of serious
concern in many developing countries. This
is because it limits the capacity of government to raise revenue for
developmental purposes (Torgler, 2003). This implies that the higher the
revenue, the more likely government will put in place developmental plans for
the enhancement of the living standard of the people. This is because when
people pay taxes more revenue accrues to the government. The major problem of
this research therefore, is to determine the effect of tax morale on the
taxpayer in compliance with tax policies of government as a useful avenue for
revenue generation.
The more modern approach
to tax compliance has benefited from many contributions from different
disciplines. There is a range of factors that might influence taxpayer’s
behavior. For instance, work in sociology has identified a number of relevant
variables such as age, gender, race and culture. The role of individuals in the
society and accepted norms of behavior have also shown to have a strong
influence (Wenzel, 2002). Also Polinsky and Shavell (2000), present a survey of
the economic theory of public enforcement of law, and emphasize the aspect of
social norms, that can be seen as a general alternative to law enforcement in
channeling individual behavior.
There are limits for a
government to increase compliance using traditional policies such as audits and
fines. Therefore, if the government can influence a norm, tax evasion can be
reduced by policy activities. Most researchers on tax compliance for example, (Torgler,
2003), (McBarnet, 2003) and (Murphy and Harris, 2007). focused their attention
on the Western World and some Asian countries. Socio-cultural factors are
important components in the lives of a people and given the deep-rooted and
pervasiveness of these in the Nigerian societies, there is a clear need for more empirical research on the
factors involved in the decision making
process regarding compliance, since a better understanding of these factors can
give birth to strategies that improve compliance. It is therefore, the focus of
this study to subject tax compliance to empirical analysis in the Nigerian
context.
1.3 OBJECTIVES OF THE
STUDY
The general objective of
this study is to determine the effect of Tax Morale on the taxpayer in
compliance with tax policies of government in Nigeria. In doing so, it seeks
to:
i Determine
the extent of tax morale on the tax payer and its effect on tax compliance.
ii Ascertain
the effect of trust in government on tax compliance.
iii Examine the effect of Nigerian Traditional
Institution on tax morale of tax payers.
iv Determine the effect of cultural norms on the
tax payers’ morale.
v Ascertain
the tax payer’s confidence in the legal system on tax morale.
1.4 RESEARCH
QUESTIONS
This study is an effort
at understanding the effect of tax morale on tax compliance in the Nigerian
context. Therefore, the study is hinged on the following questions;
i What is the effect of tax morale on
taxpayer’s compliance?
ii Will trust in government affect tax
compliance?
iii To what
extent has confidence in the legal system affect tax compliance?
iv What is
the relationship between Traditional Institution and tax morale?
v To what extent has social norms affect tax
morale?
1.5 HYPOTHESES
Hypotheses are
assumptions on which a researcher bases his investigation and on the basis of
which a confirmation of the assumed conditions are tested and validated. The
hypothesis on which this research study is based are stated in null form as
follows:
i
Hο; Tax Morale has no
significant effect on tax payer compliance.
ii
Ho; There is no significant relationship between trust in government
and tax compliance.
iii
Ho; There is no
significant relationship between the Nigerian Traditional Institution and tax
compliance.
iv
Ho; There is no
significant relationship between taxpayers cultural norms and the extent of their tax compliance
v Ho; There is no significant
relationship between the tax payers’ confidence in the legal system and tax compliance.
1.6 SIGNIFICANCE OF STUDY
1.6.1Theoretical Significance
The deterrence doctrine
can be traced back to the classical works of Jeremy Bentham and Cesare
(Murphy,2008). Their classical utility theory of crime is that people are
rational actors who behave in a manner
that will maximize their expected utility. Becker (1968) argued that
authorities needed to and appropriately balance between detection of
non-compliers and sanctions to the point where non-compliance becomes
irrational.
In the early 1970s, Alligham and Sandmo (1972)
extended Becker’s work on the economics of crime to the taxation context. They
examined taxpayers’ decision to evade taxes when they were
filling out their tax
returns and examined the relationship between penalty rate for tax evasion at
the time, the probability of detection, and degree of tax evasion engaged in.
What they found was that there was a relationship between these variables; with
a higher penalty rate and probability of detection deterring individuals from
evading their taxes. In the 1980s, therefore, many scholars began to question
the value of deterrence alone in regulating behavior. They began to focus their
attention on researching compliance rather than deterrence and began to realize
the importance of persuasion and cooperation as a regulatory tool for gaining
compliance. In fact, research has shown that the use of threat and legal
coercion, particularly when perceived as illegitimate, can produce negative
behavior; these actions are more likely to result in further non-compliance
(Murphy and Harris 2007), creative compliance (McBarnet 2003), criminal
behavior or opposition (Fehr and Rokenbach 2003).
