This study was on
the causes and effect of Tax Evasion and Avoidance on the economy (Board of
Internal Revenue in Abia State). The major objective of the study is to
identify the causes and effect of Tax Evasion and Avoidance in the state and
how it is done. It also the aim of the study to suggest ways of at least
minimizing this ugly incidence in the state, and the study sought the opinions
of the staff (Senior and Junior) of the organization. The population size of
the research work is 120 which includes the senior official and some staff of
inland revenue department of ministry of finance make up the sample frame. The
sources of this data was both primary and secondary source which includes
interview, questionnaire, textbook, internet search, newspaper etc. The
researcher uses simple percentage method in analyzing the data and the major
findings is that the imposition of high tax rate will drastically reduce the
level of income and profit on the part of the tax payer. From the findings, the
researcher, therefore recommends that government should find a way of checking
and balancing tax payments so as not to discourage tax payment on the part of
TABLE OF CONTENT
Title page i
Approval page ii
Table of content v
1.0 Introduction 1
of the study 1
of problems 6
of the research 7
of the study 9
of the study 10
of the study 11
of terms 12
2.1 Preamble/Introduction 16
2.3 Current literature based on theories/
models and research method 24
2.4 Summary of the literature review 27
Design of the study 29
of the study 30
of the study 30
of data collection 32
of instrument 33
3.7 Distribution and Retrieval of
3.8 Method of analysis 35
4.0 Data presentation and analysis 36
4.1 Data presentation and interpretation 36
4.2 Findings 45
4.3 Discussion of the findings 47
Conclusion and Recommendations 50
5.1 Summary of findings 50
5.2 Conclusion 52
5.3 Recommendations 54
5.4 Implication of the findings 56
5.5 Suggestion for further studies 56
Appendix A 59
Appendix B 60
OF THE STUDY
Tax is one o the main source of
Government Revenue. It is a strong social and economic tool of the government
in regulating the economy and maintaining health social like of the citizens.
Tax can be defined as a compulsory payment by individual and companies to the
state to enable her attain the National goals objectives. Tax is a non-punitive
but compulsory levy by the Government on properties and income of individuals
and corporations within the territory. The money raise there of constitutes
part of source of finance for general government expenditure in the economy.
According to Aguei (1983:276) tax is the transfer of resources from the private
to the public sector in order to accomplish some of the Nation’s Economic and
Social Goals. It is levy imposed by the government on the income profit or
wealth of an individual, partnership and corporate organization. Tax is
therefore the system whereby individual are assessed and the final collection
of the money for and on behalf of the government. It is a machinery through which
Income Earner is obliged to pay a fraction of his income to the government.
There are various type of Taxation which could be classed
under two main headings: direct and indirect tax. These two types of tax may be
distinguished in terms of the possibility of shifting the tax burden. However,
taxes according to Economist is classified whether the tax is proportional,
progressive or regressive. The importance of taxation in Nigeria arises out of
the important roles, which the government in the light of numerous imperfections
and short coming that often beset the economy has to play in order to ensure
greater economic development, transformation and growth. Other objective of
taxation include influencing economic activities in the country, to bridge the
gap between the rich and the poor, to curtail consumption of undesirable and
harmful goods and services to combat inflation, to encourage investment to
protect infant industries and as well as correct the country’s balance of
However, this phenomenon is not restricted to any part of
the world. In New Zealand, the loss of revenue resulting from tax evasion and
avoidance is a problem that has been described as “Reaching epidemic
proportions”. The unfortunate aspect of this phenomenon is that the rate of
this happening in the developing countries is always higher than what is
obtained in developed countries.
According to Onoginwa “Personal Income Tax Evasion is
generally over 50% in Nigeria compared to about 14% in U.K.” both rich and the
poor embrace this chronic problem in the state with literate population and
professionals in the state been the big avoiders. Whereas evaders can be found
among payer and trader, having carefully examined the above trend of events,
the researcher then decides to carry out evasion study to unmask the causes and
effect of tax evasion and avoidance on personal income of Board of Internal
Revenue in Abia State with a view of finding solution to them.
PROFILE OF BOARD OF INTERNAL REVENUE IN ABIA STATE
Taxation in Abia State is not quite different from of Nigeria
as a country but there are certain peculiar features in her profile so as to
give detail understanding of the state in her Revenue generating effort that we
have decided in the state.
Prior to 1st April 1959, the direct tax ordinance
Native Authorities assessed and collected income tax from Africans resident
within their area of jurisdiction Non-Africans were subjected to the Income Tax
ordinance operated by the federal government through its regional office.
With the Nigeria (constitution) order in council 1954 power
was given to each region or deriving income there from. Eastern region became
effective from 1st April year. This law brought pay-as-you-Earn (PAYE)
of tax collection in operation.
The Raisman Fiscal Commission also applied to eastern
region. To complete the Act, Eastern Nigeria passed the finance law 1963. This
law was to fill the gaps which the federal legislation could legislate on
example assessment appears machinery, the machinery for collection and the
rates of tax.
With the end of the civil war and the creation of three
states has produced new law. The South Eastern (Cross Rivers and Akwa-Ibom) and
the Eastern Central States. With the promulgation of South East State edict No.
