ABSTRACT
This
research project was aimed at investigating the accounting and social
implications of tax avoidance and tax evasion in the economy. In order to
achieve the objectives of the study, three hypotheses were formulated and data
collected through the issue of one hundred and fifty questionnaires to
respondents who were chosen through random sampling. data collected was
analysed using Pearson product moment coefficient of correlation. the data
analyses showed that: Tax avoidance has a negative and significant correlation
with the performance of the economy.
Findings also showed that tax evasion has a negative and significant
correlation. Finally, our findings showed that there is a positive but
statistically insignificant correlation between tax avoidance/evasion and the
role of accounting/ accountants. Given our findings, we concluded that tax
avoidance is a serious social and economic malaise. We also conclude that tax
evasion has debilitating effect on the economy by not only reducing the funds
in government coffers, it also reduces the ability of the government to embark
on developmental projects. Finally, we conclude that accounting and accountants
play a role in tax avoidance and tax evasion albeit a minor role. On the basis
of our findings, we make the following recommendations: The government should
find a proactive way of solve the problem tax avoidance and tax evasion. This
could be in terms of giving incentives to tax payers to encourage them to pay
their taxes duly. We also recommend that the government institute stiffer
punishments for tax defaulters and also ensure that such punishment is strictly
and publicly meted out to offenders in order to serve as deterrent to intending
and potential tax defaulters. Finally, we recommend that the government should
embark on public enlightenment campaigns to educate the populace of the
benefits and consequences of not paying their tax or evading to pay their
taxes.
69 Pages
Project
Reference Code: C036
CHAPTER
ONE
INTRODUCTION
1.1
BACKGROUND
OF THE STUDY
The
desire to uplift one’s society is the first desire of every patriotic citizen
(Allingham & Sandmo, 1972). Tax payment is a demonstration of such a
desire. The payment of tax is a civic duty and an imposed contribution by
government on her subjects and companies to enable her finance or run public
utilities and perform other social responsibilities. Taxes, thus, constitutes
the principal source of government revenue.
However,
one of the greatest problems facing Nigerian Tax System as well as Africa is
the problem of tax evasion and tax avoidance. While tax evasion is the wilful
and deliberate violation of the law in order to escape payment of tax which is
unquestionably imposed by law of the tax jurisdiction, tax avoidance is the
active means by which the taxpayer seeks to reduce or remove altogether his
liability to tax without actually breaking the law.
These
“Twin devils” have created a great gulf between actual and potential revenue.
The government has for the umpteenth time complained of the widespread
incidence of tax avoidance and evasion in the state as companies and other
taxable persons employ various tax avoidance devices to escape or minimize
their taxes or deliberately employ fraudulent ways and means of evading tax
altogether sometimes with the active connivance of the tax officials.
As
pointed out by Raynolds (1963), since tax is a principal source of government
revenue, if persons are able to escape by legal or illegal means the tax to
which they should logically be subject under the general scope of the tax, the
theoretical equity of the tax to a large measure is lost. Tax evasion and
avoidance no doubt deny any government the tax revenue due to her, which results
in a gap between the potential and actual tax collections.
There
is a clear cut difference between tax avoidance and tax evasion. One is legally
accepted and the other is an offence (Skanda and Kumarasingam, 2002 as cited by
James and Nobes, 2008). Tax avoidance is the legal utilization of the tax
regime to one’s own advantage, to reduce the amount of tax that is payable by
means that are within the law. By contrast, tax evasion is the general term for
efforts not to pay taxes by illegal means (Sharma and Dang 2011 as cited by
Mohammed and Mohammed, 2012).
It
is also perceived that both tax avoidance and tax evasion are linked with
shadow economy and Schneider and Enste (2000) as cited by Faseun (2001)
reported that shadow economy is that economy in which people do not show their
real income and taxable income that they have earned through legal activities
including batter and monitory activities in order to avoid paying tax.
According to Muhammed and Muhammed (2012), government has protested against
these two above mentioned evils for number of times but corporations and all
other persons whose income is taxable, they make use of tax avoidance
strategies to get away or curtail the taxes or they willfully employ fake
techniques with the support of tax officials to evade the total tax.
1.2
STATEMENT
OF RESEARCH PROBLEM
Although
tax evasion and avoidance 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.
As
observed by Ayua (1999) 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 their salaried
workers are the only class of people that actually pay tax in Nigeria. However,
even among the salaried workers, he added, many have turned the statutory
personal allowances and relief into a fertile ground for tax evasion.