According to Kagan and Scholz (1984),
unreasonable behavior like disrespect for citizens, arbitrary refusal to take
their concerns into consideration by regulators during enforcement generates
resistance to compliance. Tyler (2006) argues that if regulators are prepared
to first engage in dialogue and fair treatment with those they regulate, then,
this will serve to encourage support for the law. Most research works in this
area of study have focused on Western world and some Asian countries; therefore,
the significance of this study lies in the fact that it will provide a
framework for inter-state comparison between nations of the world. Moreover,
our findings and conclusion will form a basis for further research work.
1.6.2 Practical Significance
With the current effort at social and economic
development by Third World countries, a study like this is significant, as it
is capable of contributing to the present knowledge in the area of interaction
between socio-cultural factors and tax compliance, which may be in terms of
consequences for policy issues and development programmes.
1.6.3 Operational Significance
Tyler (1997) has
specifically shown that people value respective treatment by authorities and
view those authorities that treat them with respect as more entitled to be
obeyed. The operational significance of this study therefore, lies in the fact
that; tax authorities will tend to be more oriented towards seeking result,
through cooperation rather than by coercion alone, and prefer to see themselves
as service providers rather than as strict law enforcers.
1.7 SCOPE AND
LIMITATION OF STUDY
This study evaluates the
effect of tax morale on tax evasion, tax avoidance and tax compliance in
Nigeria. The study however, is limited to the study of organizations in the
public, private and informal sectors of the Nigerian economy. These
organizations are selected because they are duly registered with the Federal
Inland Revenue Service and the Lagos State Internal Revenue Service for Pay As You
Earn (PAYE). Also from the notes to their audited accounts, there has never
been any negative report regarding tax evasion or tax avoidance. The limitation
of this study, however, is in the area of methodological constraints in terms
of which type of analytical technique is most appropriate for the work. In
addition, because of funds and time constraint, the work is further limited to
the selected organizations.
1.8 SUMMARY OF RESEARCH METHODOLOGY
The study adopted survey
research design for data collection through standardized questionnaires
administered to respondents. The
population for this study comprised anybody of eighteen (18) years and above
who is in employment (both in the private and public) sectors of Nigerian
economy. Six organizations in the public, private and informal sectors formed
the sample size of this study. Furthermore, a total number of 100
questionnaires were administered in each of the six public and private
organizations. The nominal as well as the 7-point Likert Scale was employed in
the study.
The data collected allow
for measuring tax compliance as dependent variable and to search for factors
that shape tax morale. Survey provides a good source of information about tax
morale. The main advantage is that they include many socio-economic,
demographic and attitudinal variables, thus, in a multivariate analysis; we can
analyze what shape tax compliance using the multiple linear regression model.
But it should be noted that surveys can be biased if they do not cover a
representative share of the population. In other words, a high response rate is
required. The sensitive nature of compliance information might discourage
participation in such a survey, therefore, to reduce this problem, this study
covered a broad variety of questions on different topics. Furthermore, the way
we describe tax morale is less sensitive compared to a question asking whether
a person has evaded taxes or not. Hence, we expect a higher degree of honesty
in the answers to these questions.
1.9 SOURCES OF DATA
The study made use of
primary source for data collection through standardized questionnaire
administered to respondents and literatures. Questionnaire was administered to
the respondents because of its advantage. It enables vital information, which
cannot be obtained from written records to be at the disposal of the
researcher. This is because in a questionnaire, the respondent’s anonymity is
assured.
1.10 OPERATIONAL DEFINITION OF TERM
Tax; Tax is an imposed levy by the
government against the income, profit, property, wealth and consumption of
individuals and corporate organizations.
Tax Evasion; Tax evasion is a
deliberate act on the part of taxpayer not to pay tax due.
Tax Avoidance; Tax avoidance is a
way of identifying the loop-hole in the tax law and then taking advantage of
such a loop-hole to reduce the tax payable.
Tax Avoision; Tax avoision is a
situation where the tax law might be unclear, thereby, confusing taxpayer as to
the correct tax payable.
Tax Morale; Tax Morale is the
intrinsic motivation to pay tax.
Tax Compliance: Willingness
to pay taxes without threat or coercion
Social
Norms: A set of behavioural models and rules or standard of behaviour shared by members of a social
group.
Cultural
Norms: Are behavior
patterns that are typical of specific groups.
Legal System: A system for interpreting and enforcing the
laws
Tax
System: A legal system for assessing and collecting
taxes
Click “DOWNLOAD NOW” below to get the complete Projects
FOR QUICK HELP CHAT WITH US NOW!
+(234) 0814 780 1594
Login To Comment