This study intends to evaluate the causes, effects
and perpetration of tax evasion and avoidance and their economic and social
impacts. The twin devil (tax evasion and avoidance) are problems which seem to
have defied solutions and have bedeviled the Nigerian tax system ever since
independence which others put the blame on the Nigerian revenue authority for
not living up to expectations ever since the inception with regards to tax
administration. The broad objective of this study is to examine if tax evasion and avoidance have
significant effect on Nigeria as a nation. The primary source of data
collection was adopted in the study and the chi-square statistical tool was
used to test the stated hypotheses. The findings revealed that the practice of corrupt
officials has significant effect on citizens’ willingness to pay tax and also
the payment of tax enhances social amenities in Nigeria. The study recommended
amongst others that government should device a means to
educate and change their orientations regarding the collection of taxes.
TABLE OF CONTENTS
Table of Contents
Background to the Study
Statement of Problem
1.4 Objectives of the Study
Statement of Hypotheses
1.6 Significance of the Study
of the Study
Limitations of the Study
Definition of Terms
Two: Review of Related Literature
2.2 Objectives of Tax Policies
2.3 Types of Tax
2.4 Classification of Tax
2.5 Principles/Qualities of a Good Tax System
Effect of Tax Evasion and Avoidance in Nigeria
2.7 Objectives of Tax Policy Reforms
for Tackling the Ineffective Tax Administration in Nigeria
2.9 Advantages of Tax Payment
2.10 Comparison between Tax Avoidance and Tax
Method and Design
3.2 Research design
Description of the Population of the
3.4 Sample Size
Sources of Data Collection
Method of Data Presentation
3.8 Method of Data Analysis
Presentation, Analysis and Interpretation
Presentation of Data
4.3 Data Analysis
Chapter Five: Summary of Findings, Conclusion and
5.2 Summary of Findings
1.1 Background to the Study
Taxation is enforced by
the three tiers of government i.e. federal, state and local government with
each having its sphere clearly spelt out in the taxes and levies (approved list
for collection). Decree 1998 of importance at this juncture however are tax
regulations pertaining to investors both foreign and local. The importance of
tax regulations cannot be overemphasized as most transactions with any
ministry, department or government agency cannot be concluded without evidence
of tax clearance i.e. a tax clearance certificate certifying that all taxes due
for the three immediately preceding years of assessment have been settled in
Soyede and Kajola
(2006) defined tax evasion as a deliberate and willful practice of not
disclosing full taxable income in order to pay his tax. Tax evasion is evident
in situations where tax liability is fraudulently reduced or false claims are
filed on the revenue tax form. It is the outright or deliberate breaking of law
to minimize or not to pay tax at all. It is also described as effort outside
the law to minimize tax payments. It is the failure to disclose as correct
income that should be assessed either by misstatement of facts, falsification
of figures, filing incorrect returns or by misrepresentation of tax liability
through the employment of criminal or fraudulent means. Tax evasion involves
willful default and therefore a criminal offence.
Tax evasion and tax
avoidance are both ways of reducing tax burden of a tax payer. In essence, tax
evasion is illegal which tax evasion is not illegal under the ambience of the
law. Paying less tax or not at all that what one is legally obliged to is
described as tax evasion which tax avoidance is an act of doing everything
possible within the confines of the tax law to reduce the tax paid. Therefore,
the main difference between them is the legality of the taxpayer’s action.
Daniel (2011) on taxes,
also established that a mature U.S. business tax formal lately known this
issue; if an “avoidance” framework will depend on misrepresentation, lies and
concealment of the complete details, then prohibition is a misnomer. The
framework would be more effectively described as scams and would slip to be
treated as such.
Daniel (2011) stated
also that it is unattainable to demonstrate a specific analysis as to whether
individuals have prevented or merely mitigated their tax bills.
1.2 Statement of Problem
As a result of
instability of Nigeria economy, the Delta State board of internal revenue has
been taking series of actions to curb the practice of tax evasion and avoidance.
Tax evasion and avoidance in Nigeria is a serious limitation to the growth and
development of Nigeria economy. It is good to note that no form of tax can
succeed without the co-operation of tax payers. However, below are some
practices leading to tax evasion and avoidance in Nigeria; weak tax
administration system, high tax rates, no trust in the government,
mismanagement of tax proceeds, bribery and corruption, inadequate facilities
for tax assessment and lack of accountability.
1.3 Research Questions
In view to examine
critically the effect of tax evasion and avoidance in Nigeria economy, the
researcher deemed it necessary to formulate the following research questions
suitable for the testing of the hypothesis, these include;
i. Does the practice of corrupt tax officials
have significant effect on citizens’ willingness to pay tax?
ii. Does tax evasion and avoidance have
significant effect on Nigeria as a nation?
iii. Does the payment of tax enhance social
amenities in Nigeria?
iv. Does the citizens of Nigeria benefit from
v. Is tax evasion and avoidance punishable
of the Study
The broad objective of
this study is to ascertain the economic effect of tax evasion ad avoidance in
Nigeria. The following are the sub-objectives of the study;
i. To ascertain the significant relationship
between the practice of corrupt tax officials and citizens’ willingness to pay
ii. To examine if tax evasion and avoidance have
significant effect on Nigeria as a nation.
iii. To ascertain if the payment of tax enhances
social amenities in Nigeria.
iv. To ascertain if the citizens of Nigeria
benefit from tax payment.
v. To ascertain if tax evasion and avoidance
are punishable offences.
