ABSTRACT
A
widely views has it that taxable adults in Enugu state evade tax payment,
thereby depriving government of revenue.
For this reason, this study focused on tax evasion: causes and
implication on Enugu state government revenue so as to understand the
importance of taxation towards improving internally generated revenue in Enugu
state to enable government of the state provide her citizens with adequate
amenities without hoping on statutory allocation. In the light of this study, two specific
objectives, two research questions and two hypotheses were listed, asked and
tested. The study adopted survey research design with a population of 3070 and
a sample size of 354. The sample size was derived statistically by using Taro
Yamane statistical technique. Simple random sampling technique was adopted and
questionnaire was used for data collection. The questionnaire was administered
by the researcher coupled by her sister’s assistance to the respondents which
the questionnaire were not collected immediately so as to elicit clear
response. Hypotheses were tested using Chi-Square with the aid of statistical
package for social sciences (SPSS). One of the findings shows that tax evasion
has implication on Enugu state government revenue. Since tax evasion has
implication on Enugu state government revenue this clearly implies that tax
evasion reduces revenue generated by government of the state. The researcher
concludes that tax evasion reduces revenue generated by state government which
leads to debt accumulation as well as budget deficit. Hence the researcher
recommended that government and other relevant agencies should promote the
effort made towards preventing tax evasion in the state so as to enhance
increase in government generated revenue.
CHAPTER
ONE
INTRODUCTION
1.1
Background to the study
It is a universal truth that taxes contribute
to the development of every nation. Nigeria being a developing nation in West
Africa, with respect to Enugu state, is not left out from the benefits derived
from taxes. The revenue derived from taxes helps government of Enugu state to
finance its expenses such as: provision of infrastructure, protection of lives
and properties through the security agencies against foreign or local
aggression, provision of health care facilities, funding the education sector
and many others. It is an imperative factor in economic planning and
development of the state, and it is a crucial agent of social change.
Taxes help to improve efficiency,
reduce waste and loss of human life. This is usually associated when negative
externality is perceived in the state. The intake of cigarette causes harm both
to the cigarette taker and the people around him. In other to curb this
unhealthy behavior, taxation plays a vital role when more of such harmful goods
are taxed. In a country like Nigeria and Enugu state in particular where we
face problems of chronic unemployment and regional disparities, tax policy
should be adopted to alleviate the issue. This is done with the view that
poverty should be eliminated from the state and government needs to play active
role in fulfilling this task. It is noted that the problem of growth, by
itself, covers numerous aspects and tax system may be designed to help in more
than one ways. Taxation can help to reduce the problem of insufficient savings
and accumulated capital arising from borrowing. Tax holiday can be given to
companies to boost production and fill both supply and demand gap.
According to Chaudhry and Munir
(2010), Tax as a source of government revenue consists of direct and indirect
tax. Direct tax is a form of tax that is
levied on the income of individuals both civil servants and self-employed
persons. The burden of direct tax is borne by the person on whom it is imposed.
The concept of direct tax is not restricted to individuals’ income alone. It
extends to profits of corporate bodies whose burden cannot be shifted. On the
other hand, indirect tax is a type of tax that is levied on goods and services.
Unlike direct tax, the burden of indirect tax can be shifted e.g. value added
tax, import duties e.t.c.
According to Onyema (2000), tax is
a compulsory payment which government levies on individuals and on the incomes
of corporate bodies, to defray the cost of public expenditure. From the
definition above, two imperative features differentiate it from other form of
payment. One important feature is being recognized as a compulsory payment
which nonpayment on demand is punishable by law. Secondly, it is not a quid pro
quo exchange. This implies that government need not provide services or give
explanation to the taxpayer.
Tax is an instrument of fiscal
policy, which plays an important role in every organized nation irrespective of
the political structure. This is
buttressed by the undeniable role of taxation in reducing inflation in the
country. When inflation is noticed in the nation, income of individuals is
greatly tax in other to reduce their purchasing power.
Tax is considered the most
important source of government revenue since the level of government
expenditure is to a large extent dependent on the ability of the tax system to
generate the required revenue needed for economic development.
