TITLE PAGE

THE EFFECTS OF TAX EVASION AND TAX AVOIDANCE

ON THE NIGERIAN ECONOMY

(A CASE STUDY OF KOGI STATE BOARD OF INTERNAL REVENUE)

BY

SANNI ABDULRAHEEM

MATRIC NO: 13AC2043

A PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTING,

FACULTY OF MANAGEMENT SCIENCES,KOGI STATE UNIVERSITY,
ANYIGBA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
AWARD OF BACHELOR OF SCIENCE B.Sc. (HONS)
DEGREE IN ACCOUNTING
SEPTEMBER,2015.
 DECLARATION
I, SANNI ABDULRAHEEM declare that all information containedin this work is based on my

findings and under the supervision of my lecturer, MR. AUDU'FRIDAY of the Department of

Accounting,Kogi State University. This work has not been previously submitted to any

University or similar institution. Authors works cited in this research were duly acknowledged.

SANNI ABDULRAHEEM DATE

 CERTIFICATION
This is to certify that this research work was carried out by SANNI ABDULRAHEEM with

matriculation number 13AC2043'in the department of accounting, faculty of management

science,Kogi State University Anyigba,Kogi State.

This research project has been read and approved by:

MR AUDU FRIDAY Date

Project Supervisor

DR ABUH ADAH (FCA) Date

Head of Department,Accounting

External Supervisor Date

 DEDICATION

This project work is dedicated to Almighty God, the fountain of knowledge and wisdom for his

guidance and protection that saw me through my B.Sc academic programme successfully.
 TABLE OF CONTENTS
Title Page
Certification
Dedication..
Acknowledgement

Abstract.............

Table Of Contents .......Vii-Ix

Chapter One
1.0....Introduction
1.1.....Background Of The Study ......1
1.2.....Statement Of The Problem ......4

1.3.....Objective Of The Study .....5

1.4....Research Question ......5

1.5.....Statement Of Hypotheses ...6
1.6....Significant Of The Study ... ....6
1.7....Scope Of The Study ...... .....7
1.8.....Limitation Of The Study ....8
1.9.....Definition Of Terms .............8
Chapter Two

Review Of Related Literature

2.0....Introduction

2.1......What Is Taxation

2.2.....Principles Of Taxation
2.3.....Types Of Tax 14
2.4.....Brief History Of Tax In Nigeria 16
2.5...Tax Administration In Nigeria 18
2.6.....Tax Legislation In Nigeria.........................................................18
2.7......Reasons For Imposition Of Tax.................................................21
2.8.....Functions Of Taxation .......................................................23
2.9....Effects Of Taxation ...............................24
2.10...Tax Avoidance And Evasion......................................................26
2.10.1 Tax Avoidance ..................................26

2.10.2 Tax Evasion .............................27

2.11 Causes Of Tax Avoidance And Evasion .............29

2.12...Effect Of Tax Avoidance And Tax Evasion On The Economy 30
2.13...Method Of Tax Avoidance And Evasion .............31
2.14 Ways Of Eliminating Or Reducing Tax Evasion & Avoidance 32
..342.15...Differences Between Tax Evasion And Tax Avoidance
Chapter Three
Research Methodology
353.0....Introduction
353.1....Research Design
363.2.....Source Of Data
363.3.....Data Collection Technique
373.4.....Population Of The Study
383.5.....Sampling Size And Sample Technique
393.6.......Method Of Data Analysis
Chapter Four

Data Presentation,Analysis And Interpretation

4.0 Introduction
4.1 Data Presentation And Result 42
4.2 Analysis Of Questions 42
4.3 Testing Of Hypothesis 56

Chapter Five
Summary Of Findings,Conclusion And Recommendation
5.1 Summary Of Findings 64
5.2 Conclusion 65
65
5.3 Recommendation
68
Bibliography
70
Appendix 1
71
Appendix 2
 CHAPTER ONE
INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Tax is a financial issue and its payment is a civil duty. It is the imposition of a financial burden

fon the government on individual firm and companies. In general based, the word tax means any

contribution imposed by the government upon individual and companies for the use of

government to provide facilities or services as rendered by the state. It is not a voluntary

payment or donation but an enforced contribution made on the pronouncement or directive of

legislative authorities.

OSITA (2004:1) stated, taxation may be define as the compulsory levy by the government

through it's various agencies in the income, capital or consumption of it's subject such as salaries,

business profits, interest, dividends, commission regularities,rent etc.

It could be said that there are three main methods of financial economic expenditure open to

meet developing countries there are:-

(a)LOANS

(b) GRANT

(c) TAX AND OTHER CURRENT RECEIPT

Of these sources, tax is perhaps the most important since the level of government expenditure is

to a great extent dependent on the ability of the tax systemto generate the required revenue at the

disposal of the government.

1
In spite of this benefit from tax most people still indulge in tax evasion and avoidance. Attempt

to avoid some portion of liability or not to pay tax will affect the revenue of the government that

is the reason why the government frown at the issue of tax evasion and avoidance, and uses it's

authorities to enforce compliance.

ARONOMOLE and OLUWALAYODE (2006:39). Define tax avoidance as legal ways by which

a tax payer reduces its tax liabilities.

Tax evasion is a deliberate action on the part of the tax payers to reduce their tax liabilities

through illegal means or an attempt not to pay tax due.

The distinction between this tax avoidance and tax evasion is that tax avoidance is not

considered a criminal offence whereas tax evasion is a criminal offence.

According to ANYAELE (1990:225). A tax may be defined as a compulsory contribution

imposed by a government authority on goods, individual and co-operate bodies irrespective of

the exact amount of services rendered to the tax payer in return and not imposed as a penalty for

our legal offence. Both direct and indirect taxes that are collected for the government inform of

income tax, exercise duty, import and export duties. Purchase and sales taxes and so on help the

government to generate a lot of revenue for the smooth administration in the nation.

There are two elements in every form of taxation and that is the BASE AND RATE.The tax base

is the object which is taxed or a measure of the private sector income or wealth that can be taxed,

while the tax rate is the percentage of the measured amount taken off from the tax base. In this

case the money realized from it is used to provide social goods and services, so that everybody

both the rich and poor will have equal chances of making use of them, that is the goods and

services.

