ABSTRACT
This
research examine the impact of tax avoidance and evasion to the economic
development of a nation with reference to Abia State.
Survey
design was used and simple sampling random technique was employ in sampling
respondents from the population.
A
well structured questionnaire was used to collect data from respondents.
Fifty-Nine (59)questionnaires were administered to Tax authorities and Forty
(40) administered to Tax payers, making a total of Ninety-nine (99)
questionnaires administered and collected.
Data
gathered were presented on table in percentile. Three hypotheses were
formulated and tested with the use of Z-Test. The result of the analysis
resulted to reject the three null hypotheses and accepting the alternate
hypotheses and concluding that there is a significance difference between
expected tax revenue and the amount actually paid by those who evade and avoid
tax and that there is a significance difference between number of people who
are due to pay personal income tax and those that actually pay tax. Also, there
is a significance difference between numbers of Register enterprise and the
numbers of registered enterprises that pays tax in the country or state.
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1
Background of the Study
1.2
Statement of the Problem
1.3
Objective of the Study
1.4
Research Question
1.5
Statement of Hypotheses
1.6
Significant of the Study
1.7
Scope of the Study
1.8
Limitation of the Study
1.9 Definition
of Terms
CHAPTER TWO
REVIEW
OF RELATED LITERATURE
2.1 Introduction
2.2 What is
Taxation
2.3 Principles of
Taxation
2.4 Types of Tax
2.5 Brief
History of Tax in Nigeria
2.6 Tax
Administration in Nigeria
2.7 Tax
Legislation in Nigeria
2.8 Reasons for Imposition of Tax
2.9 Functions of Taxation
2.10 Effects of Taxation
2.11 Tax Avoidance and Evasion
2.12 Causes of Tax Avoidance and Evasion
2.13 Effect of Tax
Evasion and Tax Avoidance on the Economy
2.14 Method of Tax Avoidance and Evasion
2.15 Differences
between Tax Evasion and Tax Avoidance
CHAPTER
THREE
RESEARCH METHODOLOGY
3.1 Introduction
3.1 Research
Design
3.2 Source of Data
3.3 Data
Collection Technique
3.4 Area of Study
3.5 Population of the
Study
3.6 Sampling
Procedure and Sample Size Determination
3.7 Reliability
Test
3.8 Validity Test
3.9 Technique
for Data Analysis
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Data
Presentation and Result
4.2 Analysis of Questions
4.3 Test of
Hypotheses
CHAPTER FIVE
SUMMARY
OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendation
Bibliography
Appendix
CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Tax is a financial issue and its payment is a civil
duty. It is the imposition of a financial burden for the government on
individual firm and companies. In general based, the word tax means any
contribution imposed by the government upon individual and companies for the
use of government to provide facilities or services as rendered by the state.
It is not a voluntary payment or donation but an enforced contribution made on
the pronouncement or directive of legislative authorities.
Osita (2004:1) stated, taxation may
be define as the compulsory leave by the government through it’s various
agencies in the income, capital or consumption of it’s subject such as
salaries, business profits, interest, dividends, commission regularities, rent
etc.
It could be said that there are
three main methods of financial economic expedition open to meet developing
countries there are:-
(a)
LOANS
(b)
GRANT
(c)
TAX
AND OTHER CURRENT RECEIPT
Of these sources, tax is perhaps the most important
since the level of government expenditure is to a great extent dependent on the
ability of tax system to generate the required revenue at the disposal of the
government.
In spite of this benefit from tax most people still
indulge in tax evasion and avoidance. Attempt to avoid some portion of
liability or not to pay tax will affect the revenue of the government that is the reason why the government frown
at the issue of tax evasion and avoidance, and uses it’s authorities to enforce
compliance.
ARONOMOLE
and OLUWALAYODE (2006:39). Define tax avoidance as legal ways by which a tax
payer reduces in tax liabilities.
Tax evasion is a deliberate on the part of the tax
payers to reduce their tax liabilities through illegal means or an attempt not
to pay tax due.
