CHAPTER ONE
INTRODUCTION
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 full.
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 tax payment?
v. Is tax evasion and avoidance punishable offence?
1.4 Objective 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 tax.
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 study;
Hypothesis One
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.
Hypothesis Two
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.
Hypothesis Three
HO: Payment of tax does not enhance social amenities in Nigeria
HI: Payment of tax enhances social amenities in Nigeria.
Hypothesis Four
HO: Citizens of Nigeria does not benefit from tax payment.
HI: Citizens of Nigeria benefit from tax payment.
Hypothesis Five
HO: Tax evasion and avoidance are not punishable offences.
HI: Tax evasion and avoidance are punishable offences.
1.6 Significance of the Study
This study is of great importance in the following ways;
i. To 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.
iii. To emphasize on the punishment given to tax evasion.
iv. To expose some of the corrupt practices of tax authorities.
v. To 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 accessibility.
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.
1.8 Limitations of the Study
1.9 Definition of Terms
1. Tax proceeds: This is the money obtained through tax collection.
2. Patriotic: Strong support and love for one’s country.
3. Economy: The state of a country terms of the production and consumption of goods and services and the supply of money.
4. Tax administration: The board responsible for tax management.
5. Loopholes: A means of evading a rule or contract.
6. Revenue: The income received by an organization or by a state from tax.
7. Property tax: Is a levy on property that the owner is required to pay.
8. Tax 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)
9. Tax 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.
10. VAT (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%.
11. PIT (Personal Income Tax): This is a tax paid on ones personal income as distinct from the tax paid on the firms earnings.
12. PAYE (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.
13. BIR (Board of Internal Revenue): Board collecting money from citizens through imposition of levies and taxes on facilities incomes and sales of goods.
14. CGT (Capital Gain Tax): It is a type of tax levied on capital gains incurred by individuals and corporations. It is assessable at 10%.
15. CIT (Company Income Tax): This is a tax on the accounting profits of a company. Its assessable at 30%.
16. PPT (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.
17. Education 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.
19. Imposition 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.
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