2
They include pipe borne water, electricity, good roads, hospital, schools etc.most people in

Nigeria has the habit of evading or avoiding tax payment i.e. they are always avoiding paying

their taxes. With this state of affairs the various tier of government in the country don't usually

generate enough revenue which will enable them to effectively execute all the development

projects which are highlighted in their budgets.

It has to be pointed out that the successive Nigeria governments have not made adequate and

sincere efforts toward informing the tax dodger or evader on the need for them to pay the taxes.

All attentions have been directed on the revenue from oil sector while taxes and agriculture,

which supposed to be generating a lot of revenue to the country, are deliberately over looked.

Also the researcher wants to look into the problems of paying tax by the public,such problem are

as follows;-

a) Tax evasion and tax avoidance by the public.

b) Poor system of tax collection.

c) Inability of the government to prosecute tax avoidance.

1.2 Statement of the Problem

It has been noted that tax system in Nigeria has come to play a significant role, as a major source

of revenue to the federal government by way of imposing tax ontax payers and it is for them to

pay up the tax.

The act of evading and avoiding tax by most registered companies and some individuals has

however affected the revenue base of the government especially in providing essential services in

the society. People naturally prefer to reduce their tax liabilities by deliberately overstating their

3
expenses and make false entries and fictions in their books of account. Thus, theiract however,

causes tremendous reduction in the revenue accruable to the government which eventually

shrinks revenue to the Treasury of government.

The inability of the revenue board to collect substantial amount of money from tax is as a result

of evasion and avoidance of tax. This research work examines the problems facing the revenue

department in collecting taxes and levies under their jurisdiction with a view to identifying

possibilities at minimizing or even eradicating tax evasion and avoidance.

1.3 Objective of the Study

The general objective of the study is to ascertain the effects of tax avoidance and tax evasion on

Nigerian economy, using kogi state board of internal revenué as a case study.

The specific objectives of the research work are to;

1.To analyze the various causes of tax evasion and avoidance.

2.To identify possible effects of the tax evasion and avoidance on the economic development of

the country and Kogi state in particular.

3.To analyze the effectiveness and flaws of various tax laws in the country

1.4 Research Questions

For this research work to be effective it please the researcher to ask the following question

1.What are the causes of tax evasion and avoidance?

2.What are the possible effects of tax evasion and avoidance on economic development of the

country and Kogi state in particular?

4
3.Are tax laws in the country effective?

1.5 Statement of Hypotheses

To aid the research work the following hypothesis has been postulated,

The null hypothesis is denoted by “Ho”

While the alternative hypothesis is denoted by “H1”

1. HO: The causes of tax evasion and tax avoidance are not high taxrate.ignorance on the part of

tax payers and loopholes in tax law.

HI: The causes of tax evasion and tax avoidance are high tax rate, ignorance on the part of tax

payers and loopholes in tax law.

2. HO: There is no significant effect of tax avoidance and evasion on economic development of a

nation.

HI: There is a significant effect of tax avoidance and evasion on economic development of a

nation.

3. HO: The tax laws guiding the citizens are not effective in this country.

HI: The tax laws guiding the citizens are effective in this country.

5
1.6 Significant of the Study

This research work would be relevant to various tax authorities; the Federal Board of Inland

Revenue, Local Government revenue committee as well as their tax officials

responsible to collect tax on individual or corporate bodies. It gives them ht on how to improve

the tax administration.

The research would also help the professional bodies like the Chartered Instiute of Taxation of

Nigeria (CITN) and the Institute of Chartered Accountants of Nigeria (ICAN) as well as their

members to see thevareas of deficiency in the collections and call for improvement in tax

revenue.

This research would also be relevant to the future researchers and the dents of

accounting,economic, business administration and other social and management sciences as well

as the legislature which will also benefit immensely from this research because it will form basis

of tax policy formation, implementation and administration.

1.7 Scope of the Study

Since no single research can validly cover all areas of the topic, the researcher tends that thrust of

this project will be limited within the scope of how tax payer's performance on tax are influenced

by the choiceof its tax system. The study will focus primarily on Kogi state to be precise to

enable the researcher carryout an extensive investigation on this subject. Therefore, this research

work cover a period of five (5) years from 2009-2014.

6
1.8 Limitation of the Study.

It is not unusual for research to encounter some difficulties in the course of carrying out their

research work and these may include.

1. Finance: This is always a major limitation in a study of this nature, since the individual may

not have enough money to carryout all the necessary research.

2. Lack Of Data: There are areas where data is available but which the researcher cannot lay

hands on because the relevant information is sometimes termed confidential and unavailable to

outsiders.

3. Lack Of Co-Operation:- By some of the respondents whom he administered certain copies of

his questionnaire and vocal interview.

4. Delay in giving back to him some of the copies of the questionnaires for some of the

respondents.

1.9 Definition of Terms

In order to aid understanding of this research work by the user, special term used in this study are

defined,

1. TAX: This is a compulsory contribution imposed by government on individual and corporate

bodies for the use of government to provide facilities or service in the nation.

2. FEDERAL INLAND REVENUE: This body is responsible for the collection of tax at federal

level

7
12.REVENUE: Amount of money realized by an individual or group or company

13.PERSONAL INCOME TAX DECREE 1993: The law guiding the assessment and collection

of personal income tax

14.COMPANY INCOME TAX ACT 1990 : The lawv regulating the assessment and collection of

tax of corporate bodies.

8
 CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.0 INTRODUCTION

In this chapter relevant literature are reviewed. Author's definitions on taxation,tax evasion and

avoidance are also stated. The causes, effects of evasion and avoidance at tax development in a

nation will be examined, authors and experts opinion about tax evasion and avoidance and

method, their suggestion on how to minimize or eradicate this problem are also mentioned;

2.1 What Is Taxation

Taxation has been given various definitions by different author's some of these definitions are as

follows;

C.S. OLA (1985:1), taxation is defined as the demand made by the government of a country for a

compulsory payment of money by the citizens of the country.

OKEKE (1994:254) Defines tax as a payment compulsorily made by individuals,companies,

cooperate bodies to the government or governmental agency for the public use. STEIN (1991:14)

defines tax as a means by which the government raises revenue to meet its expenditure. It may

also be used as a means of influencing or controlling the economy.

OSITA (2004:1) defines tax as the compulsory levy by government through the various agencies

in the income,capital consumption of its subjects.

ONAOLAPO(1988:3)defines taxation generally as hew process or machinery by)which

communication or group of persons are made to contributes part of their income in some agreed

9
quantum or method for the purpose of the administration and development at the society as a

whole.