Almost
all Nigerian taxpayers are married with four children! Similarly, despite the
tax provision meant to plug loopholes through which taxable 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 raises a poser on the efficiency and
effectiveness of tax laws and tax administration in Nigeria. Some state
governments in an effort towards solving this problem had even gone to the
extent of engaging the services of tax consultants. This government effort,
notwithstanding, the problem of tax evasion and avoidance still persists (Alabi,
2001 as cited by Ayodele,2006). There is no doubt that revenue due any
government will be reduced by the unpatriotic act of tax evaders thereby
affecting economic growth.
1.3
PURPOSE
OF THE STUDY
1.4
STATEMENT
OF RESEARCH QUESTION
1.5
RESEARCH
HYPOTHESES
1.6
SIGNIFICANCE
OF THE STUDY
1.7
SCOPE
AND LIMITATION OF STUDY
1.8
ORGANIZATION
OF STUDY
CHAPTER
TWO
REVIEW
OF RELEVANT LITERATURE
2.0 INTRODUCTION
Tax in its original conception may be
regarded as an assessment imposed by the states and the Federal Government to
meet the expenses of governing, administering and protecting the nation. Tax is
defined by Okoye and Otakefe (2004:41) as a burden, which every citizen must
bear to sustain his or her government, apart from the fact that it is a
compulsory levy charged by the government through its agent on the income
profit and wealth of corporate bodies and individuals.
It
is unquestionably an essential feature of governmental structure, also a
component of any fiscal policy. Despite these, most citizens believe that tax
is merely a legal compulsion and an undesirable imposition which bears no
relation to the responsibilities of citizenship or to the services provided by
the Government. Hence their desire and opportunities for evasion, avoidance and
non compliance continue to manifest in their dealings with tax authority. In
this chapter, we shall provide an in depth review of literature on tax
avoidance and evasion as well as shed light on the implications of such
behaviour on economy and society at large
2.1 THEORETICAL FRAMEWORK
According
to Eftekhari, (2009) taxation has always been an issue for the government and
taxpayers alike from the early years of civilization. The issue of taxation has
generated a lot of controversy and severe political conflicts over time.
According to its importance, several economic theories have been proposed to
run an effective system. Taxes are generally classified under three different
theories as given: ability to pay principle, benefit approach and equal
distribution principle. However, in this paper is guided by the ‘‘ability to
pay principle’’.
Ability-to-Pay
Principle: As the name suggests, it says that the taxation should be levied
according to an individual’s ability to pay. It says that public expenditure
should come from “him that hath” instead of “him that hath not”. The principle
originated from the sixteenth century, the ability-to-pay principle was
scientifically extended by the Swiss philosopher Jean Jacques Rousseau
(1712-1778), the French political economist Jean- Baptiste Say (1767-1832) and
the English economist John Stuart Mill (1806-1873).
This
is indeed the basis of ‘progressive tax,’ as the tax rate increases by the
increase of the taxable amount. This principle is indeed the most equitable tax
system, and has been widely used in industrialized economics. The usual and
most supported justification of ability to pay is on grounds of sacrifice. The
payment of taxes is viewed as a deprivation to the taxpayer because he
surrendered money to the government which he would have used for his own
personal use.
However,
there is no solid approach for the measurement of the equity of sacrifice in
this theory, as it can be measured in absolute, proportional or marginal terms.
Thus, equal sacrifice can be measured as:
·
Each
taxpayer surrenders the sane absolute degree of utility that s/he
obtains from her/his income;
·
Each sacrifice the same proportion of
utility she/he obtains from her/his income;
·
Each gives up the same utility for the
last unit of income; respectively.
2.2 CONCEPTUAL FRAMEWORK
2.3 REVIEW OF RELEVANT EMPIRICAL LITERATURE
CHAPTER
THREE
RESEARCH
METHODOLOGY
3.0
INTRODUCTION
This
chapter describes the procedures for data collection and method of data
analysis that was used for this research. The section therefore, explores the
most suitable research methodology required for the collection, presentation
and analysis of data for the study.
3.1. RESEARCH DESIGN
According to Osuala, (2005) Research is
the process of arriving at dependable solutions to problems through the planned
and systematic collection, analysis and reinterpretation of data. It is a most
important tool for enabling man to relate more effectively in his environment,
to accomplish his purpose and to resolve his conflict. The basic research
design that was used in this study is Survey Research through the use of
questionnaire to generate data.
Therefore, the case study approach and
survey research designed is the method adopted by the researcher to gather
information or data from the population or from sample drawn from the
population suitable to the study being investigated.
