AN APPRAISAL OF TAX EVASION AND AVOIDANCE IN NIGERIAN TAX SYSTEM (A SURVEY OF LAGOS STATE)

AN APPRAISAL OF TAX EVASION AND AVOIDANCE IN NIGERIAN TAX SYSTEM

(A SURVEY OF LAGOS STATE)

 

 

 

BY

OLABOWALE OLAYINKA ADEDAMOLA

MATRIC NO: UNAD/ACC5/2007/617

 

                                          

 

 

DEPARTMENT OF ACCOUNTING, FACULTY OF MANAGEMENT SCIENCES, EKITI STATE UNIVERSITY, ADO EKITI, NIGERIA.

 

JANUARY, 2013

 

AN APPRAISAL OF TAX EVASION AND AVOIDANCE IN NIGERIAN TAX SYSTEM: A SURVEY OF LAGOS  STATE

 

BY

OLABOWALE OLAYINKA ADEDAMOLA

UNAD/ACC5/2007/617

 

 

 

BEING A PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTING, FACULTY OF MANAGEMENT SCIENCES, EKITI STATE UNIVERSITY, ADO EKITI,  NIGERIA.

 

 

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF BACHELOR OF SCIENCE (B.sc) DEGREE

(HONS.) IN ACCOUNTING

 

JANUARY, 2013

 

CERTIFICATION

This is to certify that this project work was carried out by OLABOWALE OLAYINKA ADEDAMOLA with Matric Number UNAD/ACC5/2007/617 of Department of Accounting, Faculty of Management Sciences, Ekiti State University. Ado Ekiti under my

supervision.

 

 

——————————                               ———————————-

DR H.T IWARERE                                                     DATE

(Project Supervisor)

 

 

————————————                          —————————-

DR OGUNDELE, J.A                                SIGNATURE /DATE

DEGREE PROGRAMME

COORDINATOR,

EKITI STATE UNIVERSITY,

ADO EKITI.

 

 

 

 

DEDICATION

          This project is dedicated to Almighty God who is the author and finisher of my faith for bringing me this far.

I also dedicate this project to my irreplaceable mother who labored so hard to ensure my success.

Mum, you will live to reap the fruits of your labour by the grace of God. Love you always

 

 

 

 

 

 

 

 

 

 

 

 

ACKNOWLEDGEMENTS

Praise is due to God Almighty, for if not that God built the house, they that labour do so in vain. Without him I will be no where today, all I have to say is thank you Father.

I appreciate the support and encouragement of my supervisor, Dr. H.T. Iwarere for his supervision, time tolerance, understanding and cooperation, throughout the period of writing this project, may the good Lord take you above the height that you desire in life.

I want to say a big thanks you to my Dad, Chief A.O Olabowale who has been there for me, may you live long to reap the fruits of your labour. My unending appreciation goes to my brother Olalekan Adewale Oluwafemi and Oluwatomiyin for their love and care, without them there will be no me.

My sincere appreciation also goes to my Aunt. Mrs. Funmilayo Adegoke and her husband Mr. G.M.A Adegoke, thanks for your support. Also to the few wonderful people I met during my years in school; Dr Olu Omotoso, Dr and Mrs S.I.B Omotoso, Dr. T.K.O Aluko and every other person. I love you all for your support and encouragement.

I also appreciate the authors of various books I used during the conduct of the research work.

I am not done without thanking my friends in school, wonderful people like Temitope Adeniyi, Dunmade Adelusi, Ekun Damilola, Justina, Sade, Titi, Bode AKA Pipo and all other students of accounting 400 level class of 2012, I appreciate and I love you all.

To every other person who have contributed to my success in one way or the other, though I cant mention everybody names but my heart really appreciate you.

 

 

 

 

 

 

 

 

 

 

ABSTRACT

          Taxation is a tool use by government to raise revenue. It is also used as an instrument of economic and social policy.

Tax evasion and tax avoidance are evil twins that have however eaten into the fibric of the Nigerian economy. They have eroded the advantage of taxation in our economy.

The basic purpose of carrying out this research is to critically examine the causes of tax evasion and avoidance in our society and to find out ways of blocking these loopholes.

Questionnaires and personal interview were used as a basis for gathering data for answering research operations. The respondents were various tax payers in Lagos state, perceived to have knowledge about the subject.

The findings of this research work indicated that the problem of tax evasion and avoidance is caused by some of the following reason, inadequate infrastructure, corrupt tax officer, badly worded tax laws, amongst others.

On this note, it is vital for federal government to provide adequate amenities for its citizenry, educate its citizens on the importance of paying tax. Better equipment should be provided to tax officials to track tax evaders, these changes are necessary if there is to be an increase in revenue generated by taxation in Nigeria.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                  TABLE OF CONTENTS         

                                                                                                               Pages

Title                                                                                                  i

Certification                                                                                      iii

Dedication                                                                                         iv

Acknowledgements                                                                           v

Abstract                                                                                            vii

Table of Contents                                                                                       ix

CHAPTER ONE

• Introduction   1
  • Background of the Study   1
  • Statement of the Problems 10
  • Objectives of the Study  11
  • Significance of the Study 12
  • Research Questions/Hypothesis 14
  • Research Methodology 16
  • Scope and Limitation of the Study 18
  • Definition of the Terms 19
  • Organisation of the Study 20

End of Chapter of the Study                                                   21

CHAPTER TWO

• Literature Review 22
  • Research into Current Literature 22
    • Meaning of Tax and Taxation                                                          22
    • Purpose of Taxation 23
  • Conceptual Explanations 26
    • The Nigeria Tax System 26
    • Tax Principles 26
  • Meaning of Tax Evasion and Avoidance                                29
    • Tax Evasion 29
    • Method of Tax Evasion                                                 31
    • Reasons for high Rate of the Tax Evasion in Nigeria 32
    • Possible Solutions to Tax Evasion in Nigeria 33
    • Instance when Tax can be Avoided in Nigeria 34
    • Tax Avoidance 34
  • Legislative Meaning 39
  • Judicial Meaning 42
  • Method of Tax Avoidance 43
  • Extent of Tax Avoidance Evasion in Nigeria 45
  • Reason for Tax Evasion and Avoidance in Nigeria 48

End of Chapter References                                                      54

CHAPTER THREE

• Research Methodology 56
  • Research Focus 56
  • Research Instruments 56
  • Restatement of Research Question/Hypothesis 57
  • Description of the Population and Sample of the Study 59
  • Sources of Data Collection 59
  • Description of Questionnaire 60
  • Method of Data Analysis and Description of Tools of Analysis 61

End of Chapter References                                                      62

CHAPTER FOUR

• Data Analysis, Interpretation and Discussion of Findings 63
  • Analysis of Respondents Bio – Data 63
  • Analysis of Research Data 68
  • Test of Hypothesis 83

End of Chapter References                                                      93

CHPATER FIVE

• Summary, Conclusion, Recommendation and Suggestion

for Further Studies                                                                            94

• Summary 94
• Conclusion 96
• Recommendations 97
• Further Area of Studies

Bibliography                                                                           99

Appendix                                                                                101

Questionnaire                                                                          102

 

                                                      

CHAPTER ONE

• INTRODUCTION

1.1     BACKGROUND TO THE STUDY

Every nation or government depends on taxes for its survival. Without taxes, there is no way a government can operate unless of course it borrows or charges its citizens outrageous fees for the services it renders them. With taxes government provides amenities and infrastructure for the improvement of its subjects. It is also through taxation that it funds governance for a stable polity.

One of the cardinal factors in estimating the effectiveness of a government is its ability to collect taxes. Before the ongoing reforms in the sector, Nigeria’s tax environment was characterized by poor assessment and collection, multiple taxation, misappropriation of tax revenue and general inefficiency. In relative terms, the rich, Nigerians pay far less tax in comparison with the poorer counterparts.

Tax is usually imposed on individuals and entity that make up a country. The funds provided by tax are used by the states to support certain state obligations such as education systems, health care systems, pensions for the elderly, unemployment benefits, and public transportation. A nation’s tax system is often a reflection of its communal values or the values of those in power. To create a system of taxation, a nation must make choices regarding the distribution of the tax burden who will pay taxes and how much they will pay and how the taxes collected will be spent.

In Nigeria, the taxation system dates back to 1904 when the personal income tax was introduced in northern Nigeria before the unification of the country by the colonial masters. It was later implemented through the Native Revenue Ordinances to the western and eastern regions in 1917 and 1928, respectively. Among other amendments in the 1930s, it was later incorporated into Direct Taxation Ordinance No. 4 of 1940. Since then different governments have continued to try to improve on Nigeria’s taxation system. The general opinion among scholars is that Nigeria’s fiscal regime is characterized by unnecessary complex, distortion and largely inequitable taxation laws that have limited application in the formal sector that dominates the economy.

Given the foregoing, a tax can be defined as a compulsory levy on incomes, consumptions and production of goods and services as provided for by the legislation. Such levies are for example made on personal income (consisting of salaries, business profit, interest income dividends, royalty etc); company profit, petroleum profits, capital gains and capital transfers.

It must be borne in mind that payment of tax is compulsory because the government has the force of law and can coerce people into paying it. Non-payment of tax usually carries penalties. It must also be noted that it is only the government that can levy taxes and this is done through various government agencies like the Inland Revenue Division, Internal Revenue Department, Customs and Excise Department, etc.

Taxation as have been defined above is the most important source of government revenue, and it therefore, demands a close analysis both in term of the principle underlying its impact in the economy. Tax being a compulsory levy imposed by the government on individuals and business firms are paid by them to the government. It is a special kind of payment in that it is compulsory and benefit for payment do not necessarily correspond (in magnitude) to the amount of tax paid.

There are two elements in a tax, the tax base and the tax rate. The tax base is the object which is taxed i.e incomes, profits, property etc. The tax rate on the other hand is the amount of the tax base which is paid in tax. It is usually in form of a flat or a percentage.

Government levy tax for different reasons among which are the following:

1. i) To meet government’s social, economic and political obligations such as the construction of roads, building of hospitals, schools etc.
2. ii) To discourage consumption of goods that are considered to be socially undesirable such as goods that are mimical to health. The imposition of tax will raise the price of the commodity, the    consumption of which is being discouraged and if the demand is           elastic, the quantity demanded will fall.

iii)     To re-distribute incomes in a society. In a society where there is great disparity in income distribution (as a result of inequality in   factor ownership) aggregate demand will fall. Government can pursue a tax system that imposes heavy burden on people within high-income brackets and use the tax revenue to provide subsidy for goods normally consumed by the low-income earners.

