INVESTIGATION INTO THE CAUSES OF TAX EVASION IN LAGOS STATE (A CASE STUDY OF SELECTED SMES IN IKEJA)
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
The
concept of taxation has been a concern of global significance as it affects
every economy irrespective of national differences (Oboh etal., 2012).
According to Omotoso (2001), in his definition of the modern taxes, defined tax
as a compulsory charge imposed by a public authority on the income of
individuals and companies as stipulated by the government decrees, acts or
cases laws irrespective of the exact amount of services rendered to the payer
in return. A more recent and comprehensive definition was given by Dr. Ekenze
Oliver of Buitas Consultancy to the effect that tax is: “a compulsory levy
imposed by an organization or Government on its member citizens, for the sole
purpose of providing common goods and services for the benefit of all members”.
He continued: “tax is designed to raise revenue required for the expenditure
authorized in a government budget expectation. It is also a veritable
instrument of promoting social and economic justice and equality amongst
citizens of a state or members of an organization”. As could be gleaned from
the above definitions, a tax is not therefore a voluntary payment; it is a
compulsory pecuniary burden placed upon the subjects of a given country to
support the people. Thus, taxes constitute the principal source of government
revenue and the beauty of any government is for its citizen to voluntarily
execute their tax obligations without much coercion and harassment. The
greatest puzzle facing the Nigerian tax system is the threat of tax evasion and
tax avoidance. It is widely believed that there is a substantial difference
between estimated revenue from taxation every year and what is actually
collected.
Tax
evasion is a major problem plaguing many emerging economies across the globe
and Nigeria situation seems unique when viewed against the scale of corrupt
practices evident in the country. Under the direct personal taxation as
practiced in Nigeria, the major problem lies in the collection of the taxes
especially from the self-employed such as the businessmen, contractors,
professional practitioners like lawyers, doctors, accountants, architects and
traders in shops among others (Kiabel and Nwokah, 2009). As observed by Ayua
(1999) cited in Kiabel and Nwokah (2009) these persons blatantly refuse to pay
tax by reporting losses every year. Ayua (1999) further asserts that many of
these professionals live a lifestyle inconsistent with reported income, which
is usually unrealistically low for the nature of their businesses. The only
categories of individuals who fulfill their tax obligation in Nigeria are civil
servants and other salaried workers.
1.2 Statement
of the problem
Tax evasion in Nigeria has been a cause
for a serious concern; this is because it has led to the depletion in the
internally generated revenue which has by extension adversely affected our
economic growth and development.
1.3 Objectives
of the study
The following are the aims and
objectives of this study
1. To examine the major causes of tax
evasion in Nigeria.
2. To examine the relationship between tax
evasion penalty and tax evasion in Nigeria.
3. To examine the relationship between
high tax rate and tax evasion in Nigeria.
4. To know if many business owners pay
tax.
1.4 Research
questions
1. What are the major causes of tax
evasion in Nigeria?
2. What is the relationship between tax
evasion penalty and tax evasion in Nigeria?
3. What is the relationship between high
tax rate and tax evasion in Nigeria?
4. Do many Nigerian business owners pay
tax?
1.5 Research hypotheses
Ho: There is no
significant relationship between high tax rates and tax evasion in Nigeria
Hi:There is no
significant relationship between high tax rates and tax evasion in Nigeria
Ho: There is no
significant relationship between weak penalties and tax evasion in Nigeria.
Hi: There is a
significant relationship between weak penalties and tax evasion in Nigeria.
1.5 Significance
of the study
This study would be important to tax
authorities in Nigeria as it would unravel the main causes of tax evasion in
Nigeria with a view to creating tax policies that would encourage more people
to pay tax.
1.7 Scope/Limitations of the study
This
study on causes of tax evasion in Nigeria with Ikeja LGA in Lagos state serving
as the case study
Limitations of study
1.
Financial constraint- Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
and interview).
2.
Time constraint- The researcher will simultaneously
engage in this study with other academic work. This consequently will cut down
on the time devoted for the research work.
1.8 Definition
of terms
Tax:A compulsory
contribution to state revenue, levied by the government on workers' income and
business profits, or added to the cost of some goods, services, and
transactions.
Evasion:To escape or avoid (someone or something),
especially by guile or trickery.