The effect of tax avoidance and tax evasion on revenue generation

Abstract:

The  study  aims  to  evaluate  the  effect  of  tax  evasion  and  avoidance on   revenue   generation   in   Nigeria.   The   population   of   the   study

comprised  of  the  federal  Inland  Revenue,  central  bank  of  Nigeria  and national bureau of statistics of which a period of Ten (10) years was   used   from   2006 - 2015.   The   data   generated   from   statistical  bulletin and annual reports of the CBN, FIRS and NBS were analyzed by  means  of  descriptive  statistics,  and  regression  analysis  using Eviews  8.0.  The  result  of  the  analysis  was  tested  at  0.05  (5%)  level of  significance.  The  findings  of  the  study  show  that  tax  evasion  and avoidance  have  significant  effect  on  revenue  generation  and  the Nigerian    economy.    Therefore,    the    study    recommends    that, Government should use media platforms to enlighten citizens on the effects of tax evasion and avoidance on socioeconomic development.

Furthermore,  tax  rates  should  be  reduced  to  enhance  and  boost revenue generation which will increase the tax net to capture many individuals    and    small    businesses.    Also,    the    insignificance    of

penalties  and  tax  authority  bearing  should  also  be  tackled;  Changes

in  tax  legislations  should  also  be  communicated  to  citizens  on  time via  any  available  media  platforms.  Qualified  personnel  should  be recruited  and  trained  to  enhance  the  efficiency  and  effectiveness  of tax  operations.  Also,  tax  authorities  should  engage  in  practices  that are capable of attracting public confidence in eradicating the evasion and  avoidance  of  taxes,  Staff  should  be  motivated  to  increase  their

morale  in  ensuring  the  insulation  of  fraud  and  corruption  from  tax operations.  For example, good salary package should be designed for tax officials to discontinue corrupt practices. In so doing, evasion and avoidance of taxes will be minimal to ensure the socioeconomic development of Nigeria.

 INTRODUCTION Tax evasion is one of the major social problems hindering revenue generation in developing state and eroding the existing welfare in Oyo state. This has led to a growing attention among policy makers and scholars. However, little attention has been placed on the issues of tax evasion in Nigeria. Hence, an enviable society can only be visible when internally generated revenue can be mobilized for her social obligations to the citizens. Tax evasion, in most developing states is so rampant, and the scenario is much worsened by the fact that, not only government of Oyo state has made an effort to measure the reasons that tax payers give. The extents of this problem at the same time analyse its effects on revenue generation. Hence, when required revenue for smooth operation cannot be raised, state will resort to increase tax rates or borrowings which may not only crowd out the private sector but also leads to debt traps as (Fagbemi, Uadiale & Noah (2010) and Chiumya, (2006). On the other hand, tax evasion has the effect of distorting the principle of perfect market resource allocation and income redistribution. This leads to economic growth stagnation and socio-economic repercussions in Oyo state. Thus, there is a need to understand the reasons for rising in tax evasion and establishing mechanism to curb this problem. Several studies have been carried out in the past on this subject. But the review of previous empirical literature revealed a lack of tax evasion and its effect on government revenue generation in the research findings of past researchers whichindicated the existence of a research gap. For instance, Magesa, (2014) examined the impact of tax evasion on revenue collection performance in Tanzania while Mehrara & Farahani (2016) wrote on the effect of tax evasion and government tax revenues on economic stability in OECD countries. Other research works carried out by scholars on the effects of tax evasion and avoidance on tax revenue in Nigeria and other part of countries includes; Onyeka, & Nwankwo (2016) Chiumya, (2006), McGee, ( 2005), Akinyele & Ogunmakin (2016), Dalu, Maposa & Pabwaungana (2012), Ibadin & Eiya. (2013), Modugu & Omoye (2014), Obafemi (2014) and Al Mustapha & Hamza (2016). However, in the course of this unending argument so far, certain questions have been raised about this study. What are the significant effects of tax evasion on government revenue generation in Oyo state? What are the effects of perceived corruption of government on tax evasion? Objectives of the Study The main objective of this study is to identify the effects of tax evasion on government revenue generation and suggest ways of establishing mechanism to curb the problem in Oyo state. Other specific objectives include; (i) To examine the effects of tax evasion on government revenue generation. (ii) To ascertain the effects of perceived corruption in government on tax evasion Research Hypotheses The following hypotheses were formulated in the course of this study. Ho1: Tax evasion has no significant effects on government revenue generation. Ho2: There is no effect of perceived corruption in government on tax evasion. Justification of the Study This study would be of benefit to Revenue officials who are saddled with the responsibility of ensuring that taxpayers are not negligent in paying their taxes. It will also assist in knowing why taxes are evaded. The outcome of this research would enable them to have a better understanding of why tax payers evade taxes. Therefore, when these reasons are adequately appraised, it is expected that it will in turn translate to the provision of necessary infrastructure for the society when the resources are judiciously utilized. This study would be of great value to the Government, revenue officials and business taxpayers and to serve as a resource based to other researchers.