AGYEI (1983:2) defines taxation as transfer of resource from the private sector in order to

accomplish some of the nation's economics and social goal.

2.2 PRINCIPLES OF TAXATION

These are guiding principles of governing the various tax systems we have today and even in the

past.

According to ADAMS SMITH in his book "The wealth of a nation" (1776), he set out four (4)

canons or principles of taxation; among these principles of taxation are the following;

1.Equality Of Payment:- This principles state that income earned the same level and with the

same responsibility should pay the same amount of money in tax.This also means that people

should pay tax according to their ability of pay (PAYE)pay as you earn.

2 Certainty: This principle holds that the amount of tax to be paid by one tax payer should be

made known to him or her and how it is worked out should be clearly explained to him or her.

3.Convenience: This means that tax payment should be arranged so as to be convenient to the tax

payers.

10
4. Economy:- The tax system should be arranged to make it possible to send little amount of

money in tax collection. Any system, where by a proportion of the tax money is spent on its

collection, is not a good tax system that is to say that the tax authorities should be efficient in

their collection of taxes.

Others include;

5. Simplicity: The tax system or principle should be simple enough for everybody especially the

payer to understand.

6. Flexibility: A good tax system must be easily changed. These tax system concerned must be

capable of being easily or conveniently adjusted as occasion warrants.

7. Impartiality: In this case, there shall not be any partiality in tax assessment.Thismeansthat tax

officials should not discriminate against tax payer while assessing them for tax payment.

8. Productivity: In tax principle the amount realized from tax should be sufficient to cover some

government expenses. According to ANDY (2001:199), this is otherwise referred or known as

the principle of fiscal adequacy.

In his own contribution in the subject under consideration, FALDDUMETA (1877:212-213)

agrees with the above principle of equality, there are two nations of equality. These are horizontal

equity (i.e.) equal treatment for equal and vertical equality, which is the poor and rich. In the

authors view, the principle of equality often envisages a transfer of income from the very rich to

the poor. Progressive income tax is devised to achieve such redistribution. It takes a greater

proportion of income from the rich than from the poor. The principle of equality or ability to pay

reflects a concern from the poor members of the society.

11
9. Neutrality: In the case of neutrality, a particular tax system should not interfere with the

demand and supply of goods and services.

This implies that the system involved does not have to be in such a way as to hinders consumers

and producers from demanding and supplying various goods and services,also it should not

discourage the payers from working, investing and of cause saving.

2.3 Types Of Tax

Tax according to AGYEI (1983:3) and OKEKE (1994:259) is generally grouped into DIRECT

AND INDIRECT TAX. Tax is also classified as proportion, progression and regressive tax.

AGYEI) went further to define DIRECT TAX as those taxes levied on factor of reduction, in

world this consist of the following.

a.Personal income tax

b.Companies income tax

c.Petroleum profit tax

d.Capital gain tax

e.Capital transfer tax

f.General property tax

g.Expenditure tax

h.Stamp duties

12
i. Poll tax

j. Gift tax

k. Estate duties and inheritance/death duties

1. Capitation tax

Some of these taxes are not levied in Nigeria and Africa as a whole, the ones levied in Nigeria

include.

a. Personal income tax (payee)

b. Companies income tax

c. Capital gains tax

d. Capital transfer tax

e.Sales tax and petroleum

f. Profit tax and so on Nigeria accountant (1993:2)

He also mentioned that INDIRECT TAXES are those tax levied against goods and

services,example of these in Nigeria include the followings.

a.Sales tax

b.Import duties

13
c.Export duties

d.Excise duties

e.Purchase tax

f.Value added tax (VAT)

2.4 Brief History Of Tax In Nigeria

The history of taxation in the area covered by Nigeria today predated the country itself.There

were one form of tax or the other for security and communal services.This was between the

king/Emirs and their subjects.

ruyments used to be both in case and to kind. When the British came to colonize,theyintroduced

a lot of reforms to the country in the name of harmonization (ADESOLA 1998). These taxes

were ranging from community to family and were imposing in those days. Basically, the

execution of community projects or helps community to wage war against external invasion and

some kind of evils.

The imposition at these taxes was not authorities by any law and this and to these led to the

difficulties in their collection. In the Western region it appreciated that there were developed

system of taxation in Oyo and Benin empires. LORD LUGARD IN OREWA (1797:6) identified

three (3) important native state that has reached the stages of semi organized native

administration under paramount rules; they are the Yorubas in Oyo empires, the Benin and he

Igbo's it was built between 1916 and 1932by community effort. In the Eastern region the Igbo's

lived in community of small family and in most instances without a constituted authority. Tax in

the east was the least developed at all the pats of the country due to the customs and traditions of

14
the lgbo's because the type of respect giving to Obas and Emir was almost absent arrange the

Igbo's.the North region of Nigeria had system of taxation that was for more definite organized,

sophisticated and established than any other part of the countries.

2.5 Tax Adminstration In Nigeria

Accarding to AUYAFO(1996:122) taxation is administrated as below

1.At the federal level the federal boards of Inland Revenue are in charge of company'sincome tax

and petroleum profit tax and the federal board of customs and excise in the case of import, export

and excise duties.

2.At the state level it is administered by the state tax board in respect of personal income tax

(PIT), capital gain tax resident, casino, vehicle and drivers incense, sales tax,capital,transfer tax

etc.

3.The local government administered the flat income (Poll tax) cattle tax, community

tax,property tax etc.

According to AUYAFO (1996:114), the administration of income tax under the ITMA is rested

on the joint tax board. This board consists of an officer from each of the state and a nominee of

the federal public services commission with the chairman of the federal board of Inland Revenue

as its chairman.

2.6 Tax Legislation In Nigeria

According to NDUK WU (1988:24-29) income tax was first introduced in Nigeria in 1964 by the

late LORD LUGGARD when community tax become operative in the Northern Nigeria.Before

15
this period taxes were paid in kind. The first ordinance on Was in1917and this is applied to both

the Northern and Southern regions and extends to Eastern region in 1924.

Records available points to the evidence of income tax assessed on individual in the colonies

(Lagos), there is no tax on companies, in 1929 a flat rate of two percent of income was imposed

on both wages salaries earners, and people engaged in business or trade for profit, this continued

until 1939 when the company income tax ordinance (CITO) was enacted. Not long after it was

realized that CITO did not bring individual into tax net. In 1940 the Nigeria income tax

ordinance (NITO) was also enacted. In that year the first commission of income tax was

appointed of all colonies on the west coast.