The distinction between this tax avoidance and tax
evasion is that tax avoidance is not considered a criminal offence where as tax
evasion is a criminal offence.
According to ANYAELE (1990:225) a tax may be defined
as a compulsory contribution imposed by a government authority on goods,
individual and co-operate bodies irrespective of the exact amount of services
rendered to the tax payer in return and not imposed as a penalty for our legal
offence. Both direct and indirect taxes that are collected for the government
inform of income tax, exercise duty, import and export duties. Purchase and
sales taxes and so on help the government to generate a lot of revenue for the
smooth administration in the nation.
There are two elements in every form of taxation and
that is the BASE AND RATE. The tax base is the object which is taxed or a
measure of the private sector income or wealth that can be taxed, while the tax
rate is the percentage of the measured amount taken off from the tax base. In
this case the money realized from it is used to provide social goods and
services, so that everybody both the rich and poor will have equal chances of
making use of them, that is the goods and services. They include pipe borne
water, electricity, good roads, hospital, schools etc. most people in Nigeria
has the habit of evading or avoiding tax payment i.e. they always avoiding
paying their taxes. With this state of affairs the various tier of government
in the country don’t usually generate enough revenue which will enable them to
effectively execute all the development projects which are highlighted in their
budgets.
It has to be pointed out that the successive Nigeria
governments have not made adequate and sincere efforts toward informing the tax
dodger or evader on the need for them to pay the taxes. All attentions have
been directed on the revenue from oil sector while taxes and agriculture, which
supposed to be generating a lot of revenue to the country, are deliberately
over looked.
Also the researcher wants to look into the problems of
paying tax by the public, such problem are as follows
a)
Tax
evasion and tax avoidance by the public
b) Poor system of tax collection
c)
Inability
of the government to prosecute tax avoidance.
1.2
STATEMENT OF THE PROBLEM
It has been noted that tax system in Nigeria has come
to play a significant role, as a major
source of revenue to the federal government by way of imposing tax on
tax payers and it is for them to pay up the tax.
The act of evading and avoiding tax
by most registered companies and some individuals has however affected the
revenue base of the government especially in providing essential services in
the society. People naturally prefer to reduce their tax liabilities by
deliberately overstating their expenses and make false entries and fictions in
their books of account. Thus, their act however, causes tremendous reduction in
the revenue accruable to the government which eventually shrinks revenue to the
treasure of government.
The inability of the revenue board to collect
substantial amount of money from tax is as a result of evasion and avoidance of
tax. This research work examines the problems facing the revenue department in
collecting taxes and levies under their jurisdiction with a view to
indentifying possibilities at minimizing or even eradicating tax evasion and
avoidance.
1.3
OBJECTIVE OF THE STUDY
The objectives of this study are as
follow
1.
To
analyze the various causes of tax evasion and avoidance
2.
To
identify the factors or problems militating against the tax assessment and
collection in Nigeria.
3.
To
identify possible effects of the tax evasion and avoidance on the economic
development of the country and Abia state in particular.
4.
To
analyze the effectiveness and flaws of various tax in the country
5.
To
examine ways in which tax evasion and avoidance can be reduce with the new
reforms.
6.
To
examine tax reforms in Nigeria
1.4
RESEARCH QUESTION
For this research work to be effective it please the
researcher to ask the following question
1.
What
are the causes of tax evasion and avoidance
2.
What
are the factors or problems militating against the tax assessment and
collection in Nigeria?
3.
What
are the possible effects of tax evasion and avoidance economics development of
the country and Abia state in particular
4.
Are
tax laws in the country effective
5.
Have
new tax reforms reduce tax evasion and tax avoidance and tax avoidance in
Nigeria
6.
Do
the loopholes in the tax laws encourage tax evasion and tax avoidance in
Nigeria.