This method actually focuses on a
specific population. The study adopts the use of survey research design because
it requires the population of study selected carefully in order to ensure
adequate representation. The study therefore makes use of questionnaire
research survey method which is suitable to the study being investigated to
selected staff and the general public. On this basis, a carefully selected
sample size was chosen to form the basis of the investigation.
3.2
RESEARCH POPULATION
3.3
SAMPLE SIZE DETERMINATION
3.4. DATA COLLECTION TECHNIQUES
3.4.1. PRIMARY SOURCES OF DATA
3.4.2.
SECONDARY SOURCES OF DATA
3.5. DESIGN AND ADMINISTRATION OF QUESTIONNAIRE
3.6 DATA ANALYSIS TECHNIQUE
The data will be collected by the
questionnaires distributed. The research instrument which will be processed
manually through coding and run electronically using Statistical Package for
Social Sciences (SPSS) to analyze the questionnaire distributed to the
respondents.
The hypotheses of the study were
evaluated by using Pearson Correlation Coefficient.
Pearson’s Correlation was used to test whether
or not there is any relationship between one set of variable and another. By
statistical definition, the “Pearson’s Correlation Coefficient” is given by the
formulae”:
Where;
r = correlation co-efficient
x = independent variable
y = dependent variable
n = number of observed data
∑ = summation
Where; X =
independent variable
Y =
dependent variable
The dependent variable is represented as
Y: the economy, while the independent variable X is tax evasion and avoidance
CHAPTER
FOUR
RESULTS
AND DISCUSSION
4.0
INTRODUCTION
In this chapter, the researcher carried out an
analysis of the data collected from primary sources with questionnaire (as the
data collection instrument) on subjects related to the study. For the purpose
of clarification and easy understanding of the analysis, this chapter has been
divided into three sections. The first section presents and analyses the
demographic data obtained from the respondents. The second section examines the
responses relating to the subject matter of discourse while the third section
deals with the testing of hypotheses.
Tables showing frequencies and percentages
were used for the presentation of the data and the report is structured around
these exhibits. The total number of questionnaire distributed was two hundred
(200) while the total number of questionnaires returned was one hundred and
fifty (150). This indicates a response rate of seventy five percent (75%).
4.1 DEMOGRAPHIC
ANALYSIS.
4.2 DESCRIPTIVE ANALYSIS
4.3 HYPOTHESIS
TESTING
Hypothesis 1
Hypothesis 2
Hypothesis 3
CHAPTER
FIVE
SUMMARY
CONCLUSIONS AND RECOMMENDATIONS
1.1
SUMMARY
FINDINGS
This research
project was aimed at investigating the accounting and social implications of
tax avoidance and tax evasion on the economy. In the course of the research, we
made the following findings:
·
Tax avoidance has a negative and
significant correlation with the performance of the economy implying that
incessant increase in tax avoidance impairs the ability of the economy to grow.
This finding also implies that as tax avoidance increases, economic performance
will be forced to reduce.
·
Our findings also showed that tax
evasion has negative and significant correlation implying that increase in tax
evasion will likely to decrease in economic performance.
·
Finally, our findings showed that there
is a positive but statistically insignificant correlation between tax
avoidance/evasion and the role of accounting/ accountants. This implies that
accountants play a rolein the increase in tax evasion and avoidance.
5.2 CONCLUSIONS
5.3 RECOMMENDATIONS
REFERENCES
Aguolu, O (1999). Taxation and Tax
Management in Nigeria, Enugu: Meridian Associates.
Ariwodola, J.A. (1998). Personal income
Taxation in Nigeria including Capital Gains Tax, Lagos: JAA Nigeria.
Ayua, LA. (1999). The Nigerian Tax Law,
Ibadan: Spectrum Law Publishing.
Ariyo, A. (1997). ‘Productivity of the
Nigerian Tax System: 1970 — 1990”. African Economic Research Consortium
(AERC)’’ Research Paper 67, Nairobi Kenya: AERC.
.
.
Toby, R. (1983) The Theory and Practice
of income Tax, Lagos: Macmifian Press Ltd.
Uadiale, O.M., Fagbemi, T.O. &
Ogtmleye, J.O. (2010). ‘‘An Empirical Study of the Relationship between Culture
and Personal income Tax Evasion in Nigeria’’: European Journal of Economics,
Finance and Administrative Sciences, 20,116-126.
Warner, S. (1965). ‘‘Randomized
response: a survey technique for eliminating evasive answer bias’’: Journal of
the American Statistical Association, 60 ,63-69.
Project
Reference Code: C036
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