6 of 1969, the Board of Internal Revenue was established as a statutory body to
take charge of tax amended the edict. Since then there has been certain
amendments of the state increase.
1.3 STATEMENT OF THE PROBLEM
Tax has been a powerful instrument of revenue generation in
Abia State of which tax evasion and avoidance are the major problem that
obstructs the maximum collecting of tax. Highly technical problems besieging the
Board of Internal Revenue in the state such as lack of encouragement by the
government to tax payer, poor tax administration, unforced penalties on the tax
defaulters which make tax law seemed to be useless and most importantly, logistics
and zeal to enforce tax payer.
Therefore inefficiency of taxation system in the state
deprive the government the ability to produce the citizen with the basic
necessities of life.
Since the problem has been identified, the researcher
considers it necessary to survey as much as possible to find solution for
solving these problems of tax evasion and avoidance in Abia state and Nigeria
OBJECTIVE OF THE STUDY
The broad objective of this study is to find out why people
evade and avoid tax and suggest ways of minimizing the practices in Abia State.
The broad objective is broken down to the following specific objective:
To establish the existence of tax evasion
and avoidance on the revenue generated in Abia State.
To examine relationship between tax rates,
tax evasion and tax avoidance.
To proffer solution to the problem of tax
evasion and avoidance.
To investigate why people evade and avoid tax.
To determine the effect of tax evasion and
avoidance on the revenue generated in Abia State.
In the course of this study, the following research
questions shall be examined:
Is the existence of loopholes in the
Nigerian tax law system an opportunity for tax avoidance?
Is there any effect of tax evasion and tax avoidance
on the Nigeria economy?
How can tax evasion and tax avoidance by
minimized and eliminate in Abia State?
THE SIGNIFICANCE OF THE STUDY
This work is importance in many respects. It is therefore,
intended that a successful completion of this project help in reducing and even
eliminates the problems associated with taxation. Therefore the significance of
this study are as follows:
It will help to inform the tax payers of the
numbers of benefits gained by paying tax.
The project will as well highlight on the
importance of high efficiency and effectiveness required of tax officials.
The study will also be of immense benefit
to the government by alerting them on the war against tax evasion and avoidance
and impose the necessary penalty on any offender.
The study will help to suggest ways of
removing inherent bottleneck in taxation.
Finally, the study is useful to individual,
tax authority and government in general.
SCOPE OF THE STUDY
The scope of this study covered the cause and effects of Tax
Evasion and Avoidance on the economy Tax Board of Internal Revenue in Abia
State and is of the view that this will bear good result.
LIMITATION OF THE STUDY
In a study of this nature, a lot of limitations are bound to
come-up, the work is limited by finance. The researcher needs to travel to
different local government headquarters, the state capital Umuahia for the
necessary data. This is money consuming hence might have hindered the
effectiveness of carrying out the research.
to the lack of the relevant books in the school library, the researcher had to
travel to many other institutions to gather the necessary textbooks, journals,
publications etc for the research work.
researcher faced the research problem of inadequate time.
I must confess that access to data collection was not an easy task. However,
the employees of the Board of Internal Revenue were very co-operative. The
problem I encountered in data collection was as a result of creation of new
Local Government Area.
Also all data
pertaining to revenue of the state since the creation of Abia State from Imo
State have disappeared.
The researcher was faced with problems of getting the actual information from
the public since they think it is revenue of assessing their liabilities. The
pretest set back of this research is the most of the interviewed official (Tax
Officials). The tax officials were afraid that the result of the research could
be used to expose their corrupt practices.
DEFINITIONS OF TERMS
Below are the meanings of the following concepts as applicable
to the study;
This is the process of ascertaining the amount of tax for which an individual
or company is liable to pay.
This is the process of receiving or gathering taxes from tax payer.
This refers to the failure to pay a tax obligating on the date it is due.
TAX DRIVE: This
means raid carried out by tax officials aimed at collecting tax revenue due to
government from tax payer.
TAX EVASION: This
is a willful and deliberate violation by a tax payer to escape a legal tax
obligation by failing to report a source of income or seeks to reduce his tax
liability by understating a source of income to the Tax Authority.
This is a situation by which a tax payer take advantage of the weakness or
loopholes in the tax system in order to pay less tax than he ought to have
These are allowance to a tax payer on his circumstance prevailing in the
preceding year of assessment such as personal allowance, children allowance,
relatives and dependent allowances etc.
TAX LIABILITY: This
is the total amount of tax an individual or company is supposed to pay.
TAX PAYABLE: It
is any amount of tax an individual should actually pay. It is also tax
liability less any tax credit or withholding tax.
This involves the assessment of self employed, e.g. trade, business, profession
AUTHORITY: This is the authority that could impose and collect on the income
of a taxable person for a year of assessment.
YEAR OF ASSESSMENT:
This is a period of twelve months commencing is 1st January to 31st
DIRECT TAX: These
are tax levied on factors of production. The burden of direct tax falls on the
This is the type of tax that is levied on goods and services. The burden of
indirect tax fall on the final consumer.