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         
Table of Contents                                                                                   
1.0            Introduction                                                                                     
1.1            Background of the Study                                                                 
1.2            Statement of the Problems                                                    
1.3            Objectives of the Study                                                          
1.4            Significance of the Study                                                                 
1.5            Research Questions/Hypothesis                                                       
1.6            Research Methodology                                                           
1.7            Scope and Limitation of the Study                                         
1.8            Definition of the Terms                                                          
1.9            Organisation of the Study                                                      
End of Chapter of the Study                                                  
2.0            Literature Review                                                                             
2.1            Research into Current Literature                                            
2.1.1                                              Meaning  of Tax and Taxation                                                        
2.1.2          Purpose of Taxation                                                          
2.2            Conceptual Explanations                                                               
2.2.1                                                    The Nigeria Tax System                                                                  
2.2.2                                                    Tax Principles                                                                     
2.3            Meaning  of Tax Evasion and Avoidance                             
2.3.1    Tax Evasion                                                                                      
2.3.2    Method of Tax Evasion                                                         
2.3.3    Reasons for high Rate of the Tax Evasion in Nigeria             
2.3.4    Possible Solutions to Tax Evasion in Nigeria                                 
2.3.5    Instance when Tax can be Avoided in Nigeria                       
2.3.6    Tax Avoidance                                                                    
2.4            Legislative Meaning                                                                
2.5            Judicial Meaning                                                                  
2.6            Method of Tax Avoidance                                                      
2.7            Extent of Tax Avoidance Evasion in Nigeria                                    45
2.8            Reason for Tax Evasion and Avoidance in Nigeria                          48
End of Chapter References                                                      54
3.0            Research Methodology                                                           
3.1            Research Focus                                                                      
3.2            Research Instruments                                                             
3.3            Restatement of Research Question/Hypothesis                      
3.4            Description of the Population and Sample of the Study                  
3.5            Sources of Data Collection                                                    
3.6            Description of Questionnaire                                                 
3.7            Method of Data Analysis and Description of Tools of Analysis     
End of Chapter References                                                     
4.0            Data Analysis, Interpretation and Discussion of Findings                
4.1            Analysis of Respondents Bio – Data                                               
4.2            Analysis of Research Data                                                     
4.3            Test of Hypothesis                                                                         
End of Chapter References                                                    
5.0            Summary, Conclusion, Recommendation and Suggestion
for Further Studies                                                                       
5.1            Summary                                                                                 
5.2            Conclusion                                                                           
5.3            Recommendations                                                                          
5.4            Further Area of Studies                                                          

                                         CHAPTER ONE
1.0            INTRODUCTION
          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:
i)       To meet government’s social, economic and political obligations such as the construction of roads, building of hospitals, schools etc.
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. 
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           oriented.   
v)      To combat inflation through fiscal measures.
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:
i)       Legal entities
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:
i)       Smuggling
ii)      Customs Duty Evasion
iii)     Value Added Tax Evasion
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.
          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.
          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:
i)       To examine the reasons why people evade tax
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.  
iv)     To examine the effect of tax evasion in the Nigerian economy.
v)      To examine the percentage of tax paid to tax that was evaded.  

          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:
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.    
ii)      Whether to adopt a policy of operation low tax regime.
iii)     Review the efficiency of the self-assessment scheme in tax     collection. 
iv)     Ensure the effective use of due process of law and the mechanism   of an efficient tax administration to curb evasion and avoidance.
v)      Creation of a healthy tax environment where people are able to      appropriate tax as a civil responsibility rather than an act of     injustice.  
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.
          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:
i)       Why do many people evade tax?
ii)      How can tax evasion and avoidance be minimized?
iii)     Are tax evasion and avoidance peculiar to a class of income earners? 
iv)     What is the effect of tax evasion in the Nigerian economy?
v)      What is the percentage of the paid tax to tax that was evaded?
          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:
i)       Ho = There will be no need for people to evade tax
          Hi = There will be need for people to evade tax
ii)      Ho = There will be no way by which tax evasion and avoidance can
                   be minimized or eliminated from our society.
          Hi = There will be way by which tax evasion and          avoidance can be minimized or eliminated from our society.
iii)     Ho = Tax evasion and avoidance will not be peculiar to a class                 of income earners.
          Hi= Tax evasion will be peculiar to a class of income
iv)     Ho= There will be no effect of tax evasion on the Nigerian
          Hi= There will be effect of tax evasion on the Nigerian
v)      Ho= There will be no percentage of tax paid to tax that was
          Hi= There will be percentage of tax paid to tax that was
          This explains the methods used in conducting the research work. The methods used are as follows:
          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.
          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.
          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.
          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.
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
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.
          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.
i)       Economy: This is the whole system of inter-relationship between the private and public government and non-governmental organizations.         
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.
iv)     Incident of Tax: This refers to who bears the final burden of the tax.
v)      Tax: It is a compulsory levy on income, imposed by the government to generate revenue for its various responsibilities.
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.
          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.

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.


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