The undue reliance on the federal
government for allocation of fund from federation account for carrying out
needed activities in Enugu state has become a setback for carrying out needed
activities required in the state. As a result of this quagmire, Enugu state is
required to intensify their internally generated revenue to boost up allocation
from the federation account.
Considering the vital role of tax
in Enugu state, taxation becomes an important area of study. But because of the
inefficiency of the tax system in ensuring equitable distribution of income,
proper regulation of the state, and gathering of resources to government for
carrying out needed duty in the state, it is strongly believed that the rate of
tax evasion in Enugu state is very high.
As observed from tax administration
in Enugu state, the tax system is considered questionable because of its
inefficiency. A good tax system should be able to recognize that the taxpayer
has some basic rights. He is expected to pay his taxes but not undergo harassment.
With this view, tax laws should be simple in language and the tax liability
should be determined with certainty. The mode and timings of payment should
suit the convenience of the tax payer to the extent possible. A good tax system
should be equitable between different tax payers. It should be progressive so
as to levy an equitable burden on all.
On several occasions, government aim of financing
its expenditure often becomes a dilemma as a result of insufficient fund to
carry out the task. This has resulted to
people going for self help projects in the state. From discoveries made, the
number of self help projects in Enugu state has outnumbered those provided by
the government. One would ask, what is the cause of this insufficiency? Does
government keep the money for themselves? Was the revenue stolen by criminals?
Are individuals not been patriotic by not paying their tax when they are meant
to? From all the possible causes of reduction in government revenue, emphasis
has been laid on tax evasion.
Lekan and
Kajola (2006), said that tax evasion is a deliberate practice of not disclosing
full taxable income so as to pay less tax. This behavior is seen as a criminal
act of disobeying the provision of tax laws. They also pointed out methods by
which people evade tax:
By failing to furnish correct return, statement or
information or keep records required.
Making false return by a way of omitting or
understating income liable to tax.
Presenting large amount of expenses in other to
reduce taxable income.
Hiding away totally without making any tax payment.
Salawu (2005)
opined that tax evasion is a crime that impedes government fiscal policy. This
means that tax evasion makes government aim of regulating the economy to be
effete. Hitherto, overall increase of tax evasion in Enugu state has disclosed
that taxpayers do not make a fair presentation of their tax base to foster
revenue. Since no man is above the law,
obedience to set laws of a country is one of the obligations of every citizen
of the country. Moreover, government has much obligation in ensuring that the
set rules are obeyed. In line with tax collection and administration, tax
authorities in Enugu state are to ensure that income tax is properly paid and
evaders are seriously punished. Tax evasion
became rampant in the state because there is little or no legal enforcement in
the state to deal with growing issues of tax evasion. Sani (2005) described a
tax evader as one who for a number of reasons refuses to fulfill his civic responsibilities
under the law. He is for all intents and purposes a criminal. Adegbie and
Fakile, (2011) opined that tax evasion can be partial or total and its degree
varies from place to place and between occupational groups. There is partial
evasion when a taxpayer under declares his income for tax purposes and total
evasion of income tax occurs when a
taxpayer who is already qualified to pay tax refuses to get the name registered
in the tax roll. (Sani, 2005) gave many ways in which the act of tax evasion is
encouraged which are :unbearable high tax rates which make evasion more
attractive and economical, lack of faith in the ability of the government to
use the money judiciously, total ignorance of the law, absence of any visible
benefit accruing to the taxpayer, inefficiency of tax administration which
gives room for tax evasion, ridiculously low penalties prescribed in the tax
laws for late payment or non- payment, outright unwillingness to contribute
towards the upkeep of one’s society.
1.2
Statement of problem
It is not a doubt that tax contributes largely to
government revenue. Revenue gotten from taxation helps in carrying out state
project. As a result of tax evasion, total revenue which would have been used
to finance core projects in Enugu state remains on the decline. This would
result in government proposed expenditure exceeding its total revenue. When
such situation occurs, government sorts out ways of financing such expenditures
either by borrowing externally or internally which eventually accumulates
state’s debt.
