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THE EFFECT OF TAX AVOIDANCE AND
EVASION TO THE ECONOMIC DEVELOPMENT OF NIGERIA
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 the 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 avoidance and evasion 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 avoidance and evasion 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 avoidance and evasion
2. What are
the factors or problems militating against the tax assessment and collection in
Nigeria?
3. What are
the possible effects of tax avoidance and evasion 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 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”
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
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.
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: The law regulating the assessment and collection of tax of
corporate bodies.
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