1. iv) To protect infant industries in the economy. Industrialized countries have reached a stage where their industries enjoy economies of scale and can therefore produce and sell cheaply. Their prices will therefore normally be lower than those of the developing countries whose industries are still experimenting. The government can use tax to raise the prices of imported goods so that they can be at the same level (or perhaps higher in prices) than prices of home made goods. In most cases, the tax has to be really high to be effective because of the difference in qualities and the general preference for imported goods. Moreover, such tariffs may need to be maintained until such industries attain perfection and are in position to move out of import substitution to being export
2. v) To combat inflation through fiscal measures.
3. vi) To promote export. Reduction in tax on exported goods (e.g. Reduction in export duty) will be an additional incentive to exporters and will create room for more export.

In almost every tax system that is known to man, the avoidance of tax through artificial means is a major problem, which is likely to continue for as long as time itself. Evasion is also a significant problem in most tax systems, even in developed countries (Bassey 2002).  Tax is not a voluntary payment as some may think and the imposing authority is the government. The main purpose of taxation is to generate revenue for financing of government activities. Just as individuals must earn income in order to meet their expenditures. However, government as an instrument of economic and social policies also uses taxation (Whittam 2002).

If all people are honest in dealing with their tax affairs, the tax revenue of some states will be minimal. However, companies and individual usually arrange their affairs in such a way to evade or avoid payment of income tax (Rabiu S.A. 2002). Politicians and tax officials spend a lot of time and energy on the problem of tax evasion and avoidance, but no one seems to have a precise idea of what is meant by the term “avoidance” but it is different from tax evasion (Abdulrazaq 2002), which is illegal.

Tax avoidance means the tax regime’s legal use of one’s own personal advantage so as to lessen the tax amount that is payable to the government by ways that are legal. The Avoidance of tax is usually done by the people who desire to keep their money with themselves and not give it to the government.

Tax Evasion on the other hand entails the efforts that are made by trusts, individuals, firms, and various other entities to avoid paying taxes by illegal and unfair means. The Evasion of tax usually takes place when taxpayers deliberately hide their incomes from the tax authorities in order to reduce their tax liability.

Tax Avoidance takes place in situations when people eliminate or reduce tax by following a transaction or many transactions that are legal. The income tax department provides many provisions through which the people can go for tax avoidance such as refunds, credits, benefits, and many other kinds of entitlements. The various methods of tax avoidance are:

1. i) Legal entities
2. ii) Country of residence

iii)     Double taxation
Tax Evasion takes place when the people report dishonest tax that includes declaring less gains, profits, or income than what has been actually earned and they even go for overstating deductions. The Evasion of tax level depends on certain factors such as fiscal equation, which means that people’s tendency to pay less tax declines when the payment due from taxes becomes obvious. The level of tax evasion is also dependent on the tax administration’s efficiency and corruption level.

The level of tax evasion also depends on the chartered accountants and tax lawyers who help companies, firms, and individuals evade paying taxes. Tax evasion is a crime in all major countries and the guilty parties are subject to imprisonment and fines. The various methods of tax evasion are:

1. i) Smuggling
2. ii) Customs Duty Evasion

iii)     Value Added Tax Evasion

1. iv) Illegal Income Tax Evasion

The importance of tax evasion and avoidance for the present purpose is three fold. First the wider perspective, it’s not possible to assess the effectiveness of a tax system unless we can see the degree of evasion and avoidance practical and permitted by the system. Thus, to have a rule that trading profit charity are exempted from tax is one thing, to learn that this is routinely avoided by having a separate trading company which assigns its profit to its charitable owners, makes the rule less fierce.

Secondly, while legislation to counter evasion and avoidance can be among the most focus on in our tax code, it can be case law evasion and avoidance that tells us much about the problem posed by legislation and statutory purpose (Abdulrazaq 2002).

According to (Ariyo 2002), successive governments have expressed great concern about the low level of productivity in the Nigerian tax systems. Moreover, government expenditure is steadily overshooting revenue, resulting in wide deficit financing (Aiyiwunmi 1998). Nigeria is loosing billions of naira to tax evasion and tax avoidance  (Jegede and Nwosu 1998). Hence the need for a control examination of the reasons for tax evasion and avoidance in the Nigerian tax system, in order to find ways to reduce or eliminate them.

1.2     STATEMENT OF THE PROBLEMS

In recent times, the upsurge of tax evasion by individuals and corporate organizations has become a ripe attitude in the Nigerian economy. This led to the poor contribution of taxation to the Gross Domestic Product (GDP). For instance, in 1988 Britain generated 35% if their total GDP from tax collection, compared to the poor 4% generated in Nigeria as revenue from tax.

The major reasons for which tax evasion and avoidance are of serious concern in Nigeria to win are, they result in loss of revenue, the difficulty in realizing the distributional or equity goals of taxation given that the opportunity to evade tax determines the extent to which tax evasion and avoidance have eaten into the fabric of the Nigerian economy. Moreso, the failure of the anti-avoidance provisions in the law to discourage the practice and the growing frustration among revenue official to accurately estimate the extent for the evasion (Bassey 2002).

All these have resulted in the government falling to improve the welfare of the people. Government is unable to provide basic amenities like healthcare, good roads, among others. This has led to over dependence on oil reserve.

• OBJECTIVES OF THE STUDY

The main objective of the study is to know why people evade and avoid tax and how the practice can be minimized in our society.

Tax evasion and avoidance have constituted serious problems in the Nigerian tax system and if a solution is not found now, it may create leakages that are beyond repair.

The specific objectives of the study include:

1. i) To examine the reasons why people evade tax
2. ii) To suggest ways by which tax evasion and avoidance can be minimized or eliminated from our society.

iii)     To examine whether tax evasion and avoidance are peculiar to a class of income earners.

1. iv) To examine the effect of tax evasion in the Nigerian economy.
2. v) To examine the percentage of tax paid to tax that was evaded.

 

1.4     SIGNIFICANCE OF THE STUDY

It is important to know that research work are generally carried out to find solution to existing and anticipated problem in a particular environment. Therefore, this study as outlined in the introduction to the study is of a great significance to the ailing Nigerian economy, its significance cannot be over-stated. The Nigerian government has consistently failed in fulfilling its obligations to the citizens. A critical study of tax evasion and avoidance in Nigeria will help us to understand why taxpayers continuously engage in the practice of outright evasion of taxation and the growing culture of tax avoidance.

If these leakages are plugged, there will be a rise in revenue to finance government business, control of consumer demand, encouraged investment and savings and in the process curb economic depression, inflation and deflation, it will also ensure equitable distribution of finance and wealth and ensure proper allocation of natural resources that are increasing its revenue base.

A study aimed at critically examining the causes of low taxes revenue base of the government will help in deciding on:

1. i) Whether to pursue a policy of deliberate movement of emphasis in tax law formulation from income tax to consumption tax, which is    less prone to evasion.
2. ii) Whether to adopt a policy of operation low tax regime.

iii)     Review the efficiency of the self-assessment scheme in tax     collection.

1. iv) Ensure the effective use of due process of law and the mechanism of an efficient tax administration to curb evasion and avoidance.
2. v) Creation of a healthy tax environment where people are able to appropriate tax as a civil responsibility rather than an act of
3. vi) Efficient use of revenue generated from tax through the provision of social amenities so that the people can benefit from tax paid and      appreciate it as a means of social improvement.

It cannot be underscored that the best approach to the elimination of a problem is not to address the symptom but to know the cause and the reasons of such ailment. Only then, will reliable and effective solution or remedy be devised for solving such a problem.

1.5     RESEARCH QUESTIONS/HYPOTHESIS

          RESEARCH QUESTIONS:

The purpose of this study is to find out the cause of tax evasion and avoidance and the means by which these leakages can be blocked. The following questions will form the pivot of the study:

1. i) Why do many people evade tax?
2. ii) How can tax evasion and avoidance be minimized?

iii)     Are tax evasion and avoidance peculiar to a class of income earners?

1. iv) What is the effect of tax evasion in the Nigerian economy?
2. v) What is the percentage of the paid tax to tax that was evaded?

RESEARCH HYPOTHESIS

In an attempt to reach a decision, statistical hypothesis are formulated to guide the problem statement identified. Therefore, Hypothesis is defined as a tentative answer to a problem.

Hypothesis are divided into two namely null and alternative hypothesis. “Ho” denotes null hypothesis while “Hi” denotes alternative hypothesis. The two hypothesis describes the difference that exists between facts. In essence, the hypothesis drawn in this research work is:

1. i) H_o = There will be no need for people to evade tax

H_i = There will be need for people to evade tax

1. ii) H_o = There will be no way by which tax evasion and avoidance can

be minimized or eliminated from our society.

H_i = There will be way by which tax evasion and          avoidance can be minimized or eliminated from our society.

iii)     H_o = Tax evasion and avoidance will not be peculiar to a class                 of income earners.

H_i= Tax evasion will be peculiar to a class of income

earners.

1. iv) H_o= There will be no effect of tax evasion on the Nigerian

economy.

H_i= There will be effect of tax evasion on the Nigerian

economy.

1. v) H_o= There will be no percentage of tax paid to tax that was

evaded.

H_i= There will be percentage of tax paid to tax that was

evaded.

1.6     RESEARCH METHODOLOGY

This explains the methods used in conducting the research work. The methods used are as follows:

STUDY POPULATION

This represents a census of all items or subjects that possess the knowledge of the phenomenon being studied. In this case. The study population cuts across all eligible tax payers in Lagos State, whether self-employed or employed.

SAMPLE POPULATION

The sample population which is a representative part of the population was drawn from eligible taxpayers that reside in Lagos State. It was limited to those who were adjudged to be more conversant with the issue at hand.

SAMPLING TECHNIQUES AND PROCEDURES

The random sampling method will be employed because of its use of randomization which is a procedure of giving every subject in the population an equal chance of appearing in the selection.

DATA COLLECTION PROCEDURE

The research work was carried out using eligible tax payers whether employed or self-employed to obtain information needed. Information was collected from both primary and secondary data sources.

The primary source of information was derived from administering questionnaires, designed to get vital information from respondents.

The secondary data was obtained from published sources like periodicals, journals, textbooks, newspapers and internet.

RESEARCH INSTRUMENT

The main research instrument used in the study was the structured questionnaire. It was divided into two main parts:

Part A: Respondents Demographic Data

Part B: Research Questions

DATA ANALYSIS AND PRESENTATION

This forms the bedrock of any research. Therefore, in order to make data analysis meaningful, it must focus on testing the hypothesis of the research so as to enable in determining whether to accept or reject the hypothesis.

After the collection of the needed and relevant information and data, an analysis of the information collected will be carried out using quantitative discrete analysis of data and by using simple percentage in analyzing the research questions/ demographic data of respondents, while chi-square test will be used to analyze the hypothesis to either accept or reject the null hypothesis.

1.7     SCOPE AND LIMITATION OF THE STUDY

The scope of the study shall be limited to tax evasion and avoidance of taxpayers in Lagos State with respect to personal income tax. Much emphasis will be placed on tax evasion because it is illegal while tax avoidance is legal. There exist some limitations to this study which include time constraint, the few textbooks that were available during the time of the study, some people consulted for information were reluctant to give adequate information, while some responded positively. In addition, the subject of the study is relatively a new area in which few books have been written on, hence limited references were obtained.

