TAX EVASION AND TAX AVOIDANCE AMONG THE SELF-EMPLOYED IN NIGERIA
ABSTRACT
This study is motivated by a desire to examine tax evasion and avoidance among the self-employed in Nigeria. In light of the empirical review and other discussions, a number of questions arose: does high tax rates the rationale behind tax avoidance and evasion in Nigeria? The population of this study constitutes staff of Federal Inland Revenue Board and taxpayers in Benin City. Questionnaire was administered to some selected staff of Federal Inland Revenue Board and taxpayers in Benin City. Data was collected and analyzed using the simple percentage, descriptive statistics and Z-test. This study revealed among other things that high tax rates the rationale behind tax avoidance and evasion in Nigeria, poor relations between taxpayers and tax authority responsible for tax avoidance and evasion in Nigeria, and lack of adequate enforcement for default constitute tax avoidance and evasion in Nigeria. It is recommended that the board must be cognizant of the fact that tax payer cannot comply with the laws unless they know and understand what was expected of them. To this end, the board should continually strive to educate and simplify the process of tax collection make it clear and unambiguous to all tax payer present and potential, irrespective of their background and special needs.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study
Statement of the Research Problem
1.3    Objectives of the Study
Hypothesis of the Study
Scope of Study
1.6    Significance of the Study
CHAPTER TWO: LITERATURE REVIEW
2.1    Introduction
2.2    Overview of Taxation System in Nigeria
2.3    The Meaning of Tax Evasion and Tax Avoidance
2.4    History of Personal Income Tax
2.5    Causes of Tax Evasion and Tax Avoidance in Nigeria
2.6    Ways by Which Tax Evasion and Avoidance are Perpetrated
2.7    Effects of Tax Evasion and Avoidance
2.8    Previous Research
2.9    Comparison of Tax Evasion and Tax Avoidance
2.10    Empirical Investigation of Tax Evasion
2.11 There Opinions on the Ethics of Tax Evasion
CHAPTER THREE: METHODOLOGY
Introduction
Research Design
Population of the Study
The Sample Size
Data Collection Method
The Research Instrument
Reliability of the Instrument
Data Analysis Method
CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION
4.1    Introduction
4.2    Descriptive Statistics
4.3    Test of Hypothesis
CHAPTER FIVE:    SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1    Introduction
5.2    Summary of Research Findings
5.3    Conclusion
5.4    Recommendations
    Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
Background To The Study
Tax avoidance and evasion are problems that face every tax system; the Nigerian situation seems unique when viewed against the scale of corrupt practices prevalent in Nigeria. Under 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 Auya (1999) cited in Kiabel and Nwokah, (2009) these persons blatantly refuse to pay tax by reporting losses every year. According to him, many of these professionals live a lifestyle inconsistent with reported income, which is usually unrealistically low for the nature of their businesses. Civil Servants and other salaried workers are the only class of people that actually pay tax in Nigeria. However, even among the salaried workers, he added, many have the statutory personal allowance and relief into a fertile ground for tax evasion. Almost all Nigerian taxpayer is married with four children! Similarly, despite the tax provision meant to plug loopholes through which taxation persons can minimize tax liability the self-employed persons employ all kinds of avoidance schemes to minimize or escape tax liability and makes you wonder whether there are still any tax officials working in that capacity. Such scenarios, no doubt, say a lot about tax administration system in Nigeria both in its design and in the disposition of some taxpayers towards taxation. While it immediately presupposes that there are legal framework put in place to punish tax evaders it perhaps raise a poser in the efficiency and effectiveness of tax laws and tax administration in Nigeria.
Fagbemi, Uadiale and Noah (2010), added that, tax evasion in most developing countries is so rampant, and the scenario is much worsened by the fact that not many of these governments have made an effort to measure the ethical reasons that tax payers give, the extent of this problem and at the same time analyze its impact. Hence when required revenue for smooth operation cannot be raided, these countries often times resort to increase tax rates or borrowings which may not only crowd out the private sector of their economies but also lad them to debt traps. On the other hand, tax evasion has the effect of destroying the principle of perfect market resource allocation and income redistribution. This can lead to economic growth stagnation and far much reaching socio-economic repercussions. Thus, there is the need to understand the behavior of tax payers and the reasons that cause such specific behavior.
