CHAPTER
ONE
INTRODUCTION
BACKGROUND
OF THE STUDY
1.1
Tax is a financial issue and its payment is a civil duty. It is the imposition of a financial burden for the
government on individual firm and
companies. In general based, the word tax means any contribution imposed by the government upon individual and
companies for the use of government to
provide facilities or services as rendered by the state. It is not a voluntary payment or donation but an
enforced contribution made on the
pronouncement or directive of legislative authorities.
Osita
(2004:1) stated, taxation may be define as the compulsory leave by the government through it’s various
agencies in the income, capital or
consumption of it’s subject such as salaries, business profits, interest, dividends, commission regularities,
rent etc.
It
could be said that there are three main methods of financial economic
expedition open to meet developing countries there are:-
(a) LOANS
(b) GRANT
(c) TAX AND OTHER CURRENT RECEIPT
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Of
these sources, tax is perhaps the most important since the level of government expenditure is to a great extent
dependent on the ability of the tax
system to generate the required revenue at the disposal of the government.
In
spite of this benefit from tax most people still indulge in tax evasion and avoidance. Attempt to avoid some
portion of liability or not to pay tax
will affect the revenue of the government that is the reason why the government frown at the issue of tax
evasion and avoidance, and uses it’s
authorities to enforce compliance.
ARONOMOLE
and OLUWALAYODE (2006:39). Define tax avoidance
as legal ways by which a tax payer reduces in tax liabilities.
Tax
evasion is a deliberate on the part of the tax payers to reduce their tax liabilities through illegal means
or an attempt not to pay tax due.
The
distinction between this tax avoidance and tax evasion is that tax avoidance is not considered a criminal
offence where as tax evasion is a
criminal offence.
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According
to ANYAELE (1990:225) a tax may be defined as a
compulsory contribution imposed by a government authority on goods, individual and co-operate bodies irrespective
of the exact amount of services rendered
to the tax payer in return and not imposed as a
penalty for our legal offence. Both direct and indirect taxes that are collected for the government inform of income
tax, exercise duty, import and export
duties. Purchase and sales taxes and so on help the government to generate a lot of revenue for
the smooth administration in the nation.
There
are two elements in every form of taxation and that is the BASE AND RATE. The tax base is the object
which is taxed or a measure of the
private sector income or wealth that can be taxed, while the tax rate is the percentage of the measured amount
taken off from the tax base. In this
case the money realized from it is used to provide social goods and services, so that everybody both
the rich and poor will have equal
chances of making use of them, that is the goods and services. They include pipe borne water, electricity,
good roads, hospital, schools etc. most
people in Nigeria has the habit of evading or avoiding tax payment i.e. they always avoiding paying
their taxes. With this state of
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affairs the various tier of
government in the country don’t usually generate enough revenue which will
enable them to effectively execute all
the development projects which are highlighted in their budgets.
It
has to be pointed out that the successive Nigeria governments have not made adequate and sincere efforts
toward informing the tax dodger or
evader on the need for them to pay the taxes. All attentions have been directed on the revenue from oil
sector while taxes and agriculture,
which supposed to be generating a lot of revenue to the country, are deliberately over looked.
Also
the researcher wants to look into the problems of paying tax by the public, such problem are as follows
a) Tax evasion and tax avoidance by
the public
b) Poor system of tax collection
c)
Inability of the government to prosecute tax avoidance. 1.2 STATEMENT OF THE PROBLEM
It
has been noted that tax system in Nigeria has come to play a significant role, as a major source of
revenue to the federal government by way
of imposing tax on tax payers and it is for them to pay up the tax.
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The
act of evading and avoiding tax by most registered companies and some individuals has however affected the
revenue base of the government
especially in providing essential services in the society. People naturally prefer to reduce their tax
liabilities by deliberately overstating
their expenses and make false entries and fictions in their books
of account. Thus, their act however,
causes tremendous reduction in the
revenue accruable to the government which eventually shrinks revenue
to the treasure of government.
The
inability of the revenue board to collect substantial amount of money from tax is as a result of evasion and
avoidance of tax. This research work
examines the problems facing the revenue department in collecting taxes and levies under their
jurisdiction with a view to indentifying
possibilities at minimizing or even eradicating tax evasion and avoidance.
1.3
OBJECTIVE OF THE STUDY
The objectives of this study are as
follow
1. To analyze the various causes of
tax evasion and avoidance
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2.
To identify the factors or problems militating against the tax assessment and collection in Nigeria.
3.
To identify possible effects of the tax evasion and avoidance on the economic development of the country and Abia
state in particular. 4. To analyze the effectiveness and flaws of various tax
in the country 5. To examine ways in which tax evasion and avoidance can be
reduce with the new reforms.
