Effects of Tax Evasion and Avoidance on the Economy of Nigeria
Chapter One
OBJECTIVES OF THE STUDY
The general objective of this study is to assess the effect of Tax evasion and avoidance on the Nigerian economy, its role in expanding the revenue base of the government and the overall economic development of the country.
Therefore, the objective of this study is to show:
- To examine how effective the tax administration machinery is, in reducing tax evasion and avoidance
- To determine to what extent tax evasion and avoidance affect government revenue especially in Lagos State.
- To know the extent to which tax evasion and avoidance affect Nigeria economy
- To examines how the problem of evasion and avoidance in Nigeria could be solved.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
The study aims at establishing the effect of tax evasion and tax avoidance on the development of the Nigerian economy. This chapter presents a theoretical review, which elucidates on the major theories that throw some light on this study and then presents a theoretical framework based on the theoretical review. Lastly, it presents an elaborate examination of the extent studies that relate to the research in a detailed manner.
CONCEPTUAL REVIEW
TAXATION
Tax is a notion of imposing a compulsory levy on citizens, which they must pay (ojo, 2008). It is a compulsory financial charge or some other type of levy on a taxpayer (an individual or legal entity by a governmental organization in order to fund government spending and various public expenditures (regional, Local, or national,) (Wikipedia). Tax revenues finance government activities, including public works and services such as roads and schools, or programs such as social security and Medicare.
From diverse definitions of tax from scholars and different researchers, the nature of tax of tax is noted as being compulsive and not just paying the government in return for a service. In the context of this study, we define tax as the legal means of deducting and collecting a fixed amount of money from the income of individuals by a government not as a form of punishment but for the good of both government and individuals.
TAX EVASION
Tax evasion internationally known as tax gap is an illegal act against the tax system. A person may have claimed to earn less from his business than is actually the case or simply fail to tell the revenue authorities on certain assets and income (Webley, Robben, Elffers & Hessing, 1991). This is the deliberate refusal to pay tax or the underpayment of tax. Tax evasion has been interpreted to mean an illegal practice where a person, organisation or corporation deliberately evades paying their authentic tax liability. Tax evasion can alternatively be defined as a wilful practice of not declaring full taxable income in order to pay tax at a reduced rate. It is an intentional violation of tax laws and is evident in instances where tax liability is fraudulently reduced. This is one of the problems plaguing the economic growth and development in Nigeria.
Tax evasion involves intentional misrepresentation of one’s true financial status to the tax authorities so as to reduce his/her tax liability. Examples of tax evasion include;
False declaration of income, profits or gains actually earned.
Deductions one is entitled to.
Failure to render tax returns to the Relevant Tax Authority.
TAX AVOIDANCE
Tax Avoidance is not illegal, it is often done by witty taxable persons or entities who minimise taxable incomes by taking advantage of the loopholes in the tax laws. It is the lawful means of altering a person’s taxable income in order to reduce the amount of tax owed. It is usually achieved by claiming tax deductions and credit. Tax avoidance involves sound financial planning techniques that will eventually lead to maximum exemption from Tax, e.g. Capital Gain Tax. It has been defined as “a lawful trick towards the circumvention of tax payment.”
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine effects of tax evasion and avoidance on economy of Nigeria. Federal inland revenue service in Lagos form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to an effects of tax evasion and avoidance on economy of Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing challenges of effects of tax evasion and avoidance on economy of Nigeria.
Summary
This study was on aneffects of tax evasion and avoidance on economy of Nigeria. Four objectives were raised which included: To examine how effective the tax administration machinery is, in reducing tax evasion and avoidance, to determine to what extent tax evasion and avoidance affect government revenue especially in Lagos State, to know the extent to which tax evasion and avoidance affect Nigeria economy and to examines how the problem of evasion and avoidance in Nigeria could be solved. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from federal inland revenue service in Lagos state. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
Tax evasion and tax avoidance in this country, especially Abuja has been a serious problem to the revenue profit of the government to be very low and hence it earn be easily execute. It is not known how much tax lost by “artificial” as opposed or “legitimate” tax avoidance scheme or tax evasion there is little direct evidence that avoidance lead to evasion although the resentment that comes from watching others same tax may cause a decline in tax payer morality.
A proposition which leads to an examination of the tax base and of those item of income tax altogether just as much as those who escape tax through artificial devices causes more increase in the burden on other tax payer. It would be unities to leave this problem without nothing, the commit of the royal commission that the existence of widespread of tax avoid once and tax evasion an evidence that the system has the tax payers and is in need of radical reform.
RECOMMENDATION
In the light of the finding the following recommendation are made although these recommendation are not conclusion but are supplement to the already suggested measures by the federal and Abuja and other tax expect in the state.
- Tax laws should be properly implemented by pushing the offenders
- The tax law should be moderate because it is not high tax rates that generate income but a moderate rate with full enforcement.
- The internal revenue service should require some class of self employed to submit to them statement of fixed period containing details of accuracy of the tax payers returns.
- The tax authorities should organize educative program to enlighten the tax payers above the different law guiding the Nigeria tax system why he/she should pay tax and the effect of non-payment of tax.
- In order to ensure that he incidence of tax evasion and avoidance is minimum and members of registered enterprises is brought into the tax bracket there should be better co-ordination between the own of government which is responsible for the registration of business unit and internal revenue services.
- Government should provide infrastructure facilities like water, good, roads and electricity for those in the rural areas.
References
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