1.5 Statement of Hypothesis
The following are the hypotheses of the
HO: There is no significant relationship between
the practice of corrupt tax officials and citizens’ willingness to pay tax.
HI: There is significant relationship between the
practice of corrupt tax officials and citizens’ willingness to pay tax.
HO: Tax evasion and avoidance does not have significant
effect on Nigeria as a nation.
HI: Tax evasion and avoidance have significant
effect on Nigeria as a nation.
HO: Payment of tax does not enhance social
amenities in Nigeria
HI: Payment of tax enhances social amenities in
HO: Citizens of
Nigeria does not benefit from tax payment.
HI: Citizens of
Nigeria benefit from tax payment.
HO: Tax evasion and avoidance are not punishable
HI: Tax evasion and avoidance are punishable
1.6 Significance of the Study
This study is of great
importance in the following ways;
highlight the importance of tax payment in Nigeria.
ii. To educate the citizens of Nigeria on the
benefits of responding to tax payment in Nigeria.
emphasize on the punishment given to tax evasion.
iv. To expose some of the corrupt practices of
highlight on the recent tax reform in Nigeria.
vi. To evaluate the impact of tax evasion and
avoidance in Nigeria economy.
vii. To proffer solutions on tax accountability ad
viii. It will serves as basis for further research.
ix. It serves as literature to students studying
social sciences in higher institutions.
1.7 Scope of the Study
This study focuses on
the effects of tax evasion and avoidance in Nigeria economy. Delta state board
of internal revenue was used as a hub. The researcher could not cover other
states in the country as a result of some logistics involved.
1.9 Definition of Terms
proceeds: This is the money
obtained through tax collection.
Strong support and love for one’s country.
The state of a country terms of the production and consumption of goods and
services and the supply of money.
administration: The board responsible for tax management.
A means of evading a rule or contract.
The income received by an organization or by a state from tax.
tax: Is a levy on property that the owner is required to pay.
resistance: Is the refusal to pay a tax for conscientious reasons (because
the resistors do not want to support the government or some of its activities)
avoidance: The minimization of tax liability by lawful methods. Tax
avoidance is the reduction of tax liability by the tax payers through the
exercise of his legal right under the tax law to make the best use of available
relief, allowances and exemptions.
(Value Added Tax): This is a type
of consumption tax that is placed on a product whenever value is added at a
state of production ad at final sales; assessable at the rate of 5%.
(Personal Income Tax): This is a tax paid on ones personal income as
distinct from the tax paid on the firms earnings.
(Pay As You Earn): This is a tax payment method whereby an employee is
required by law to deduct the tax as soon as salaries are carried.
(Board of Internal Revenue): Board collecting money from citizens through
imposition of levies and taxes on facilities incomes and sales of goods.
(Capital Gain Tax): It is a type of tax levied on capital gains incurred by
individuals and corporations. It is assessable at 10%.
(Company Income Tax): This is a tax on
the accounting profits of a company. Its assessable at 30%.
(Petroleum Profit Tax): A direct tax levied annually on net profit of a
petroleum tax payer. It is assessable to that of the rate of 85% currently.
Tax: It was enacted on
1/2/1993 at the rate of 2%.
18. Tax Cut: This denote that government takes away less of
people’s own money so as to enable them spend more of the money in accordance
with their choices.
of tax: It is the process of
assessing an individual or corporate body in any particular year of assessment
to know the exact amount of tax to pay by the relevance tax authority.
tax: This is a tax payable by all companies not filling self assessment
returns within three (3) months of the tax year.
21. Notice of
assessment: This is the process of
communicating with the tax payer the total income, chargeable income, tax
payable and place of payment of tax.
audit and investigation: It is the process of examining the accounts and
record of a company in order to confirm that the information state in the
financial statements with respect to potential tax liability are correct.
planning: This is a conscious effort on the part of a potential tax payer
to organize his or her financial transactions in a way to legitimately minimize
his or her tax liability at every point in time.
24. SBIR: This
is responsible for the administration of personal income tax in charge of the
25. FBIR: This is also referred to as the “board”, it give
rise to the intervention of special investigation where there has been fraud or
concealment of relevant information. They are in charge of the entire country.
This is the tax imposed on the commodity traded across the boarder.
tax: It means tax or income. It may be personal income or company income
list: These are list of all companies assessed to tax. They are kept by the
assessment: This is the first assessment raised on a taxpayer in a
particular year of assessment.
of taxes: They are under the control of the board who receive returns and
other information from tax payers and other sources and track down tax evasion.
They also act as advisers to taxpayers.
default: Is a situation where a
taxpayer refuses for one reason or the other to pay his assessed tax in full.