1.5 STATEMENT OF HYPOTHESES
To aid the research work the
following hypotheses has been postulated, the mill hypothesis is denoted by
“Ho” while the alternative hypotheses is denoted by “HI”
Hypothesis 1
H0:
There is no significance difference between the
expected tax revenue and the amount actually paid by those who evade and avoid
tax
HI: There
is a significance difference between expected tax revenue and the amount
actually paid by those who evade and avoid tax
Hypothesis 2
H0: There is no significance difference
between the number of people who are due
to pay personal income tax and those that actually pay tax
HI: There
is a significance difference between number of people who are due to pay
personal income tax and those that actually pay tax.
Hypothesis 3
H0: There
is a significance difference between numbers of register enterprise and the
numbers of registered enterprises that pays
tax in the country .
HI: There
is a significance difference between numbers of Register enterprise and the
numbers of registered enterprises that pays tax in the country or state
1.6
SIGNIFICANT OF THE STUDY
This research work would be relevant to various tax
authorities; the Federal Board of Inland Revenue, Local Government revenue
committee as well as their tax officials who are responsible to collect tax on
individual or corporate bodies. It gives them insight on how to improve the tax
administration.
The research would also help the professional bodies
like the chartered institute of taxation of Nigeria and the institute of
chartered accountants of Nigeria as well as their members to see the areas of
deficiency in the collections and call for improvement in tax revenue.
This research would also be relevant to the future
researchers and the dents of accounting, economic, business administration and
other social and management sciences as well as the legislations which will
also benefit immensely from this research because it will form basis of tax
policy formation, implementation and administration.
1.7 SCOPE OF THE STUDY
Since no single research can validly cover all areas
of the topic the researcher tends that thrust of this project will be limited
within the scope of how tax payers performance on tax are influenced by the
choice of its tax system. The study will focus primarily on Abia state to be
precise to enable the researcher carryout on extensive investigation on this
subject.
The state to be studied is: Abia
state.
1.8 LIMITATION
OF THE STUDY
It is not unusual for research to
encounter some difficulties in course at their research and these may include.
1.
FINANCE: This is always a major limitation in a study
of this nature, since the individual may not have enough money to carryout all
the necessary research.
2.
LACK OF DATA: There are areas where data is
available but which the researcher cannot lay hands on because the relevant
information is sometimes termed confidential and unavailable to outsiders.
3.
LACK OF CO-OPERATION:- By some of the respondents whom he
administered certain copies of his questionnaire and vocal
interview.
4.
Delay
in giving back its him some of the copies of the questionnaires for some of the
respondents.
1.9 DEFINITION OF TERMS
In order to aid understanding of
this research work by the user, special term used in this study are defined,
1.
TAX:This is a compulsory contribution
imposed by government on individual and corporate bodies for the use of
government to provide facilities or service in the nation.
2.
TAX
EVASION: This
is the attitude adopted by tax payers to deliberately misrepresent the true
state of their affairs to the tax authorities or include dishonest tax report
such as declaring less income, profit or
gains to escape tax liability (wholly or partially) by breaking the law.
3.
TAX
AVOIDANCE:
This is a legal way by which a tax payer reduces his tax liabilities.
4.
TAX
LIABILITY:This
is the amount that is borne by the tax payer
5.
PAYE(PAY
AS YOU EARN):This
type of tax is based as the earning of the tax payer.
6.
CAPITAL
GAIN TAX: This is the type of tax that is
based on the gain realized from the sale of capital goods.
7.
CORPORATE
TAX: This is
the type of tax that is based on the profit a company.
8.
CASINO
REVENUE:This
is the amount of the levy paid by people who operate at public being rent to
gambler or for other amusements.
9.
TAX
LAWS: These
are acts decree or regulations guiding the assessment and collection of taxes
in the country.
10. STATE INLAND REVENUE: The body responsible for the
collection of tax at state level.
11. FEDERAL INLAND REVENUE: The body responsible for the
collection of tax at federal level
12. REVENUE: Amount of money realized by an
individual or group or company
13. PERSONAL
INCOME TAX DECREE 1993:The
law guiding the assessment and collection of personal income tax
14. COMPANY
INCOME TAX ACT 1990:U The law regulating
the assessment and collection of tax of corporate bodies.
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