In 1943 another ordinance was enacted whereby a commissioner was appointed for Nigeria and

company income tax rate was established at 50% (percent). Several amendment were passed on

till 1961 when separated enacted for the taxation of both individual and companies,these are.

a. Income Tax Management Act (Itma) 1961

b. Company Income Tax Act (Cita)1961

The petroleum profit ordinance was passed in 1959 for the purpose or regulation taxation of

companies, which engage in petroleum expiation and mining. In addition o the ordinance

mentioned above other include.

Capital gain decree 1967: This imposes tax on the profit derived from the sale of Capital goods

and it is calculated at the rate of 10%.

b.Capital Transfer Act 1979:-This regulates the taxation on capital transfer from one person to

another, other than by outright sale and this has been abrogated in Nigeria.

16
c.Stamp Duties Ordinance 1958: This law regulates the transaction which are subject to

advocates duties, gives them legal backing and for the purpose of revenue generation.

d. Industrial Development (Income Tax Relief) Decree 1971: This regulates incentives by way of

example or tax rather than imposing tax. It is used to encourage companies that have gone into

industry at first instance.

e. The Income Tax (Armed Forces and Other Persons) (Special Provision) Decree 1972:- This

was introduced where it became necessary to handover taxation of individual in the federal

capital territory to Lagos state.

f.Finance Miscellaneous Taxation Decree 1985:-This decree established special levy on

companies incorporation for more that six (6) month and has not commenced business. Because

of this continuous change in the system just as it has been, the present tax Cazeta (Nigeria tax

law 1995) encompasses all the tax acts as they stand amended.

These rules include.

1. Person Income Tax (PIT) Decree 1993 (No104)

2 Value Added Tax Act (VATA) Cap 60 LFN 1990

3.Petroleum Profit Tax Act (PPTA) Cap 354 LFN 1990

The above laws were assumed to serve the purpose for which they were enacted from the

beginning and it is under assumption that the problem of evasion and avoidance of taxes are not

to occur.

17
2.7 Reasons For Imposition Of Tax

The primary goal of developing countries is to increase the rate of economic growth and hence

the per capital income (PCI) leads to higher standard of living through the accomplishment of

two major objectives identified.

a. Prevision of additional basic government services particularly in education public wealth and

transport which are imperative form the growth of the remainder of society.

b. A higher rate of capital formation in production facilities, whether undertaken in the public or

private sector. The specific goal is of course not the highest possible rate capital formation but

the lowest rate that will permit the maximum rate of growth in GNP regarded as feasible under

the circumstances.

In his book, RABIU (1981:1) states that the original purpose of taxation was to raise money to

finance governed expenditure and this remains the principle purpose.

OMA(1985:1) agreed with him (RABIU) when he stated that taxation has two main objectives;

first to raise revenue to finance the government expenditure and secondly,t influence activity in

the economy as a whole.

TAX POLICY provides a mechanism for influencing consumer demand and for providing

incentives for production, investment and savings; it is therefore a key factor for

objectives.Nowadays,taxation is used to:

a. Achieve economic growth

b. Fight inflation, deflation and depression

18
c. Achieve equitable distribution of income wealth

d. Allocate resources in a socially desirable manner

e. Discourage the consumption of certain goods

f. Encourage and protect new industries

8. Ensure that the balance of payment of the country is in a healthy position.

BURRUWA (1985:3) has further listed two purposes for taxation.

a. To transfer resources from the private to public sector

b.To distribute the cost of government fairly by income class among people in approximately the

same class.

an the contrary, LIPSEY (1975:444) views the use of tax structure as a policy tool Coy has

shown that taxes raised amount to a substantial portion of all income cumed in coutries. He also

stated that because of he effect taxes have no prices,we aso expect them to have the view that the

total effect taxation have is on the allocation of resources.

Finally,the aims and purpose of modern taxation from the different view points are as follow:-

Taxation is a tool for:

a.Satisfying collective wants

b.Solving economic problems

c.Social policy

19
2.8 Functions Of Taxation

Three (3) main function of taxation were explained by SIUS (1972:522-523) as:

a. Revenue:- A tax extracts money from people or organizations and provides revenue for

government.This makes it possible for individuals to have less money for spending while the

government has more to spend. The reduction in the spending Potential of the public sector and

the corresponding increase in the potential of the public sector are clearly by power of taxation

hence tax was solely introduced to help the government out of financial needs rather than from a

public objective of reducing the citizen's spending power.

b. Resource Re-Allocation:- Tax can atlter the product mix generated within the private sector.

The imposition of taxes may make cerain commodities expensive.Example includes

TOBACCO,LIQUOR etc, whereas the use of subsidies or negative tax could make certain

commodities of essential nature less expensive. As a result of this,people will tend to use more of

the later group and less of the farmer.The tax includes charge in the product mix which comes

about through the effects of taxes on prices and qualities produced. Also, the potential income tax

purposely leaves some gains subject to little or no tax and thereby encouraging source activities.

c. Income Redistribution: Economic power as measure by income or wealth could be

redistributed through the use of taxation. When tax is substantially progressive, it takes an

increasing proportion of income.

20
2.9 Effects Of Taxation

The effect of taxation is conceived to cover all the changes in the economy resulting from the

imposition of tax.Generally, the presence of tax distorts the patterns of production,consumption,

investment and employment thus giving validity to what HARPER(1963:213)calls the concepts

of "general fiscal rationality". Taxation has effects on the following:

a. Incentive to Invest:- Heavy taxes may reduce the preventive to invest especially if the tax

heavily on savings and profits. All the discrimination features of the companies income tax stems

from the fact that company's net income is the base.By defnition of tax, all unincorporated

activities are exempled and oven within the corporatesector of the economy. The tax falls more

heavily on activities with low rations of debt and it is a deductible expense. The consequence of

this discrimination is the distortion of the economic structure favouring non-corporate sector,

there is distortion favouring those activities which can readily be financed in large measure by

dealt capital over those that cannot. However, the Nigerian company's income tax attempts to

attract investment in certain preferred sectors by giving tax incentive to firms engaged in such

activities.

b. Inflation & Taxation:- Taxation as a fiscal tool available to the government can be used to

fight inflation, deflation, stagflation and other undesirable trends. For example, an increase in the

rate of both companies and personal income taxes duringinflationary period can reduce

expenditure from the private sector thereby reducing pressure on the market and curtailing

inflation. The chief of inflation ontaxation as noted by EREASER (1980:116) is to change and

often increase it's filed in money terms without the need to adjust tax.