In his opinion, Olabisi, (2010) supported that, tax evasion is an attempt to escape tax liability (wholly or partially) by breaking the tax law and it is a criminal act since it is achieved principally by making false declarations such as under reporting income or over reporting relieves and allowances, while, tax avoidance is an attempt to escape tax liability by circumventing the law. Thus, even though the tax evader and tax avoider have a similar end (i.e. reduce tax liability) their means to that end differ. He added that, the evader is a criminal while the avoider in just smart taxpayer who exploits loopholes in the tax laws (and related laws) to reduce tax liability.
In the light of the above, the researcher intends investigate the cause and challenges of tax evasion and tax avoidance in Nigeria.
Statement of The Research Problem
Tax avoidance and evasion is a very serious societal problem that is causing much concern and major setback on revenue collection in Nigeria. From all indications it is now clear that if government engages in a complete re-organization of the tax administrative machineries, the twin problems of tax evasion and avoidance will be reduced to a tolerable limit. It is equally important for the various state governments to make frantic efforts aimed at educating the tax illiterates of their civic responsibilities. Such enlightenment on tax evasion and avoidance will go a long way to reduce the states’ over dependence on federal allocation.
Against this backdrop, the following questions are raised:
Does high tax rates the rationale behind tax avoidance and evasion in Nigeria?
Does poor relations between taxpayers and tax authority responsible for tax avoidance and evasion in Nigeria.
Does lack of adequate enforcement for default constitute tax avoidance and evasion in Nigeria?
Objective of The Study
The broad objective of the study was to examine the causes and challenges of tax evasion and tax avoidance in Nigeria.
The specify objectives were to:
determine if high tax rates the rationale behind tax avoidance and evasion in Nigeria;
ascertain if poor relationship between taxpayers and tax authority responsible for tax avoidance and evasion in Nigeria; and
find out if lacks of adequate enforcement for default constitute tax avoidance and evasion in Nigeria.
Hypotheses of The Study
The following hypotheses have been formulated to serve as a base for this research;
Hypothesis I
H0¬:    High tax rates are not the rationale behind tax avoidance and evasion in Nigeria.
H1:    High tax rates are the rationale behind tax avoidance and evasion in Nigeria.
Hypothesis II
H0¬:    Poor relationship between taxpayers and tax authority does not responsible for tax avoidance and evasion in Nigeria.
H1:    Poor relationship between taxpayers and tax authority is responsible for tax avoidance and evasion in Nigeria.
Hypothesis III
H0¬:    Lack of adequate enforcement for default does not constitute tax avoidance and evasion in Nigeria.
H1:    Lack of adequate enforcement for default constitutes tax avoidance and evasion in Nigeria.
Scope of Study
The research study focuses on causes and challenges of tax evasion and tax avoidance in Nigeria.
The population of the study is the taxpayers in Nigeria, while the sample size will be restricted to some selected self-employed in Edo State comprising businessmen, contractors, professional practitioners like lawyers, doctors, accountants, architects and traders in shop among others.
Temporally or in term of time series, a period of five (5) years if used i.e. 2007 to 2011.
Geographically, the study will be conducted in Benin City, Edo State.
Significance of The Study
This research work on its conclusion, together with whatever solution or findings that may arise, will prove useful to some particular group of person or otherwise for various reasons in accordance with their varying needs.
Beneficiaries
Taxpayers: This study will be important and beneficial to taxpayers to know the effect of tax avoidance and tax evasion.
The Government: It will acquaint the government of the tax avoidance and tax evasion and how it should be properly managed.
The public: This study will help to restore the lost confidence of the public as regard tax administration.
Academic/future researcher: Both academic and other future researchers in this subject matter will find it a useful source of learning and research.