6. To examine tax reforms in
Nigeria
1.4
RESEARCH QUESTION
For
this research work to be effective it please the researcher to ask the following question
1. What are the causes of tax
evasion and avoidance
2.
What are the factors or problems militating against the tax assessment and collection in Nigeria?
3.
What are the possible effects of tax evasion and avoidance economics development of the country and Abia
state in particular 4. Are tax laws in the country effective
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5.
Have new tax reforms reduce tax evasion and tax avoidance and tax avoidance in Nigeria
6.
Do the loopholes in the tax laws encourage tax evasion and tax avoidance in Nigeria.
1.5
STATEMENT OF HYPOTHESES
To
aid the research work the following hypotheses has been postulated, the mill hypothesis is denoted by
“Ho” while the alternative hypotheses is
denoted by “HI”
1. H0: There is no significance difference
between the expected tax revenue and the
amount actually paid by those who evade and avoid tax
HI: There is a significance difference
between expected tax revenue and the
amount actually paid by those who evade and avoid tax
2 H0: There is no significance difference between the
number
of people who are due to pay personal income tax and those that actually pay tax
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HI: There is a significance difference
between number of people who are due to
pay personal income tax and those that actually pay tax.
3.
H0: There is a significance difference
between numbers
of
register enterprise and the numbers of registered enterprises that pays tax in the country .
HI:
There is a significance difference
between numbers of
Register
enterprise and the numbers of registered enterprises that pays tax in the
country or state
1.6
SIGNIFICANT OF THE STUDY
This
research work would be relevant to various tax authorities; the Federal Board of Inland Revenue, Local
Government revenue committee as well as
their tax officials who are responsible to collect tax on individual or corporate bodies. It gives them insight on
how to improve the tax administration.
The
research would also help the professional bodies like the chartered institute of taxation of Nigeria
and the institute of chartered
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accountants of Nigeria as well as
their members to see the areas of
deficiency in the collections and call for improvement in tax revenue.
This
research would also be relevant to the future researchers and the dents of accounting, economic, business
administration and other social and
management sciences as well as the legislations which will also benefit immensely from this research because
it will form basis of tax policy
formation, implementation and administration.
1.7
SCOPE OF THE STUDY
Since
no single research can validly cover all areas of the topic the researcher tends that thrust of this project
will be limited within the scope of how
tax payers performance on tax are influenced by the choice of its tax system. The study will focus primarily on
Abia state to be precise to enable the
researcher carryout on extensive investigation on this subject. The state to be studied is: Abia state.
1.8
LIMITATION OF THE STUDY
It
is not unusual for research to encounter some difficulties in course at their
research and these may include.
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1.
FINANCE: This is always a major
limitation in a study of this nature,
since the individual may not have enough money to carryout all the necessary research.
2.
LACK OF DATA: There are areas where
data is available but which the
researcher cannot lay hands on because the relevant information is sometimes termed confidential
and unavailable to outsiders.
3.
LACK OF CO-OPERATION:- By some of
the respondents whom he administered
certain copies of his questionnaire and vocal
interview.
4.
Delay in giving back its him some of the copies of the questionnaires for some of the respondents.
1.9
DEFINITION OF TERMS
In
order to aid understanding of this research work by the user, special term used in this study are defined,
1. TAX:This is a compulsory contribution
imposed by government on individual and
corporate bodies for the use of government to provide facilities or service in the nation.
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2.
TAX EVASION: This is the
attitude adopted by tax payers to
deliberately misrepresent the true state of their affairs to the
tax authorities or include dishonest tax
report such as declaring less income,
profit or gains to escape tax liability (wholly or partially) by breaking
the law.
3.
TAX AVOIDANCE: This is a
legal way by which a tax payer reduces
his tax liabilities.
4. TAX LIABILITY:This is the amount that is borne by the tax
payer
5.
PAYE(PAY AS YOU EARN): This
type of tax is based as the earning of
the tax payer.
6.
CAPITAL GAIN TAX: This is the
type of tax that is based on the gain
realized from the sale of capital goods.
7.
CORPORATE TAX: This is the
type of tax that is based on the profit
a company.
8.
CASINO REVENUE: This is the
amount of the levy paid by people who
operate at public being rent to gambler or for other amusements.
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9.
TAX LAWS: These are acts
decree or regulations guiding the
assessment and collection of taxes in the country.
10.
STATE INLAND REVENUE: The
body responsible for the collection of
tax at state level.
11.
FEDERAL INLAND REVENUE: The
body responsible for the collection of
tax at federal level
12.
REVENUE: Amount of
money realized by an individual or group or
company
13.
PERSONAL INCOME TAX DECREE 1993: The
law guiding the assessment and
collection of personal income tax
14.
COMPANY INCOME TAX ACT 1990:U
The law regulating the assessment
and collection of tax of corporate bodies.
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