21
c. Incentives Work:- Heavy direct tax may reduce incentive to work if the amount paid too

much, the tax payer quite the job or at least work less. A highly Progressive and steep tax

structure may serve as demonization from working harder

once it has reached a certain income level because and additional increase income after that level

will more proportionality increase tax of the individuals.

c. It Reduces Production: if exercise duties are high, production will be adversely affected.

e. It Will Alter Demand Supply:- When few goods are produced and their prices high asa result

of indirect taxes demand and supply will be low.

f. Causes Scarcity Of Goods:- Taxation reduces the quality of goods producedlocally an

imported thereby causing scarcity of goods.

2.10 Tax Avoidance And Evasion

No tax contains to accept standard at equity if it cannot be administrated with a high decree of

effectiveness. If persons are able to escape by legal or illegal means the tax to which they should

locally be subjected to under the general scope of the tax,the theoretical equity of the tax to a

large measure is lost.

2.10.1 Tax Avoidance

Means legally reducing one's tax liability and it's another term for tax planning. Tax planning

describes the techniques which tax payer minimizes or escape tax liability.The tax payer seeks to

take full advantage of all exemptions, deduction, concessions.rebates,aallowances,and other tax

relies or benefits permitted by law.

22
According to ANYAFA (1996:138), tax avoidance is an attemnpt to escape the liability by

circumventing the law,not by breaking it.

Professor WHEAT CRAFT says, in the attitude of the legislature and the court to tax avoidance,

that tax avoidance is the act of winning games without actually cheating, thereby beating the

internal revenue and the government to their own game.

According to ARONONDOLE (2006:39) defined tax avoidance is a legal ways by which a tax

payer reduces his tax liabilities.

2.10.2 Tax Evasion

According to ANYAFA (1996:138) tax evasion is an attempt to escape tax (wholly or particular)

by breaking the law. It is essentially, a criminal act since it is achieved principally by making

false declaration such as under reporting income or over reporting relief and allowances.

The Red Cliff commission defined tax evasion as a situation which donates all those activities

which are responsible for a person not paying the tax that are existing change on his income.

ASPREY COMMITTEE stated that the phrase “tax evasion" described an act in contravention at

the law whereby a person who derives a taxable income either pay no tax or pay less tax then he

should otherwise be bound to pay tax evasion include the failure to disclose in a return the true

amount of income derived.

The definition offered by the Canadian Department at National revenue as quite comprehensive

and at immense assistance in the quest for an acceptable definition.They stated that: "tax evasion

is the commission or omission at an act knowingly with internet at decisive,so that the reported

by the tax payer is less than the tax parable under the law, or a conspiracy to commit such an

23
offence. This may be accompanied by the deliberates misrepresentation, concealment or with

holding of material fact.

In determining the question, what is TAX EVASION?

LORD HOB HOUSE pointed out in SIMMS vs. REGISTRAL OF PROBATES that:It does not

appear to their lordship that an examination of the decision in which the word "EVADA" has

been the subject of comment lead to any tangible result.Everybody agrees that the word is

capable of begin used in two sense, one which suggests understand are dealing, and the other

which mean nothing more than the institutional avoidance of something disagreeable. (Seminar

by the chattered institute of taxation of Nigeria and joint tax board on tax evasion and tax

avoidance 2001:4).

Tax evasion was also considered in the case of BULLETIN VS WINSCOSN BY JUSTICE

OLIVER WENDELL Holmes where he said: We do not speak of evasion because when the law

draws a line the cause is on it, or the other hand if no the safe side, it is more than the worse

legally that a party has availed himself to the full,of what the law permits lather on act is

condemned as an evasion what is meant is that it is on the wrong side of the line indicated by the

policy, it is not by mere letter of the law.

2.11 Causes Of Tax Evasion And Avoidance

The practice of tax evasion and tax avoidance is not pearl or new in Nigeria. It is a phenomenon

found everywhere. Nationally man is always pleased to receive but always unwilled to give.

Therefore, tax payer will do everything within their tax liability (Liman 2003).

24
The reasons or causes of tax evasion and tax avoidance are numerous but some relevant one for

Nigeria are:

1. TAX RATE: Even though the rates in Nigeria are not high compared to other countries,tax

payers will still complain of high rate of taxes, these liabilities.

2.GREED AND SELFISHNESS:-On the part of some tax payers even though many Nigeria tax

payer live from hand to mouth, there are these that by an international standard they are rich.

Those people, who are rich, continue to make them richer and to ensure that the wide gap

between them and the poor is not only maintained but further widened, so that they will continue

to control and manipulate the masses through the power of money.

2. LOOPHOLES IN TAX LAW:-This also encourage the practice of tax avoidance (ie.) tax

payers take the advantage of the loop holes in the tax laws to minimizetheir tax liabilities in the

belief that it is a law act.

4. LACK OF QUALIFIED PERSONAL:- According to RABIU (1984) and (2003)rising of

correct assessment and prompt collection of tax largely depends on quality and efficiency of the

staff of the revenue departments. In most revenue department qualified and competent staffs are

inadequate, tax payers, who do not want to pay their taxes will be happy to see a revenue officer

who cannot raise connect assessment.

5. NO PUNISHMENT FOR EVADERS:- Though tax evasion is said to be a criminal act,evades

are supposed to be punished when caught but it has not been the practice in Nigeria. This

situation does not only make tax evades to continue in the act but also encourage other tax player

to emulate themselves (ADENALE, 1999).

25
2.12 EFFECT OF TAX EVASION AND TAX AVOIDANCE ON THE ECONOMY

It has been pointed out earlier that taxation is the most important of all sources of revenue to

anystate like kogi state and to its economical development. Annual expenditure budgets are

based largely as the projected tax revenue of the state. Where tax evasion and avoidance are the

order of the day relevant tax authorities finds it difficult to meet their target collection resulting

in less revenue to the state and details and this has serious effect on the state's economy.

There are two effects of tax evasion and avoidance identified in kogi state, and they are as

follows.