1.8     DEFINITION OF TERMS

1. i) Economy: This is the whole system of inter-relationship between the private and public government and non-governmental organizations.
2. ii) Gross Domestic Product (GDP): The total money of all final goods and services produced within the geographical boundaries of the country during a specific period usually a year.

iii)     Government Revenue: There is the income accruing to the government from various sources like the custom and excise duties, taxes.

1. iv) Incident of Tax: This refers to who bears the final burden of the tax.
2. v) Tax: It is a compulsory levy on income, imposed by the government to generate revenue for its various responsibilities.
3. vi) Tax Authority: This authority has the whole responsibility for the collection and administration of taxation. It is also responsible for giving penalties due to defaulters.

vii)    Tax Avoidance: Is the legal exploitation of the regime to one’s advantage in attempt to reduce the amount of tax payable.

1.9     ORGANISATION OF THE STUDY

This study will be divided into five chapters which are stated as follows:

Chapter one of this study is devoted to introduction and background to the study.

Chapter two has to do with literature review which deals with research into current literature and conceptual explanations.

Chapter three of this study deals with research methodology which has to do with research questions, hypothesis, research instruments, sources of data collection, methods of data analysis and description of tools of analysis.

Chapter four talks on data analysis, interpretation and discussion of findings.

Chapter five of this chapter is the last chapter and this deals with summary, conclusion, recommendations and suggestions for further studies.

 

END OF CHAPTER REFERENCES

Abdulrazaq, M.T. (2002): Tax Evasion and Avoidance. Lagos CITN (Charted Institute of Taxation of Nigeria) Publications.

 

Bassey, O.U. (2002): Foundation of Personal Income Tax in Nigeria. Brand Pius Limited, Educational Publishers Ogba-Aguda, Ikeja, Lagos.

 

Osula, J and Nwosu, T. (1998): Five Billion Naira Lost Through Tax Evasion. The President, 31 July, 1998.

 

Rabiue S.A. (2002): “Essay on Nigerian Taxation” Lagos Chartered Tax Practitioners.

 

 

 

 

 

 

 

 

 

 

 

CHAPTER TWO

2.0     LITERATURE REVIEW

This chapter focuses on literature review. It looks into and analyze the work of past writers on this topic: An Appraisal of Tax Evasion and Avoidance in Nigerian Tax System.

2.1     RESEARCH INTO CURRENT LITERATURE

2.1.1  MEANING OF TAX AND TAXATION

According to Oyebanji J.O (2010), tax is a compulsory levy by the government of any country, through an appropriate agency, on all incomes, goods, services and properties of an individual, partnership, executor, trustee and a corporate body. Taxation is a charge imposed by the government of any country on incomes, goods, services and properties of an individual, and corporate body to raise money for public revenue generation and other legitimate functions of the government. Government imposes taxes on its citizens to enable it obtain the required revenue to finance its activities, such as payment for public services and other social responsibilities.

Olaoye C.O. (2006) defined tax as a compulsory levy on incomes, consumption and production of goods and services as provided for by legislation. Such levies are for example made on personal income (consisting of salaries, business profits, interest income dividends, royalties etc); company profits, petroleum profits, capital gains and capital transfers.

Abdullah (2000) defined tax as a compulsory levy by government on the income of the citizens or wealth with a direct quid pro quo. This as a mark of the priviledge of a citizenship in a given society, people pay tax as an unwanted burden.

Obi (2001) defined the word tax as a world wide import although it has its basic ingredient in the element of an imposition of a  financial burden by government on an individual, firm or company. In the general sense of the word, tax means any contribution imposed by government on individuals, for the use and service of the state whether under the name toll, tribute, tollage, import duty, custom duty, excise duty, subsidy aid supply or other names. In its essential characteristics tax is not a voluntary payment (Obi 1993).

2.1.2  PURPOSE OF TAXATION

According to Ridgeway (1998), Taxes are generally considered to have four purposes which are:

1. RAISING REVENUE FOR THE PROVISION OF PUBLIC GOODS: Public goods have two characteristics. First, a person    who has not paid cannot be excluded from the benefit example:   Law and National defence, general administration, maintenance of law and order. Government takes over the production of these goods because private entrepreneur will not be able to maximize           profit on them. Secondly, consumption by another e.g. street           lighting.
2. CORRECTION OF EXTERNAL COSTS: The correction of external costs is also affected by taxation. An example is the tax on    cigarettes or smoking creates a cost to the state of health care. By imposing tobacco duty, part of this cost of cigarettes resulting from           the imposition of the duty reduces demand, which in itself helps to reduce the cost of healthcare. This arguments cannot be taken too far. Those who might have died will impose an extra cost on the state by contracting other illness at a later date and possibly calling on the states’ resources to provide care in old age.

iii.      REDISTRIBUTION OF INCOME: It is generally agreed that one          use taxation to provide for those who are unable to provide for themselves. Without redistribution of income, those with little or no income or resources would not survive. However, the means by which this is to be achieved differs as one move through the   political spectrum. Generally, the political right wing believes only      in the relief of absolute poverty the centre left advocates the relief      of relative poverty which means reducing the disparity in wealth distribution.

1. CONTROL OF DEMAND: What is generally accepted by all political spectrum are that the raising of revenue, correction of external cost and redistribution of income are all desirable. The fourth, control of demand is an instrument of the political left. The right argue that the free market left to itself become stable and supply will approximate demand. The left argues that there are inefficiencies in the system and that is the role of the state to stimulate demand whenever there is shortfall when compared to the     supply. The converse of increase in public spending is the increase      in demand by the private sector.

 

 

• CONCEPTUAL EXPLANATIONS
  • THE NIGERIAN TAX SYSTEM

Akinlo (2001), tax is levied in Nigeria in various forms, these fall into two board categories which are direct and indirect. Approved by government in 1997, there are over forty taxes and levies in Nigeria’s tax system. There have not been significant changes in tax jurisdiction over the years. This in most cases, the federal government have always taxed individuals, where the federal and state government have concurrent jurisdiction, for example personal income tax, capital gain tax, stamp duties, the federal government has legislative power, while sharing their administration with the state.

Tax which the federal government has control over, accounts for about 95% of total revenue in the country. These are import duties, petroleum profit tax and royalty value added tax (VAT) and companies income tax, however earning from crude oil sales still account for 40% of the federal revenue. This skewed tax and revenue structure show the urgent need for diversification. The tax can come in through taxes rather than from petroleum earnings which often frustrates as a result of changes in world prices.

2.2.2  TAX PRINCIPLES

Adam Smith in his book called “The wealth of Nations (1776)” proposed four principles or cannons of a good tax system which are:

i         CERTAINTY: For tax to be certain, it is necessary to know not    only the amount of tax liability but also when and how it is to be      paid. A tax which is uncertain leads to disputes and open opportunities for avoidance and evasion. The pay as you earn system (PAYE) appears to produce certainty in that employees        know what they pay because it’s deducted from the salary and wages.

1. EQUITY: The tax should be equitable. That is, it must be based on       the ability to pay the tax must be equitable. It must not be levied      arbitrarily, the amount payable must not be bias or be influenced by         personal feelings. People in the same level and circumstances must        pay the same tax.

Equity principle comprises two aspects which are vertical     and horizontal equity. Vertical equity looks at how people in           different circumstances should be tax equally. This is not as simple as it sounds. The question is on what unit taxes should be levied,  should it be individual, family or some other measure. Secondly when circumstances are similar. In deciding on what is horizontally equitable, it is necessary to make arbitrary distinctions and distinguish choice from necessity.

iii.      CONVENIENCE: The tax must be convenient to pay. The tax payer must not experience much cost or inconvenience in an attempt to pay the tax. In addition, social and economic standing of     the tax payer must be taken into account.

iv       ADMINISTRATIVE EFFICIENCY: The administration must be easy. It must be possible to know the tax base and it must be possible to collect the tax once. It is levied. Thus it must be administratively efficient and not cause economic distortion.

Aside from the above principles proposed by Adam Smith, other economists have added to the principles or cannons of a good tax system. These other principles are:

1. ECONOMIC PRINCIPLE: This means that the tax must not make the condition or the situation of the taxpayer worse economically.
2. POLITICAL ACCEPTABILITY: Tax payment must generally be accepted by the tax payers so that resentment or riot is avoided.

iii.      SIMPLICITY: A good tax system should not be difficult to administer and understand so as not to breed problems of          differences in interpretation and legal disputes. The language of           expression must not be complicated.

1. FLEXIBILITY: A good tax system should be capable of adjusting         to changing circumstances. Nigerian Income Tax is reviewed           annually in order to alleviate the negative effects of epileptic     economic conditions.
2. VERTICAL RE-DISTRIBUTION: A good tax system must be capable of being use for vertical re-distribution. This means off to those who are worse off and must not discourage those who are better off.

• MEANING OF TAX EVASION AND TAX AVOIDANCE

2.3.1  TAX EVASION: Tax Evasion entails the efforts that are made by trusts, individuals, firms and various other entities to avoid paying taxes by illegal and unfair means. The Evasion of tax usually takes place when taxpayers deliberately hide their incomes from the tax authorities in order to reduce their liability of tax.

Tax Evasion takes place when the people report dishonest tax that includes declaring less gains, profits, or income than what has been actually earned and they even go for overstating deductions. The Evasion of Tax level depends on certain factors such as fiscal equation which means that people’s tendency to pay less tax declines when the payment due from taxes becomes obvious. The level of  Tax Evasion is also dependent on the tax administration’s efficiency and corruption levels.

The level of Evasion of Tax also depends on the chartered accountants  and tax lawyers who help companies, firms, and individuals evade paying taxes. Tax evasion is a crime in all major countries and the guilty parties are subjected to imprisonment and fines.

According to Okorodudu (2001), tax evasion is a contravention of the law where a taxable individuals or company neglects to pay tax due or reduces the tax liability by making fraudulent or untrue claims on the income tax return firm.

According to Abdulrazaq (2002), the English language offers little assistance in the search for an acceptable definition of the term evasion. In makes little or no distinction between tax evasion and avoidance, yet the difference between the two is fundamental to an understanding of the legal consequences of each term.

The Oxford English Dictionary defines evade as: to escape or avoid meeting somebody or something.

2.3.2  METHODS OF TAX EVASION

The various methods of Tax Evasion are:

1. Smuggling
2. Customs duty evasion

iii.      Value added tax evasion

1. Illegal Income tax evasion

 

1. SMUGGLING: This is a method of Tax Evasion, following which people export or import foreign goods through routes that are unauthorized. People resort to smuggling for they want to avoid paying total customs duties that are chargeable and also when they want to import items that are contraband.
2. CUSTOM DUTY EVASION: Under this method, importers evade paying customs duty by false declaration of the description of the         product and quantity. The importers in order to evade paying    customs duty also resort to under-invoicing.

iii.      VALUE ADDED TAX EVASION: Under this method, the producers who collect from the consumers the value added tax   evade paying taxes by showing less sales amount. Many people         earn money by means that are illegal such as theft, gambling and    drug trafficking and so they do not pay tax on this amount and thus     this is another method of tax evasion that is called illegal income      tax evasion.