Also,
collaboration of tax authorities with affluent business men in Enugu state
contributes immensely to tax evasion. It therefore brings about income
inequality in the state because income of business moguls are not been
subjected to tax or if being subjected to tax, less amount is taxed. Coupled by the ineffectiveness of the tax
system, other taxpayers would opt to be unpatriotic towards tax payment.
Tax evasion has posed a serious problem as to
understand the extent in which resources are adequate for the management of
Enugu State Board of Internal Revenue. As a result of increase in tax evasion
in the state, those engaged in government work will not be paid their salary as
at when due. The state board on the other hand won’t be adequately furnished
with needed equipments to carry out their job.
Also, if states are to be graded from federal level,
there is every possibility that Enugu state will take the least score because
of under development. The state government access to fund to bring about development
in the state will not be achieved. ‘Keep Enugu state clean’ slogan by many will
be a history because Enugu State Management Authority(ESWAMA) officials if
haven’t been paid for so long, is bound to be less concerned towards their job.
And the following consequences result to living in an unhealthy environment by
Enugu state inhabitants.
1.3
Objectives of the study
The general objective of this study is to identify
the causes and implication of tax evasion on Enugu state government revenue.
The specific objectives are as follows:
1. To
examine if high tax rate causes tax evasion.
2. To
determine the implication of tax evasion on Enugu state government revenue.
1.4
Research questions
The following research questions will guide this
study.
1. To
what extent does high tax rate cause tax evasion?
2. What
implication does tax evasion have on Enugu state government revenue?
1.5
Research Hypotheses
The following hypotheses will be tested in the
course of this study.
Ho: High tax rate does not significantly cause tax evasion.
H1: High tax rate significantly cause tax evasion.
Ho: Tax evasion has no significant implication on
Enugu state government revenue.
H1: Tax evasion has significant implication on Enugu
state government revenue.
1.6
Significance of the Study
This study has the benefit of ensuring that tax
evasion practices are avoided by individual tax payers in Enugu state. This is
achieved by creating awareness on the benefits which come from tax revenue. It
can also be done by educating individuals, especially those in rural areas
about the concept of tax evasion and its consequences.
Furthermore, Enugu state government will benefit
from this study as it will to an extent minimize acute reduction in its revenue
and they will have fund for developing the state. This will be achieved because
this study will reveal factors that contribute to reduction in Enugu state
government revenue and find ways of limiting them.
In addition, individuals will also benefit from the
study through enjoyment of infrastructures provided by government, paying
little or no money in government owned hospitals and schools, living without
fear in a country where their lives and properties are protected by security
agencies. Civil servants which include those working in Enugu state board will
also benefit from the study because government will have income at their
disposal to pay for their salary.
The state as a whole will benefit from this study as
it will ensure that tax defaulters and corrupt tax authorities are punished
according to law as this will serve as a deterrent to others.
1.7
Scope of the study
This study is delimited to self employed and those
employed in private sectors in the state which include: traders, commercial
motorists, business professionals such as accountants, and doctors. Emphasis is
placed on these people listed above because civil servants are the only
identified persons that actually pay tax in Enugu state with respect to Enugu
state Board of internal revenue which is the relevant tax authority for income
tax collection and administration in the state. The data collection was
restricted to the state board, traders, and individuals within Enugu Urban.
Hence, the findings of this study are limited on Enugu state government
revenue.
1.8
Limitations of The study
During the course of this study the researcher faced
some challenges while trying to ensure the success of this work. While carrying
out this work, trying to gather materials for this study was not an easy task
as emphasis was placed on where to source the right material for the work as
different text books and journals were consulted. It also took the researcher
time in visiting the state board for data gathering as it contributes to
overall concern of the study. The limited time frame is also connected to the
researcher’s need to combine this study with her other academic works.
1.9
Definition of terms
Tax
payer: It is someone who is required by law to pay tax. In
this study, a taxpayer refers to self-employed and people employed in private
sectors.
Revenue:
This is the income one receives for performing a job or carrying out sales
transactions. Revenue in this study refers to income generated by government
(Enugu state) from taxation.
Tax
authority: it is a body authorized by law to collect and assess
tax returns which in this study, is the state Board of internal revenue Enugu
state.
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