1. INADEQUATE SUPPLY OF BASIC SERVICE:- The kogi state government finds it difficult

to execute its socio-economic programme like the provision of social amenities such as portable

water supply, electricity security (etc) for the general well being of the people.

2. DECREASE IN REVENUE: There is drastic decrease in the amount of money that would

have been realized by the government of kogi state as revenue through taxation. The revenue loss

owing to evasion and tax avoidance it's enormous although it cannot be accurately estimated.

2.13 METHOD OF TAX EVASION AND AVOIDANCE

While it is not possible to provide an exhaustive list of the various methods adopted to evade tax,

apparently because new one's come into pay now and then, there are some common forms of tax

evasion and avoidance and they are as follows;

1. Failure to furnish a return,statement or information or to keep records required.

2. Making an incorrect return,omitting or underwriting any income to tax.

26
3. Giving away incorrect information in relation its matters or affecting the liability to tax a

taxable person.

4. Refusing or neglecting to pay tax. Although there are statutory provision in the personal

income tax Act 1993 and the companies income act 1990 to check the above abuses

andfraudulent practices, the reality is that they are implemented half heartedly.

The general principle is that to prevent tax evasion. It is necessary that each tax payer tax is

property assessed and paid. This cannot be done merely by imposing penalties against those who

failed to pay their taxes but also by introducing measure which make it possible for tax

authorities.

2.14 Ways Of Eliminating Or Reducing Tax Evasion And Avoidance.

There are various ways in which tax avoidance and evasion can be eliminated or reduced. There

effects will persist if not manipulated with various measures.

There is a saying that "any man who tastes the forbidden fruit must be prepared to face the

consequences as Adam and Eve did." Once one decides to avoid or evade tax payment,such

person must face the penalty of such offence.

The various ways are as follows;

1. Tax defaulters should be policed and detained to face the penalties i.e the penalty of non-

payment of tax within the stipulated time in addition to the tax.The tax payer should pay 10% of

the outstanding tax liability,assuming the tax payer is at default of #5,000 he has to pay 10%

addition making the total to be #5,500 as tax liability.

27
2. Tax clearance certificate must be produced by any person contesting for an election or seeking

for public appointments. This aims at compelling people to come and pay tax. Also acquisition,

sale transfer or disposal of property now requires a condition for registration which involves the

production of tax clearance certificate.

3. The creation of revenue bureau or commission to enable members of the public who feel

disposed to come and volunteer on confidential basis to honour their obligations.

4. The issues of various licenses including export, import and commodity board licence should

be conditional on production of tax clearance certificate.

5. Social re-organization should be accorded to individuals on the basis of discharge of civil' s

responsibilities such as income tax.

6. Government should shift its emphasis from income tax to the tax on consumption which is less

prone to tax evasion and it is progressive in nature.

2.15 Differences Between Tax Evasion And Tax Avoidance

NO, TAX EVASION,TAX AVOIDANCE, I, Criminal act,Not criminal act,II,Tax evaders may be

liable to firms and penalties and at time imprisonmentin addition to the payment of the tax lost

through the tax payment act,Tax avoiders cannot be liable to fine either penalties or

imprisonment since no offence has been committee.,III,Form of anti -tax evasion tool is back

duty,Back duty cases do not arise with tax avoidance,Iv, Tax payer may not show up to

taxauthorities and therefore may not be subject to tax assessment, Tax payer will show up and

present all necessary paper to the revenue and subsequent assessment will be settled,

Sources C.S. OLA (2000).

28
 CHAPTER THREE
RESEARCH METHODOLOGY

3.0 Introduction
It is not out of place that an action pre-supposed planning. Hence, this chapter focuses on

planning with respect to method and techniques employed in carryout this study. Research

methodology embrace at the process involved in obtaining and analyzing observation or

information relevant to the study. In fact for any star to be reliable and veritable, it must be

backed up with data systematically to the end.This chapter sets out to explain the method and

rules observed in carrying out the study.

3.1 Research Design

Research design answers the fundamental question of how the study objects will be brought into

the scope of the research design are the case study and the survey methods. This study will use

study method to investigate the effect of tax avoidance and evasion to the economic development

of a nation, Kogi state as the case study.

It describes the instrument used in determining information from the respondents,the procedure

for collecting it. It involves a method of data analysis,collection method and formula. For the

purpose of this research exercise, a case study approach is adopted being descriptive and

evaluated in nature. The research design comprises a combination of oral interview existingdata

and structural questionnaire.

3.2 Source Of Data

The Primary Method;- The primary method of data collection was used for this study, this was

obtained through the use of the questionnaire, asking people and putting their response down.

29
The Secondary Method;- The secondary method was also obtain through the review of relevant

literature, these includes textbook, journals, articles in newspapers,government gazettes,

magazines, lectures notes and information from libraries and also the tax returns at the tax

authorities.

3.3 Data Collection Technique

The sample percentages were used for the analysis of the information get through the primary

sources, mainly the questionnaire; the data generated were converted into percentages.

This enables the researcher to know the percentage number of respondent that give particular

responses to each of the question in the numbers. The various responses,frequency of response

and their percentage were triturated. This help in sampling the analysis, so that the first glance

will be easily understand the information being conveyed.

3.4 Population of the Study

the population here refers to the totality of the targeted individual that forms the focus of this

study. According to Igwenagu (2007:16) and Onyeka (2002:11-17)Population is defined as a

class of people, animals, plant,space,time and objects under observation which satisfies a study

objective or area of interest.

The objective of the data collection process is to draw conclusion about the population thereby

having a clear picture of what constitutes the research population.

The population suppose to be made up of the entire taxation individuals and organization in Kogi

state and since everyone cannot be easily reached the researcher personally served the

30
questionnaire by hand and collected them back through the same means. The population for this

study consists of tax payers and tax authority.

Categories Response Percentage (%)

Tax Authority 45 56%

Tax payers 35 44%

Total 80 100

Sources:Field survey,2015

1.5 Sampling Procedure And Sample Size Determination

sample involves the selection of a number of study units from a defined study population.

Therefore, a sample is a small representatives of a large population, this help the researcher to

consider how many people that are needed in the sample and their categories which are first to be

selected.