Tax Evasion results in the loss of revenue for the government and so ideally, no one should be indulging in it and the Nigerian government must also take steps in order to stop Evasion of Tax by the people.

• REASONS FOR HIGH RATE OF TAX EVASION IN NIGERIA

1. Lack of the spirit of national conscientiousness on the part of taxpayers.
2. False declaration of assets by the taxpayers.

iii.      Lack of qualified personnel to administer tax laws in Nigeria.

1. Lack of honesty on the part of taxpayers.
2. Corruption among the tax officials.
3. Inconsistency in tax policies as a result of political instability.

vii.     Poor economic conditions of the taxpayers.

viii.    High level of illiteracy in Nigeria.

2.3.4  POSSIBLE SOLUTIONS TO TAX EVASION IN NIGERIA

1. Taxpayers should be educated about their civic responsibility
2. Recruitment of honest and trustworthy people as tax officials

iii.      Recruitment of qualified, experienced and competent staff as tax    officials.

1. Bureaucratic documentation should be reduced to avoid forgery.
2. Activities of tax officials should be monitored to minimize the incidence of fund embezzlement.
3. Establishment of state Revenue Court

vii.     Tax policies and tax laws in Nigeria should be made consistent

viii.    Stiff penalty for contravening any section of the law.

2.3.5  INSTANCES WHEN TAX CAN BE AVOIDED IN NIGERIA

1. Where a foreign investment is made with the aim that the income there from will be exempted from tax.
2. Where a business invests in certain sectors of the economy such as agricultural, manufacturing and mining sectors because of the special relief and incentives available to such businesses.

iii.      Where a loss is incurred, which can be carried forward for relief against taxable profits for a maximum period of four years before it lapses. Agricultural business can carry losses forward indefinitely.

1. Where capital expenditures are incurred with the purpose of claiming capital allowance.
2. Where certain expenses are incurred, which would not have otherwise been incurred, just because such are allowable and will thus reduce profit for tax purpose

2.3.6  TAX AVOIDANCE:

Tax Avoidance means the tax regime’s legal use of one’s own personal advantage so as to lessen the tax amount that is payable to the government by ways that are legal. The Avoidance of Tax is usually done by the people who desire to keep their money with themselves and not give it to the government.

Tax includes situations when people eliminate or reduce tax by following a transaction or many transactions that are legal. The income tax department provides many provisions through which the people can go for Tax Avoidance such as refunds, credits, benefits and many other kinds of entitlements. The various methods of Tax Avoidance are:

1. Legal entities
2. Country of residence

iii.      Double taxation

1. LEGAL ENTITIES: This is a method people follow when they want to go for Tax Avoidance. Under this method of Tax Avoidance, people legally defer paying personal taxes by creating a legal separate entity to which they donate their property. The legal separate entity that is set up is often a foundation, company, or trust. The properties are transferred to the trust or company as a result of which the income that is earned belongs to this entity and not by the owner. Usually, people are taxed personally on the earnings and property that they own and thus by transferring property to a legal separate entity, individuals can avoid personal taxation although certain taxes such as corporate taxes are still applicable. In order to go for Tax Avoidance, the foundation, company or trust can also avoid corporate taxes if the entity is set up in a jurisdiction that considered offshore.
2. COUNTRY OF RESIDENCE: This is another method that people adopt when they go for Avoidance of Tax Under this method of Tax Avoidance, the company or person changes the tax resident to a place that is a tax haven in order to lower the amount of taxes that they pay. Under this method, the person may also become a regular traveler so that taxation can be avoided.

iii.      DOUBLE TAXATION: Double Taxation means that many countries charge taxes on the income that has been earned inside that country without taking into consideration, the resident country where the income has been earned and then again in the resident country, many country have gone for bilateral treaties of double taxation with other countries. This helps tax-payers as they are able to avoid paying double taxes.

Tax Avoidance, reduces the revenue of the government and also brings into disrepute, the tax system. Ideally, Avoidance of Tax should not be encouraged and the government should also take measures in order to prevent it Tax Avoidance can be referred to as “Tax mitigation”. In law, the tax avoider has not committed any offence and hence could not be liable to any fine, penalty or imprisonment.

According to Angel (1999), the words evade and avoid are generally used interchangeable and they connote the idea that they mean the same thing, but to the professional and judicial mind, there is a very sharp distinction in the idea or conception behind the words, clear thinking and sound judgement demand that this fundamental distinction be emphasized clearly, in order that the differences may be applied appropriately.

According to Wheatcroft (2001) describes tax avoidance as the art of dodging tax without breaking the law “it is the art of winning games without actually cheating thereby beating the internal revenue and the government at their own games”.

According to Okorodudu (2001), tax avoidance denotes those devices which have been adopted with the aim of saving tax and thus sheltering the taxpayers income from greater liability which would have been incurred but for the tax avoidance device.

According to Rabiu (2003), the tax avoider is simply one who arranges his affairs in such a way that he pays little or no tax at all while the tax evader is one who for a number of reasons refuses to fulfill his activities and civic responsibilities under the law. He is for all intents a criminal.

Wallschuteky (2002), states that the search for a suitable definition of tax evasion may be approached from a number of different standpoints including those of the government through the legislature and the taxation authorities and courts requires a definition of the term to enable laws to be administered and enforced. Taxpayers also require a clear statement of their responsibilities rights and duties so that they can fulfill their obligation accordingly.

 

• LEGISLATIVE MEANING

The Nigerian tax statutes non definition of tax evasion, but from the various offences and penalties sections, the offences stated there provide an insight into what may be regarded as tax evasion. Tax evasion may thus be perpetuated in some of the following ways:

1. Failure to make return for income tax or capital gain tax.
2. Failure to make for corporation tax.

iii.      Incorrect return or accounts

The various acts must be done with fraud, willful defaulter neglect and knowingly for them to constitute the offence of tax evasion. This approach of stating acts which constitute tax evasion are common to common law jurisdictions. In the United Kingdom, United States of America, Australia, New Zealand, Canada and India, the law recognize the distinction between tax evasion and tax avoidance, but there is no statutory definition. Its however accepted that to come within the ambit of tax evasion, an activity must include some elements of fraud or unlawful conduct, accomplished by intent on the taxpayers part deliberately to deceive the tax collectors. The inability to statutory define tax evasion has however precluded its usage in the various laws According to statutory meaning.

According to the legislative meaning, no commission of enquiry on taxation in Nigeria has offered any definition of tax evasion till date as they all seem to concern themselves with more relevant to politics than taxation.

According to the Philips committee of 1940 to the Aboyede technical committee on revenue allocation of 1998 the terms of reference has mainly dealt with revenue allocation and division of taxing powers. The approach in the United Kingdom, Canada and Australia has been for the government enquires to attempt a definition of the terms, in particular those of:

–        Royal commission of taxation of profit and income, United   Kingdom 1955 often referred to as the “Radoliffe Commission.

–        Royal commission of taxation, Canada 1966 referred to as “the      cater commission”

–        Taxation review Committee Australia, 1975 referred as the   “Asprey Committee”

Tax evasion as a situation which denotes all those activities which are responsible for a person not paying the tax that the existing law charges on his income.

What emerges from all these definitions is the underlying distinction made with tax avoidance. The views of the tax authorities in this respect are also relevant to what amounts to tax evasion. The definitions offered by the Canadian department of national revenue is quite comprehensive and of immense assistance in the quest for an acceptable definition. They stated that;

Tax evasion is the commission or omission of an act knowingly with intent to deceive so that the tax reported by the taxpayers is less than the tax payable under the law, or accomplished by the deliberate omission of revenue, the fraudulent claiming of expenses or allowances and the deliberate misrepresentation, concealment or withholding of material facts. The definition of tax evasion is no different from that already outlined by the two Royal Commissions. An adoption or endorsement of this view in Nigeria would indeed make the routes of escape extremely narrow, but opinions or circulars or legislation are not self-operative. These applicability depends in the interpretation given to them by the courts.

2.5     JUDICIAL MEANING

It is the function of the judicial branch of the government to resolve doubt and in performing their judicial functions. The courts are called upon to determine whether in view of the facts proven and the languages employed in the statute, the individual is not subject to the prohibition in burden of the same.

It does not appear to their lordship that an examination of the decisions in which the word evade has been the subject of comment, leads to any tangible results. Everybody agrees that the word is capable of being used in two senses, one which suggests underhand of dealing and another which means nothing more than, the international avoidance of something disagreeable, this is according to Lord Hob-house who pointed out in Simms Registrar of probate.

Also, according to Justice Oliver Wendell Holmes that says tax evasion was also considered in the case of Bullen V. Wisconsin. We do not speak of evasion because when the Law draws a line, the case is no one side of it, or the other and if on the safe side, it is more worse legally that a party has avoided himself to the fall of what the law permits when an act is condemned as an evasion, what is meant is that it is on the wrong side of the line indicated by the policy if not by the mere letter of the law.

These decision has however added little to the legislative meaning of tax evasion. The meaning of tax evasion is therefore dependent upon a description setting out the acts that constitutes evasion in contrast to tax avoidance.

2.6     METHODS OF TAX AVOIDANCE

According to Bassey (2007), the general methods of tax avoidance includes the following:

1. Manipulating the marginal tax rate, such that a high income bracket taxpayer, reduces his tax liability by creating a trust settlement for his children or other relation (who if subject to tax at all, is at a low marginal tax rate). Thus by a well calculated arrangement of his financial affairs, the tax payer prevents the tax authorities from taxing his total income in his hands, at a high marginal to rate, rather he is now subject to tax at the lowest possible tax rate.
2. Incorporate the taxpayer’s sole proprietorship or partnership into a limited liability company, thereby substituting the lower marginal income tax rate of the company for the otherwise higher marginal income tax rate of the sole proprietor or the partner.

iii.      Manipulating the charitable organization whose affairs are controlled and dominated by its founders, this taking advantage of income tax exemption.

1. Minimizing income tax liability by ensuring that much of the taxpayer’s expenditure incurred quality deductible expenses for income purposes.
2. Leasing property at a large premium with a much reduced monthly or annual rent, thereby substituting the lower marginal tax rate applicable to a lump sum premium payment (i.e capital gains) for the higher marginal income that would otherwise apply to the income earnings from monthly or annual rent.
3. A person ordinarily resident in Nigeria avoiding liability to Nigeria Income tax by means of transfers of assets as a result of which either alone or in conjunction with associated operations becomes payable to persons ordinarily resident in Nigeria. This is another fertile ground for the rich who may use this device to substitute high marginal tax rate for the lower withholding tax rate.

vii.     Out writing of the revenue as well as the residency and taxability miles such that the tax payer and his property is outside the jurisdiction of the Nigeria tax laws, for instance, the taxpayer should be design to stay in Nigeria for a period not exceeding 183days during the year of assessment, or transfers his property to foreign trustees.

viii.    Minimizing tax liability by investing in capital assets (for instance through the new form of corporate financing by equipment leasing) and thus sheltering some of the payers income from taxation through capital allowances claims Bassey (2007).

•          EXTENT OF TAX AVOIDANCE AND EVASION IN

NIGERIA

There is a growing resignation in Nigeria even among high ranking tax officials, that because revenue losses owing to tax-evasion are enormous, it will be difficult to accurately estimate the extent of tax evasion in the country (Olorunleke, 2001). In the support of this view, the statement of professor Milton Taylor has been repeatedly quoted like a hold junction. In his words:

“It is only to be expected that evidence of income tax evasion, since it is an illegal activity, will be difficult to obtain in any country, it is not different from trying to determine the consumption of Indian hemp to the degree of illegal gambling. Ministry of finance, which of course have more evidence than any government office, are strictly restricted from divulging information by acts of officials secrecy, or they loathe to be frank about the degree of evasion for fear that the information would encourage even more evasion by professor Mitton Taylor.

It is difficult, if not impossible to determine the extent to which tax avoidance and evasion have eaten into the fabric of the Nigerian economy. At best one can only guess this for several reasons. In the first place it is hardly possible to measure the extent accurately. This problem of measurement is premised on the inability of the Nigerian tax provisions to give effect to the concept of tax avoidance. There is no place under the Nigerian tax laws where a definition was given to the means that one only infer from the action of the taxpayers. The result is that the line of differentiation become very thin. Abdulrazag (1993).

Secondly, the anti-avoidance provisions in the law have not been of much assistance in discouraging the practice. There is a situation in practice where the taxpayer with his consultants continuously designs more ingenious schemes to diminish the effect of such anti-avoidance schemes (Bassey 2007).

Another basic problem of estimating the extent of tax evasion is that there is fairly good information available concerning the scale of legal source evasion, estimates for illegal source activities like drug trafficking and illegal gambling which although taxable remains highly uncertain. The uncertainty complicates the design of other law enforcement policies like drug laws, where so much depends whether or not prescription itself might not actually be increasing the share of national resources diverted underground (Tand, 2002).

What is obvious is that there is a wide spread avoidance exercise going on and worse situation of complete evasion of tax on a greater scale (Bassey 2007).

 

 

 

2.8     REASONS FOR TAX EVASION AND AVOIDANCE IN NIGERIA      

A critical study of the phenomena in Nigeria has shown that there are many reasons why the taxpayers have continuously engaged in the practice of outright evasion of taxation and the growing culture of avoiding the payment of taxation. Whether the discussion is about the avoidance of evasion, of taxation, they control consumer demand, along with other purpose of taxation are always almost undermined. (Bassey 2007). The following are the reason for the evasion and avoidance in Nigeria

1. EQUITY: A tax system must not only be seen to be fair and equal, the principle of fairness and equity must be palatable. In the same way equity before the law is deemed to be right and proper, so must this be under a tax system that intends to get the best out of the citizens. The Nigerian tax system can hardly be said to satisfy the equity criteria for example the personal income tax in Nigeria is extremely narrow in its implementation to the extent that aside from PAYE. Other taxes are not paid, sole traders are rarely exposed to taxation, men in Nigeria do not pay tax, particularly those who enjoy government patronage because they usually rely on one government official or the other protect them in the event that he is going to be embarrassed by the revenue. Tax evasion is very high among this group of tax payers. This information is an open secret, to the effect that those who regularly pay tax, would seize any opportunity to either reduce tax payable by them or infact take more than hundred times their income in a year either do not pay tax at all or pay tax that is lower than the amount they are charged.

This is consistent with a previous study by spicier “a behavioural model of income tax evasion, Ohio university, which confirmed a positive relationship between the tax evasion and the perceived inequality of the system. The effect of this is that the observed unfairness in the tax system merely encourage the taxpayers on the fringes who are continuously considering whether or not it is profitable to comply with the provisions of the tax laws (Spicer 2003).

1. ALLOWANCE AND RELIEFS: Another contribution to tax avoidance in Nigeria is the structure of allowances and reliefs to individuals for example, children allowance is currently at an all time rate of N2,500 per annum per child up to maximum of four children, dependent allowance of N2,000 per annum per dependent, up to a unit of two dependents, along side other allowances. Our experiences has shown that the often flaunted arguments that such allowances and reliefs increases the real income of the taxpayers is a whole load of fallacy. Empirical evidence has shown that there is no significant value added to the take home of the individual taxpayer. Given the cost of living, some of the rates which became effective from 1988 years of assessment are not realistic. The argument that has been put forward in defence of the unreasonably low rate is that the government is hardly expected to take care of the taxpayers.
2. TAX AUTHORITIES: There is no much motivation in the rank and files of the revenue officials and hence motivation to aggressively fight evasion and avoidance is minimal. Essentially the revenue officials are not well paid, there are no adequate infrastructures to enable them perform their duties and there are no adequate hands. They also lack good communication systems, which in most cases are ancient or non-existent. They can hardly boast of a computer system to track information about a particular taxpayer. Records are still manually maintained since most of them are not well paid compared to their colleagues outside the service, also where information should have been freely provided, some qualification is demanded from the taxpayer, encouraging unwilling taxpayer to evade tax. Bassey 2007.
3. MULTIPLE TAXES: Until the beginning of 1998, there were all forms of taxation in the different levels of government. The federal, state and local government were all changing taxes of the same class. The effect of this was to discourage both honest and dishonest taxpayers because of the plethora of taxes that is needed to be paid to the different level of government. Our experience shows that the taxpayer puts in place all sorts of schemes to unite their exposure to this excessive tax. During 1997 the joint tax board published a list of approved tax by the different levels of government, but this is still flagrantly ignored by some state and local government to the changing of the helpless taxpayer under the pretext that it has not yet been gazethed. In 1998, the proposal from the government to promulgate the list of approved taxes into law before the en of the first quarter is yet to materialize according to Bassey 2007.
4. ACCELERATED REVENUE GENERATION PROGRAMME (ARGP)

The collection and enforcement of taxation in Nigeria has also contributed to both the evasion and avoidance of taxation.   They are at some level crude and ancient in their activities, while at       some other level they reck with fraud and arm-twisting tactics.       These twin-problems in collection and enforcements arose through          the use of tax consultants, contractors and so-called monitoring         agents.

The idea of ARGP was introduced in some states to increase revenue generated. ARGP is carried out by consultants on behalf of the state government, recently extended to the local government too (Ojo, 1998), it is generally known that no matter   how hard a tax payer tries to comply with the provision of the relevant tax law, the ARGP will always come up with one form of under payment or the other. The result is that limited information is     made available to them during the course of their work, to          minimize the payer’s exposure to additional assessment of course,    the taxpayer has no option but to become more adapted to avoiding tax because the general practice of the ARGP is almost always at   variable provisions of the law. Bassey 2007.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

END OF CHAPTER REFERENCES

Abdullah, S.A. (1997): Tax Evasion And Avoidance In Nigeria: An Appraisal Of Some Costs – Univesity Press, Zaria.

 

Abdulrazaq, M.T. (2002): Tax Evasion and Avoidance. CITN Publications. Lagos.

 

Akinlo, A.E. (2001): Problems and Prospects of Tax Administration

          And Revenue Generation in Nigeria.  Aat Books,  Lagos.

 

Angel, M.B. (1999): Tax Evasion And Avoidance: 39 Columbra Law

Review. Modern Law Review, Columbia.

 

Obi, J.I. (2001): “Tax Evasion and Its Solution” Lagos Paper Publisher

By Association Of African Tax Administrators, Lagos.

 

Okorodudu, M.I. (2001): Measures against Tax Evasion And

          Avoidance: Some Equity and Suggested Reforms. Abuja Federal

Inland Revenue Department, Lagos.

 

Olaoye, C.O. (2006): Analysis of Government Finance. Clemart Publications, Ijagbo Offa, Kwara State, Nigeria.

 

Oyebanji, J.O. (2010): Principles and Practice of Taxation in Nigeria.

4^th Edition – Frontline Publishers, Adesola Ibadan.

 

Rabiu, S.A. (2003): “Essays on Nigerian Taxation” Lagos Chartered Tax Practitioners, Lagos.

 

Ridgway, P. (1998): Revenue Law Notes. 4th Edition – Sweet and Maxwell Publications, United Kingdom.

 

Wheatcraft, G.S. (2001): The Avoidance of the Legislators and the Courts to Tax Avoidance. Modern Law Review.

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER THREE

3.0     RESEARCH METHODOLOGY

This chapter shall focus its attention on the methods adopted in carrying out the research work. In order to give a good account of the analysis, the methods used shall be based strictly in data collection techniques. Basically, the primary and secondary methods of data collection are going to be used.

3.1     RESEARCH FOCUS

The research shall focus on an aprisal of tax evasion and avoidance in Nigeria tax system. The primary data and secondary data are used for the purpose of this research work. The study focus on why people evade and avoid tax and how the practice can be minimized in our society.

3.2     RESEARCH INSTRUMENTS

Research instruments used for this research topic are gotten from administering questionnaires, designed to get vital information from respondents. This represents the primary source of data collection. While journals and magazines, work of different authors, textbooks, newspapers and other sources like web-sites represents the secondary source of data collection.

 

3.3         RESTATEMENT OF RESEARCH

              QUESTIONS/HYPOTHESIS

The pertinent research question to ask includes:

1. Why do many people evade tax?
2. How can evasion of tax and avoidance be minimized?

• Are tax evasion and avoidance peculiar to a class of income

earners?

1. What is the effect of tax evasion on the Nigerian economy?
2. What is the percentage of the paid to tax that was evaded?

RESEARCH HYPOTHESIS

The following are the hypothesis:

HYPOTHESIS I

H_o =There will be no need for people to evade tax

H_i =There will be need for people to evade tax

HYPOTHESIS II

H_o = There will be no way by which tax evasion and avoidance

can be minimized or eliminated from our society.

H_i = There will be way by which tax evasion and avoidance can

be minimized or eliminated from our society.

HYPOTHESIS III

H_o = Tax evasion and avoidance will not be peculiar to a class of

Income earners.

H_i = Tax evasion and avoidance will be peculiar to a class of

income earners.

HYPOTHESIS IV

H_o = There will be no effect of tax evasion on the Nigerian

economy.

H_i = There will be effect of tax evasion on the Nigerian economy

HYPOTHESIS V

H_o = There will be no percentage of tax paid to tax that was

evaded

H_i = There will be percentage of tax paid to tax that was evaded.