The sample size used sixty seven (67) staff selected from tax authority and tax payers in kogi

state. Using Taro Yamane (1964) formula:

n= N
1 + N(e)2
Wheren = sample size

N= population size

e=level of significance (acceptable error/limit 5%)

1 = constant

31
n = 80
1 +80(0.05)2

n= 80
1 +80(0.0025)

n= 80
1 + 0.2
n= 80
1.2
n= 67
The sample size allocation is as follows;

Categories No of response No of sample size

Tax Authority 45 56%

Tax payers 35 44%

Total 80 100

Sources: Field survey,2015

32
3.6 METHOD OF DATA ANALYSIS

The results of the questionnaires were analyzed by the use of tables. Simple percentage was

computed and findings were presented, discussed and interpreted,deductive reasoning relevant to

the research objective and hypothesis were also used.The Chi-square (X2) was used in testing the

hypothesis.

THE CHI-SQUARE(X2)

The chi-square is one of the standardized statistical distributions used in hypothesis testing. It

was developed in 1930 by Karl person. It enables us to know whether the discrepancy between

the actual outcomes the expected outcomes could be observed reasonably. This is to determine if

the observe outcome can be attributed to chance.It is given by the formula;

X2 = ∑(Fo-Fe)2
Fe
∑=summation of value

Fo = observed frequency

Fe = expected frequency

Once you have computed your X2,you then state the decision.

The level of significance=0.05 i.e 5%

Degree of freedom (DF)=(n-1)

33
DECISION RULE

If the calculated chi-square value (X2) is greater than the value gotten from the chi-square

distribution table,then reject the null hypothesis (Ho) and accept the alternative hypothesis (HI).

But if the chi-square distribution table value is greater than the calculated value, then reject HI

and accept Ho. Therefore,

If X2 >X2e, reject Ho and accept HI

If X2 >X2e,accept the Ho and reject HI

34
CHAPTER FOUR

DATA PRESENTATION,ANALYSIS AND INTERPRETATION

INTRODUCTION

4.1 DATA PRESENTATION AND RESULT

In this chapter, we are concerned with analysis of the answers to the questions in the

questionnaires administered to the respondents. The use of table will be used or adopted to

clearly show the responses obtained in each question of the questionnaires and the research

hypothesis from chapter one will be use to test hypothesis guiding the study through the use of

percentages and chi-square (X2) techniques.

4.2 DATA ANALYSIS

According to the table below, out of 67 questionnaires distributed to the respondents,and a total

of 58 were completed and returned and 9 were not returned at all.Therefore, the total of 58

questionnaires is used for the analysis and it took the duration of one month for the

administration of the questionnaires. The table below shows the distribution of the

questionnaires.

35
 PATTERN OF RESPONSE

Table 4.1

Option Response Percentages

Number returned 58 87%

Number not returned 9 13%

Total 67 100%

Source:Field Survey 2024

From the table above, the total returned questionnaires were 58 (87%) of the respondents, while

total not returned of questionnaires are 9 (13%) respondents.

RESEARCH QUESTION 1: "The causes of tax evasion and tax avoidance are

high tax rate,ignorance on part of tax payers and loopholes in tax law"

Table 1

S/N RESPONSE NO OF PERCENTAGE %

RESPONSE

1 Strongly Agree 29 50%

(SA)

36
2 Agree (A) 13% 26%

3 Disagree(D) 8 14%

4 Strongly 6 10%

Disagree (SD)

TOTAL 58 100%

Source; Field Survey 2024

The response in table 1 above shows, 50% Strongly agree and 26% Agree while 14%of the

response Disagree and 10% Strongly Disagree with the research question 1.From the field survey

it was found that high tax, Ignorance on part of tax payers and loopholes in tax law are the causes

of tax evasion and tax avoidance.

RESEARCH QUESTION 2: Tax evasion and tax avoidance has a negative effect on the state

government revenue.

Table 2

S/N RESPONSE NO OF PERCENTAGE %

RESPONSE

1 StronglyAgree 34 59%

(SA)

2 Agree (A) 15 26%

3 Disagree(D) 6 10%

4 Strongly 2 5%

37
 Disagree (SD)

TOTAL 58 100%

Source:Field Survey 2024

The response in table 2 above shows that 59% strongly Agree and 26% Agree while 10% of

Disagree and 5% Strongly Disagree with the research question 2. From this field survey, it was

found that tax evasion and tax avoidance has a negative effect on the state government revenue.

44

RESEARCH QUESTION 3:- There has been difference between expected tax revenue and the

amount actually paid by those who evade and avoid tax"

Table 3

S/N RESPONSE NO OF PERCENTAGE %

RESPONSE

1 Strongly Agree 26 45%

(SA)

2 Agree (A) 22 38%

3 Disagree(D) 6 10%

4 Strongly 4 7%

Disagree (SD)

TOTAL 58 100%

Source:Field Survey 2024

38
 The response in table 3 above shows that 45% Strongly Agree, 38% Agree while 10% Disagree

and 7% Strongly Disagree with the research question 3. And from this survey, it was found that

there has been difference between expected tax revenue and the amount actually paid by those

who evade and avoid tax.

45

RESEARCH QUESTION 4:-There is a relationship between tax office and the registration of

business unit

Table 4

S/N RESPONSE NO OF RESPONSE PERCENTAGE %

1 Strongly Agree (SA) 29 50%

2 Agree (A) 13% 26%

3 Disagree(D) 8 14%

4 Strongly Disagree (SD) 6 10%

TOTAL 58 100%

S/N,RESPONSE,NO OF RESPONSE,PERCENTAGE%,1,Strongly Agree

(SA),5,9%,2,gree(A),4,7%,3,Disagree (D),21,36%,4,Strongly Disagree(SD),28,48%,TOTAL,

39
58,

100,

Source:Field Survey 2015

The response in table 4 above shows that 9% Strongly Agree, 7% Agree while 36%Disagree and

48%oStrongly Disagree with the research question 4. From this field survey it was found that

there has been much difference between the tax office and the registration of business unit.

46

RESEARCH QUESTION 5:-All the registered companies and enterprises do pay

their tax

Table 5

S/N,RESPONSE,NO OF RESPONSE,PERCENTAGE %,1,Strongly Agree

(SA),22,38%,2,,20,34%,3,Disagree (D),11,19%,4,Strongly Disagree(SD),5,9%,TOTAL,

58,

100,

40
Source:Field Survey 2015

The response in table 5 above shows that 38% Strongly Agree, 34% Agree while 19% Disagree

and 9% Strongly Disagree with the research question 5. From the field survey it was found that

all the registered companies and enterprises do pay their tax.