 

 

 

3.4     DESCRIPTION OF THE POPULATION AND SAMPLE OF THE STUDY

The sample population identified in this research work which is a representative part of the population was drawn from eligible taxpayers that reside in Lagos State. It was limited to those who were adjudged to be more conversant with the issue at hand.

The study population represents a census of all items or subjects that possess the knowledge of the phenomenon being studied. In this case, the study population cuts across all eligible taxpayers in Lagos State, whether self employed or employed.

• SOURCES OF DATA COLLECTION

The research work was carried out using eligible taxpayers whether employed or self-employed to obtain information needed. Information was collected from both primary and secondary data sources.

The primary sources of information were derived from administering questionnaires, design to get vital information from respondents.

The secondary data which existed in many forms were obtained by examining various reports and other publications e.g. Journal, magazines, periodicals, textbooks, newspapers and the internet.

3.6     DESCRIPTION OF QUESTIONNAIRE

The questionnaire used in this study is divided into two main parts which are:

Part A: Respondents Demographic Data

Part B: Research Questions

The questionnaires was accomplished by a covered letter, the five (5) point liker scale was adopted for use as follows:

Strongly Agree (SA) 5 Points

Agree (A) 5 Points

Undecided (U) 5 Points

Disagree (D) 2 Points

Strongly Disagree (SD) 1 Point

 

 

 

 

3.7     METHODS OF DATA ANALYSIS AND DESCRIPTION OF TOOLS OF ANALYSIS          

After the collection of needed and relevant information and data, an analysis of the information collected will be carried out using quantitative discrete analysis of data and by using simple percentage in analyzing the research questions/demographic data of respondents, while chi-square test will be used to analyze the hypothesis to either accept or reject the null hypothesis.

 

 

 

 

 

 

 

 

 

 

 

END OF CHAPTER REFERENCES

Chartered Institute Of Taxation Of Nigeria (CITN) (2002): Nigerian Tax Guide and Statistics (First Edition), The Chartered Institute Of Taxation Of Nigeria, Lagos.

 

Odewale, R.W. (1999) Principles of Nigerian Taxation: DBM Publishers, Lagos.

 

Ogundele, E.A. (1996) Value Added Tax (Vat): Theory and Practice (Fist Edition), Libriservices Limited, Lagos.

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER FOUR

4.0     DATA ANALYSIS INTERPRETATION AND DISCUSSION OF       FINDINGS.

This chapter provides a statistical analysis and presentation of data collected for the purpose of deducing the reaction of tax payers to questions raised. Attempt was made to classify and analyze responses obtained through the questionnaire according to the respondent’s demographic data and further analysis to answer research questions that were raise in the previous chapter.

In this study, a total of 50 questionnaires were distributed. Out of which 48 were actually received. This represents about 96% responses to the questionnaire distributed and 48 are to be used for the analysis.

4.1     ANALYSIS OF RESPONDENTS BIO-DATA

This part contains information on the personal profile of the respondents. This is done to know the characteristics from which the sample was taken.

 

 

 

TABLE 4:1         CLASSIFICATION AND ANALYSIS BY SEX

VARIANCES	RESPONSES	PERCENTAGE (%)
MALE	30	63
FEMALE	18	37
TOTAL	48	100

SOURCE:  Field Survey (2011)

From the table above 4.1, 30 males representing 63% of the total respondents, while 18 females representing 37% proportion of the total respondents. Hence most of the respondents are male.

To calculate the percentage:

Male =           No of Male                 x      100

Total no of respondents

:. 30 x 100 = 62.5

48

@ = 63

Female        =       No of Male              x      100

Total no of respondents

:. 18 x 100 = 37.5

48

TABLE 4.2:        RESPONDENT AGE DISTRIBUTION

VARIANCES	RESPONSES	PERCENTAGE (%)
21-25 years	5	10.42
26-30 years	10	20.83
31-35 years	15	31.25
36-40 years	10	20.83
40 and above	8	16.67
Total	48	100

SOURCE: Field Survey (2011)

this is a primary research work of 2011.

Table 4.2 represents the respondent’ age distribution. From the table, 5 of the respondents representing 10.42% are between the ages of 21-25years, 10 respondents representing 20.83% are between the ages of 26-30 years, 15 respondents representing 31.25% are between the ages 31-35 years, 10 respondents representing 20.83% are between the ages 36-40 years while another 8 respondents are between the ages of 40 years and above represent 16.67%.

 

TABLE 4.3: CLASSIFICATION AND ANALYSIS BY WORKING STATUS

VARIANCES	RESPONSES	PERCENTAGE (%)
EMPLOYED	28	58.33
SELF-EMPLOYED	20	41.67
TOTAL	48	100

SOURCE: Field Survey (2011)

Table 4.3 above represents the classification and analysis by working status. It shows that 58.33% of the respondents are employed while the remaining 41.67% are self-employed.

Hence the majority of the respondents are employed.

 

 

 

 

 

 

 

 

TABLE 4.4: CLASSIFICATION AND ANALYSIS BY HOW LONG

          THE RESPONDENTS HAVE BEEN PAYING PERSONAL      INCOME TAX    

VARIANCES	RESPONSES	PERCENTAGE (%)
Less than 2 years	5	10.42
2-5 years	10	20.83
5-10 years	15	31.25
11-15 years	10	20.83
16 years above	8	16.67
Total	48	100

SOURCE: Field Survey (2011)

From table 4.4 above, 5 respondents representing 10.42% of the total respondents have been paying personal income tax for less than 2 years, 10 respondents representing 20.83% between 2-5years, 15 respondents representing 31.25% between 6-10 years, 10 respondents representing 20.83% between 11-15years and 8 respondents representing 16.67% between 16 years and above. This means that majority of the respondents have been paying personal income tax between 6-10 years.

4.2     ANALYSIS OF RESEARCH DATA

This section is targeted at analyzing research questions to proffer solutions to them.

TABLE 4:5: PEOPLE EVADE TAX BECAUSE THOSE IN HIGH GOVERNMENTAL POSITION ARE NOT PAYING TAX

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	10	20.83
Agree	15	31.25
Undecided	18	37.5
Disagree	5	10.42
Strongly Disagree	0	0
Total	48	100

SOURCE: Field Survey (2011)

From table 4.5 above, 10 respondents representing 20.83% of the total respondent strongly agree that people evade tax because people in high governmental position are not paying tax, 15 respondents representing 31.25% agree that people evade tax because those in high governmental positions are not paying tax, 18 respondents representing 37.5% agree undecided, while 5 respondents representing 10.42% disagree with the above statements. None of the respondents 10.42% disagree with the above statements. None of the respondents strongly disagree. This reveals that majority of the respondents are of the opinion that people evade tax because those in the high governmental positions are not paying tax.

TABLE 4.6:        PEOPLE EVADE TAX BECAUSE NO SERIOUS

                   PENALTY IS ATTACHED TO TAX EVASION.  

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	20	41.67
Agree	10	20.83
Undecided	2	4.17
Strongly Disagree	0	0
Disagree	16	33.33
Total	48	100

SOURCE: Field Survey (2011)

From the table 4.6 above 20 respondents representing 41.67% of the total respondents strongly agree that people evade tax because no serious penalty is attached to tax evasion. 10 respondents representing 20.83% agree on the above statement, 2 respondents representing 4.17% are undecided while 16 respondents representing 33.33% disagree and none of the respondents strongly disagree. This reveals that majority of the respondents are of the opinion that people evade tax because no serious penalty is attached to tax evasion.

TABLE 4.7: TAX EVASION AND AVOIDANCE CAN BE

MINIMIZED BY ALLOWING PEOPLE TO STATE WHAT THEY WANT THEIR MONEY TO BE USED FOR.   

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	25	52.08
Agree	10	20.83
Undecided	0	0
Disagree	3	6.25
Strongly Disagree	0	0
Total	48	100

SOURCE: Field Survey (2011)

From the table 4.7 above, 25 respondents representing 52.08% of the total respondent strongly agree that evasion and avoidance can be minimize by allowing people to state what they want their money to be used for 10 respondents representing 20.83% agree on the above statement. None strongly disagree, none are undecided, 3 respondents representing 6.25% disagree on the above statement. This reveals that majority of the respondents are of the opinion that evasion and avoidance can be minimized by allowing people to state what they want their money to be used for.

TABLE 4.8: THE LOW INCOME EARNERS SHOULD BE

EXCLUDED FROM PAYE SYSTEM OF TAXATION

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	25	52.08
Agree	10	20.83
Undecided	5	10.42
Disagree	5	10.42
Strongly Disagree	3	6.25
Total	48	100

SOURCE: Field Survey (2011)

From the table 4.8 above, 25 respondents representing 52.08% of the total respondent strongly agree low income earners should be excluded from PAYE system of taxation, 10 respondents representing 20.83% agree on the above statement, 5 respondents disagree with the above statement, while 3 respondents representing 6.25% strongly disagree. This reveals that majority of the respondents are of the opinion that low income earners should be excluded from PAYE system of taxation.

TABLE 4.9: PEOPLE DO NOT PAY TAX BECAUSE OF THE POOR STATE OF INFRASTRUCTURE IN THE ECONOMY 

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	30	62.5
Agree	10	20.83
Undecided	0	0
Disagree	8	16.67
Strongly Disagree	0	0
Total	48	100

SOURCE: Field Survey (2011)

From the table 4.9 above, 30 respondents representing 62.5% of the total respondent strongly agree that people do not pay tax because of the poor state of the infrastructure in the economy. 10 respondents representing 20.83% agree on the above statement. None are undecided, 8 respondents representing 16.67% disagree with the above statement while none strongly disagree. This reveals that majority of the respondents are of the opinion that people do not pay tax because of the poor state of infrastructure in the economy.

TABLE 5.0: THE UNEQUAL DISTRIBUTION OF INCOME AND   OSTENTATIONS DISPLAY OF WEALTH BY POLITICIANS FUEL TAX EVASION. 

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	15	31.25
Agree	18	37.5
Undecided	5	10.42
Disagree	8	16.67
Strongly Disagree	2	4.17
Total	48	100

SOURCE: Field Survey (2011)

From the table 5.0 above, 15 respondents representing 31.25% strongly agree that unequal distribution of income and ostentations display of wealth by politicians fuel tax evasion, 18 respondents representing 37.5% agree with the above statement, 5 respondents representing 10.42% are undecided, 8 respondents representing 16.67% disagree with the statement, 2 respondents representing 4.17 strongly disagree with the above statement. This reveals that majority of the respondents are of the opinion that unequal distribution of income and ostentations display of wealth by politicians fuel tax evasion.

TABLE 5:1: CORRUPT TAX OFFICIALS FUEL TAX EVASION

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	30	62.5
Agree	18	37.5
Undecided	0	0
Disagree	0	0
Strongly Disagree	0	0
Total	48	100

SOURCE: Field Survey (2011)

From the table 5.1 above, 30 respondents representing 62.5% of the total respondents strongly agree that corrupt tax officials fuel tax evasion. 18 of the respondents representing 37.5% agree on the above statement. None of the respondents are undecided, disagree and strongly disagree with the above statement. This reveals that majority of the respondents are of the opinion that corrupt tax officials fuel tax evasion.

TABLE 5.2: THE INEFFICIENT TAX SYSTEM IS AN INCENTIVE FOR THE EVASION AND AVOIDANCE 

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	25	52.08
Agree	23	47.92
Undecided	0	0
Disagree	0	0
Strongly Disagree	0	0
Total	48	100

SOURCED: Field Survey (2011)

From the table 5.2 above, 25 respondents representing 52.08% of the total respondents are of the opinion that the inefficient tax system is an incentive or tax evasion and avoidance, 23 of the respondents representing 47.72% agree with the above statement. None of the respondents are undecided, disagree and strongly disagree with the above statement. This reveals that majority of the respondents are of the opinion that the inefficient tax system is an incentive for tax evasion and avoidance.

TABLE 5.3: PEOPLE SHOULD BE EDUCATED ON THE

                   IMPORTANCE OF PAYING TAXES

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	20	41.67
Agree	10	20.83
Undecided	5	10.42
Disagree	8	16.67
Strongly Disagree	5	10.42
Total	48	100

SOURCE: Field Survey (2011)

From the table 5.3 above, 20 of the respondents representing 41.67% of the total respondent strongly agree that people should be educated on the importance of paying taxes, 10 respondents representing 20.83% agrees with the above statements. 5 respondents representing 10.42% are undecided. 8 of the respondents representing 16.67% disagree while 5 respondents representing 10.42% strongly disagree. This reveals that majority of the respondents are of the opinion that people should be educated on the importance of paying taxes.

TABLE 5:4: THE TAX OFFICIALS SHOULD BE WELL TRAINED IN RELATION TO THEIR JOBS.  

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	20	41.67
Agree	13	27.08
Undecided	15	31.25
Disagree	0	0
Strongly Disagree	0	0
Total	48	100

SOURCE: Field Survey (2011)

From the table 5.4 above, 20 respondents representing 41.67% strongly agree that the tax officials should be well trained in relation to their job. 13 respondents representing 27.08% agree with the above statement. None of the respondents are undecided. Also none of the respondent disagree or strongly disagree on the above statement. This reveals that majority of the respondents are of the opinion that tax officials should be well trained in relation to their jobs.

TABLE 5.5: ONE REASON FOR LOW GDP, NI. IS TAX EVASION AND AVOIDANCE

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	30	62.5
Agree	13	27.08
Undecided	5	10.42
Disagree	0	0
Strongly Disagree	0	0
Total	48	100

SOURCE: Field Survey (2011)

From the table 5.5 above, 30 of respondents representing 62.5% strongly agree that the reason for the low GNP, GDP, NI is tax evasion and avoidance, 13 respondents representing 27.08% agree with the above statement, 5 respondents are undecided representing 10.42% none of the respondents disagree or strongly disagree with the above statement. This reveals that majority are of the opinion that one reason for the low GDP, GNP, NI is tax evasion and avoidance.

TABLE 5.6: NEW WAYS OF TAX COLLECTION SHOULD BE

                   INTRODUCED

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	15	31.25
Agree	8	16.67
Undecided	10	20.83
Disagree	10	20.83
Strongly Disagree	5	10.42
Total	48	100

SOURCE: Field Survey (2011)

From the table 5.6 above, 15 respondents representing 31.25% of the total respondent strongly agree that new ways of collecting tax should be introduced, 8 respondents representing 16.67% agree with the above statement, 10 respondents representing 20.83% disagree while 5 respondents representing 10.42% strongly disagree with the above statement and another 10 respondents representing 20.83% were undecided about the above statement.

TABLE 5.7: THE SELF-ASSESSMENT SCIENCE OF THE

                   COLLECTION SHOULD BE REVIEWED

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	20	41.67
Agree	13	27.08
Undecided	15	31.25
Disagree	0	0
Strongly Disagree	0	0
Total	48	100

SOURCE: Field Survey (2011)

From the above table 20 respondents representing 41.67% strongly agree that self-assessment scheme of tax collection should be reviewed, 13 respondents representing 27.08% agree with the above statement, 15 respondents representing 31.25% are undecided, none of the respondents disagree or strongly disagree with the above statement. This reveals that majority of the respondents are of the opinion that the self-assessment scheme of tax collection should be reviewed.

 

TABLE 5.8: A HEALTHY ENVIRONMENT SHOULD BE CREATED WHERE TAX PAYERS CAN APPRECIATE TAX S A CIVIL RESPONSIBILITY 

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	30	62.5
Agree	18	37.5
Undecided	0	0
Disagree	0	0
Strongly Disagree	0	0
Total	48	100

SOURCE: Field Survey (2011)

From the table 5.8 above, 30 respondents representing 62.5% of the total respondent strongly agree that a healthy environment should be created where tax payers can appreciate tax as a civil responsibility, 18 respondents representing 37.5% of the total respondents also agree with the above statement, none of the respondents are undecided, disagree, strongly disagree with the above statement. This reveals that all of the respondents are of the opinion that a healthy environment should be created where tax payers can appreciate to as a civil responsibility.

TABLE 5:9: THE ACCELERATED REVENUE GENERATION

                   PROGRAMME SHOULD BE REVIEWED

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	23	47.92
Agree	5	10.42
Undecided	15	31.25
Disagree	5	10.42
Strongly Disagree	0	0
Total	48	100

SOURCE: Field Survey (2011)

From the table 5.9 above, 23 respondents representing 47.92% strongly agree that the accelerated revenue generation programme should be reviewed, 15 respondents representing 31.25% are undecided, 5 respondents representing 10.42% disagree while none of the respondents strongly disagree with the above statement.

This reveals that all of the respondents are of the opinion that the accelerated revenue generation programme should be reviewed.

4.3     TEST OF HYPOTHESIS

Each of the hypothesis will be tested using the chi-square (x²) test at 5% level of significance and (k-1) degree of freedom, where k number of options.

The following formula is used in computing the chi-square value of the data.

X² = (OIJ-SIJ)²

EIJ

Where OIJ = Observed frequency

EIJ – Expected frequency

And … is given as: Total Observed Frequency

Number of options

DECISION RULE:

If X² calculated exceeds (that is, greater than X² tabulated at 5% level of significance and (K-1) degree of freedom, accept the Null hypothesis (Ho), otherwise reject.

 

 

 

HYPOTHESIS I

The hypothesis is formulated to test the effect of tax rate on tax evasion and avoidance. Stated below is the Null and Alternative hypothesis.

Null hypothesis (Ho): Tax evasion and tax avoidance has no relationship with tax rate.

Alternative Hypothesis (Hi): Tax evasion and avoidance has relationship with tax rate.

Table 6.0:   TAX AVOIDANCE HAS RELATIONSHIP WITH TAX   RATE

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	25	52.08
Agree	7	14.58
Undecided	16	33.33
Disagree	0	0
Strongly Disagree	0	0
Total	48	100

Source: Field Survey (2011)

 

HYPOTHESIS II

This hypothesis is formulated to test whether tax evasion is inversely proportional to the probability of being caught and the severity of sanctions.

TABLE 6:1: TAX EVASION IS NOT INVERSELY PROPORTIONAL TO THE PROBABILITY OF BEING CAUGHT AND THE   SEVERITY OF SANCTIONS

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	28	58.33
Agree	5	10.42
Undecided	10	20.83
Disagree	5	10.42
Strongly Disagree	0	0
Total	48	100

Source : Field Survey (2011)

HYPOTHESIS III

This hypothesis is formulated to test whether tax evasion and avoidance brings about a freedom in total revenue of the Nigerian economy. Stated below are the null and alternative hypothesis.

Null Hypothesis (Ho): Tax evasion and avoidance of tax does not bring about a reduction in total revenue of the Nigerian economy.

Alternative Hypothesis (Hi): Tax evasion and avoidance of tax brings about a reduction in total revenue of the Nigerian economy.

TABLE 6.2: EVASION AND AVOIDANCE OF TAX BRINGS

ABOUT A REDUCTION IN TOTAL REVENUE OF THE NIGERIAN ECONOMY   

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	30	62.5
Agree	18	37.5
Undecided	0	0
Disagree	0	0
Strongly Disagree	0	0
Total	48	100

Source: Field Survey (2011)

HYPOTHESIS IV

This hypothesis is formulated to test whether tax evasion and avoidance of tax is peculiar to a class of personal income earners. Stated below are the Null and Alternative hypothesis.

Null Hypothesis (Ho): Evasion and avoidance of tax is not peculiar to a class of personal income earners.

Alternative Hypothesis (Hi): Evasion and avoidance of tax is peculiar to a class of personal income earners.

TABLE 6.3: EVASION AND AVOIDANCE OF TAX IS PECULIAR

                   TO A CLASS OF PERSONAL INCOME EARNERS 

VARIANCES	RESPONSES	PERCENTAGE (%)
Strongly Agree	25	52.08
Agree	11	22.91
Undecided	5	10.42
Disagree	5	10.42
Strongly Disagree	2	4.17
Total	48	100

Source: Field Survey (2011)

 

APPENDIX

CHI-SQUARE CONTINGENCY TABLE

VARIANCES	0	S	0-S	(0-S)2	(0-S)2/S
Strongly Agree	25	9.6	15.4	237.16	24.70
Agree	7	9.6	2.6	6.76	0.70
Undecided	16	9.6	6.4	40.96	4.27
Disagree	0	9.6	9.6	92.16	9.6
Strongly Disagree	0	9.6	9.6	92.16	9.6
Total					48.87

Source: Field Survey (2011)

Where expected frequency is (…) 48/5 = 9.6

X² calculated = 48.87

X² tabulated = 9.48

X² = X² at 5% and (5-1) degree of freedom

X² = 0.05 = 9.488

DECISION RULE

Since X² calculated 48.87 is greater than X² tabulated of 9.48, we reject the null hypothesis (Ho) at 5% level of significance which states that tax evasion and avoidance has no relationship with tax rate. Hence we accept the alternative hypothesis, which states that tax evasion and avoidance has relationship with tax rate.

CHI-SQUARE CONTINGENCY TABLE

VARIANCES	0	S	0-S	(0-S)2	(0-S)2/S
Strongly Agree	28	9.6	18.4	338.56	35.27
Agree	5	9.6	4.6	21.16	0.20
Undecided	10	9.6	0.4	0.16	0.01
Disagree	5	9.6	4.6	21.16	2.20
Strongly Disagree	0	9.6	9.6	92.16	9.6
Total					47.28

Source: Field Survey (2011)

Where expected frequency (…) 48/5 = 9.6

X² calculated = 47.28

X² tabulated = 9.48

X² = X² at 5% and (5-1) degree of freedom

X² = 0.05 = 9.488

DECISION RULE

Since X² calculated 47.28 is greater than X² tabulated of 9.48, we reject the null hypothesis (Ho) at 5% level of significance which states that tax evasion is not inversely proportional to the probability of being caught and the severity of sanctions. Hence we accept the Alternative hypothesis (Hi) which states that tax evasion is inversely proportional to the probability of being caught and the severity of sanctions.

CHI-SQUARE CONTINGENCY TABLE

VARIANCES	0	S	0-S	(0-S)2	(0-S)2/S
Strongly Agree	30	9.6	20.4	416.16	43.35
Agree	10	9.6	0.4	0.16	0.02
Undecided	8	9.6	-1.6	2.56	0.27
Disagree	0	9.6	-9.6	92.16	9.6
Strongly Disagree	0	9.6	-9.6	92.16	9.6
Total					62.84

Source: Field Survey (2011)

Where expected frequency (…) 48/5 = 9.6

X² calculated = 62.84

X² tabulated = 9.48

X² = X² at 5% and (5-1) degree of freedom

X² = 0.05 = 9.488

DECISION RULE

Since X² calculated 62.84 is greater than X² tabulated of 9.48, we reject the null hypothesis (Ho) at 5% level of significance which states that tax evasion and avoidance of tax does not bring about reduction in the total revenue of Nigerian economy. Hence we accept the alternative hypothesis (Hi) which states that tax evasion and avoidance of tax brings about a reduction in the total revenue of the Nigerian economy.

CHI-SQUARE CONTINGENCY TABLE

VARIANCES	0	S	0-S	(0-S)2	(0-S)2/S
Strongly Agree	25	9.6	15.4	237.16	24.70
Agree	11	9.6	1.4	1.96	0.20
Undecided	5	9.6	-4.6	21.16	2.20
Disagree	5	9.6	-4.6	21.16	2.20
Strongly Disagree	0	9.6	-9.6	92.16	9.6
Total					38.9

Source: Field Survey (2011)

Where expected frequency (…) 48/5 = 9.6

X² calculated = 38.9

X² tabulated = 9.48

X² = X² at 5% and (5-1) degree of freedom

X² = 0.05 = 9.488

DECISION RULE

Since X² calculated 38.9 is greater than X² tabulated of 9.48, we reject the null hypothesis (Ho) at 5% level of significance which states that tax evasion and avoidance of tax  is not peculiar to a class of personal income earners. Hence we accept the alternative hypothesis (Hi) which states that tax evasion and avoidance of tax is peculiar to a class of personal income earners.

 

 

 

 

 

 

 

 

 

END OF CHAPTER REFERENCES

Chartered Institute Of Taxation Of Nigeria (CITN) (2002): Nigeria Tax Guide And Statistics (First Edition), Tax           Chartered Institute Of Taxation Of Nigeria, Lagos.

 

Odewale, R.W. (1999): Principles of Nigerian Taxation: DBM Publishers Lagos.

 

Ogundele, E.A. (1996): Value Added Tax (VAT): Theory And Practice (First Edition). Libriservices Limited, Lagos.

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER FIVE

• SUMMARY, CONCLUSION, RECOMMENDATIONS AND SUGGESTIONS FOR FURTHER STUDIES.

INTRODUCTION:

This chapter  sums  up the entire research carried out based on the topic: An Appraisal of Tax Evasion and Avoidance. In Nigeria Tax System. A survey of Lagos State. The data gathered are highlighted in this chapter, conclusion and recommendations have been based on the research.

5.1     SUMMARY

An appraisal of the causes of tax evasion and avoidance and its negative effects on the Nigerian economy was carried out in this study. The basis of this study was laid down in chapter one, comprising the objectives of the study, which are used to expalin the purpose of the study.

Also the research encompassed significance of the study to the Nigerian economy, also stated were the limitations of the study such as time constraint, few textbooks etc, the research questions as well as the definition of terms were also included in this chapter.

The second chapter provided the meaning of tax and taxation, purpose of taxation, tax policy, evasion and avoidance of tax, methods of evasion and avoidance in Nigeria, extent of tax evasion and avoidance in Nigeria, instances when tax can be avoided in Nigeria. This chapter was based on the views of different writers in relation to the research topic.

Chapter three examined the research methodology, which explained the method of data collection used which is the questionnaire, the sources of data and the research design.

Chapter four dealt with the presentation, analysis and interpretation of data. It pointed out the view of the respondents (taxpayers in Lagos State) used to answer the research question.

In summary, tax evasion and avoidance has contributed immensely to the low revenue generated by government through taxation. This has contributed to the inability of government to perform its basic duties of providing social amenities for its citizens. Also, it has reduced the effectiveness of using taxation as a means of controlling inflation in the economy of Nigeria.

In as much as it may be possible to wipe out these evil twins “tax evasion and tax avoidance” finding ways to minimize their operation will no doubt increase government revenue from taxation to a substantial percentage.

5.2     CONCLUSION

From the findings and result of the data literature review, the following conclusions can be reached:

1. Tax evasion and avoidance are significant problems even in developed countries.
2. People evade tax because people in high governmental positions are not paying tax.

iii.        Tax evasion and avoidance can be minimized by allowing people        to state what they want their money to be used for.

1. People do not pay tax because of the poor state of infrastructure in the country.
2. The higher the tax rate, the higher the tax evasion and avoidance.
3. Tax evasion and avoidance has brought about a significant reduction in total revenue of the Nigerian economy.

vii.       An inefficient tax system is an incentive for tax evasion and       avoidance.

5.3     RECOMMENDATIONS

The research makes the following recommendations.

1. The Nigerian tax statute should provide a definite meaning of tax evasion.
2. Nigerians should be properly educated on the reasons why they should pay tax.

iii.      The accelerated revenue generation programme (ARGP) should be reviewed.

1. Tax evasion and avoidance should be regarded as a criminal offence, which serves penalties.
2. The tax rate should be low enough to encourage payment of taxes

5.4     FURTHER AREA OF STUDY

          The following are useful suggestions for a research student interested in further studies:

1. Tax evasion and avoidance: Arguments for and against.
2. Tax evasion and avoidance as a suitable alternative to sales tax in a developing economy.

iii.      Common problems encountered by tax payers and administers.

1. Benefits of tax evasion and avoidance to the Nigerian economy.

 

 

BIBLIOGRAPHY

Abdullah, S.A. (1999): Tax Evasion and Avoidance in Nigeria: An Appraisal Of Some Costs – Univesity Press, Zaria.

 

Abdulrazaq, M.T. (1992): Nigerian Taxation: Spreading the Dragnet of Tax Compliance. Kwara Law Review Volume 1, Joural          of the Nigerian Bar Association, Ilorin Branch, Ilorin.

 

Abdulrazaq, M.T. (1996): “An Analysis of Income Tax Appeal, Rules In Nigeria Tax Notes” Volume 2, Maples and Temple.

 

Abdulrazaq, M.T. (2002): Nigerian Income Tax Law and Procedure. Maples and Temples.

 

Adam Smith (1993): The Wealth of Nations Volume 28, 15 Edition Encyclopedia Britannica University of Chicago.

 

Adegoke, A. (1999): Tax Evasion: Lagos Aat Books, Lagos

 

Bassey, O.U. (2002): Foundation of Personal Income Tax in Nigeria. Brand Pius Limited, Educational Publishers Ogba-Aguda, Ikeja, Lagos.

 

Chartered Institute Of Taxation Of Nigeria (CITN) (2002): Nigerian Tax Guide And Statistics (First Edition), The Chartered Institute Of Taxation of Nigeria, Lagos.

 

Eason, A.J. (2002): Cases and Materials in Revenue Law. United Kingdom, Sweet And Maxwell, United Kingdom.

 

Angel, M.B. (1999): Tax Evasion and Avoidance: 39 Columbra Law Review. Modern Law Review, Columbia.

 

Aniwomole, S.S.A. (2004): Petroleum Profit Tax Computation In

Nigeria, Global Journal of Accounting Department Of Accounting, Faculty Of Business Administration University Of Lagos.

 

Oloruleke, D.O. (2001): Extent of Tax Evasion and Avoidance. Lagos Business Times.

 

Osula, J And Nwosu, T. (1988): Five Billion Naira Lost Through Tax Evasion. The President, 31 July, 1998.

 

Wallschuxky, I.G. (2002): Inwards A Definition of the Term Tax Avoidance. Australia Tax Review (Atr).

 

 

 

 

 

 

 

 

APPENDIX

Department of Accounting,

Faculty of Management ,

Ekiti State University,

P.MB. 5363,

Ado – Ekiti

Ekiti – State.

Dear Sir/Madam,

I am a 400 Level student of the department of Accounting, Ekiti  State University I am carrying out a research on the topic titled “An Appraisal of Tax Evasion and Avoidance in Nigeria Tax System: A Survey of Lagos State, in partial fulfillment of the Bachelor of Science (B.Sc) degree in Accounting. In order to source for useful data and information, I have drawn up this attached questionnaire for your response to the issues raised.

I promise that any information given will be treated with utmost confidentiality.

Thank you for your anticipated co-operation.

Yours faithfully,

Researcher

QUESTIONNAIRE

SECTION A: Respondents Demographic Data: Please tick accordingly in the boxes provided

1. Sex

Male                               (     )

Female                            (     )

2. Age

21-35 years                              (     )

26-30 years                              (     )

31-35 years                              (     )

36-40 years                              (     )

3. States

Self-Employed               (     )

Employed                       (     )

4. How long have you been paying personal income tax?

Less than 2 years           (     )

2-5 years                        (     )

5-10 years                      (     )

10-15 years                             (     )

15 years and above        (     )

SECTION B

1. Nigerians pay tax as at when due?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

2. Nigerians understand the term tax evasion and avoidance?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

3. Many Nigerians pay tax?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

4. Many Nigerians evade tax?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

5. Tax evasion and avoidance can be minimized?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

6. Tax evasion and avoidance is peculiar to a class of income

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

7. The Nigerian tax system is to be delivered of loopholes?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

8. The loopholes in the Nigerian tax system gave room for tax evasion and avoidance?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

9. The social ills in our society through tax evasion and avoidance are to a large extent?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

10. Tax evasion has a significant impact on the Nigerian economy?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

11. Higher tax rate causes an increase in tax evasion?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

12. The probability of being punished is proportional to tax evasion?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

13. Increase in tax evasion and avoidance reaches the total revenue of the Nigerian economy?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

14. Tax evasion and avoidance is peculiar to a class of income earners?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

15. The Nigerians tax system is effective?

Agree                             (     )

Strongly Agree               (     )

Disagree                         (     )

Strongly Disagree                    (     )

 

 

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The post AN APPRAISAL OF TAX EVASION AND AVOIDANCE IN NIGERIAN TAX SYSTEM (A SURVEY OF LAGOS STATE) appeared first on TY Computer Institute.