47

RESEARCH QUESTION 6:- Adequate punishment are given to those companies and

individuals that refuse to pay their tax

Table 6

S/N,RESPONSE,NO OF RESPONSE,PERCENTAGE %,1,Strongly Agree

(SA),8,14%,2,Agree(A),5,9%,3,Disagree (D),24,41%,4,Strongly Disagree(SD),21,36%,TOTAL,

58,

100,

41
Source:Field Survey 2015

The response in table 6 above shows that 14% Strongly Agree, 9% Agree while 41%Disagree

and 36% Strongly Disagree with the researc question 6. From the field survey it was found that

many disagree with the research question that adequate punishment are given to those companies

and individuals that refuses to pay their tax.

48

RESEARCH QUESTION 7:-Government is really making use of the tax paid by the tax payer

for development.

Table 7

S/N,RESPONSE,NO OF RESPONSE,PERCENTAGE %,1,Stron,5,9%,2,,15,26%,3,Disagree

(D),18,31%,4,Strongly Disagree(SD),20,34%,TOTAL,

58,

100,

Source:Field Survey 2015

42
The response in table 7 above shows that 9% Strongly agreed 26% Agreed while 31% Disagreed

and 34% Strongly disagreed with the research question 7. From the field survey it was found that

many disagree with the research question that government is really making use of the tax paid by

the tax payer for development.

49

HOVESI I QUESTION 8:-All business in this country are registered

Table 8

,RESPONSE,NO OF RESPONSE,PERCENTAGE %,1,Strongly Agree

(SA),23,40%,2,,20,34%,3,,9,16%,4,Strongly Disagree(SD),6,10%,TOTAL,

58,

100,

Source:Field Survey 2015

The response in table 8 above shows that 40% Strongly Agree, 34% Agree while 16% Disagree

and 10% Strongly Disagree with the research question 8. From the field survey it was found that

all businesses in this country are actually registered.

50

43
RESEARCH QUESTION 9: Every body pays their personal income tas monthly

Table 9

,RESPONSE,NO OF RESPONSE,PERCENTAGE %,-,,A),30,52%,,18,31%,3,Disagree

(D),8,14%,4,Strongly Disagree(SD),2,3%,TOTAL,

58,

100,

Source:Field Survey 2015

The response in table 9 above shows that 52% Strongly Agree, 31% Agree while 14% Disagree

and 3% Strongly Disagree with the research question 9. From the field survey it was found that

everybody pays their personal income tax monthly.

51

RESEARCH QUESTION 10:- There is signifieant effect of tax avoidance and tax aasion on

economie development of a nation.

Table 10

N,RESPONSE,NO OF RESPONSE,PERCENTAGE %,1,Strongly Agree

(SA),18,31%,2,Agree(A),25,43%,3,Disagree (D),6,10%,4,Strongly

Disagree(SD),9,16%,TOTAL,

44
58,

100,

Source:Field Survey 2015

The response in table 10 above shows that 31% Strongly Agree, 43% Agree while 10% Disagree

and 16% Strongly Disagree with the research question 10. From the field survey it was found

that poor revenue gotten for development is due to the major effect of tax avoidance and tax

evasion.

52

RESEARCH QUESTION 11:- Shortage of road and electricity built from taxation are due to low

revenue following tax evasion and tax avoidance

Table 10

S/N,RESPONSE,NO OF RESPONSE,PERCENTAGE %,1,Strongly Agree

(SA),29,50%,2,,19,33%,3,Disagree (D),8,14%,4,Strongly Disagree(SD),2,3%,TOTAL,

58,

100,

Source:Field Survey 2015

The response in table I'1 above shows that 50% Strongly Agree,33% Agree while 14% Disagree

and 3% Strongly Disagree with the research question 11. From the field survey it was found that

shortage of road and electricity built from taxation are due to low revenue following tax evasion

and tax avoidance.

45
53

RESEARCH QUESTION 12:-There has been effect of tax avoidanee and tax evasion on capital

formation.

Table 12

S/N,RESPONSE,NO OF RESPONSE,PERCENTAGE %,1,Strongly Agree

(SA),24,41%,2,Agree(A),27,47%,3,Disagree (D),2,3%,4,Strongly Disagree(SD),5,9%,TOTAL,

58,

100,

46
Source:Field Survey 2015

The response in table 12 above shows that 41% Strongly Agree, 47% Agree while 3% Disagree

and 9% Strongly Disagree with the research question 12. From the field survey it was found that

there has been effect of tax avoidance and tax evasion on capital formation.

54

RESEARCH QUESTION 13:- The tax laws guiding the citizens are effective in this country.

Table 13

47
S/N,RESPONSE,NO OF RESPONSE,PERCENTAGE %,1,Strongly Agree

(SA),18,31%,2,,20,34%,3,Disagree (D),15,26%,4,Strongly Disagree(SD),5,9%,TOTAL,

58,

100,

Source:Field Survey 2015

The response in table 13 above shows 41% Strongly Agree, 34% Agree while 26%Disagree and

9% Strongly Disagree with the research question 13. From the field survey it was found that the

tax laws in the country are effective.

55

4.3TESTING OF HYPOTHESIS

For the purpose of testing the three hypothesis stated in chapter one, we shall relate each of the

items in questionnaire to the relevant hypothesis to be tested and finally use the chi-square (X2)

technique to test for reliability and validity.

48
HYPOTHESIS 1

HO:The causes of tax evasion and tax avoidance are not high tax rate,ignorance on the part of tax

payers and loopholes in tax law.

HI: The causes of tax evasion and tax avoidance are high tax rate,ignorance on the part of tax

payers and loopholes in tax law.

Table 1 data on “"The causes of tax evasion and tax avoidance are high tax rate,ignorance on the

part of tax payers and loopholes in tax law”

S/N,RESPONSE,NO OF RESPONSE,PERCENTAGE %,1,Strongly Agree

(SA),29,50%,2,Agree(A),15,26%,3,Disagree (D),8,14%,4,Strongly

Disagree(SD),6,10%,TOTAL,

58,

100,

49
Source:Field Survey 2015

56

Step 1: Determination of degree of freedom (DF) =n-1

DF=4-1=3

Step 2: Determnine the level of significance 5% =0.05

Critical table value X2e=7.81

50
Fe

Fo,Fe,Fo-Fe,(Fo-Fe)2,,29,14.5,14.5,210.25,14.50,15,14.5,0.5,0.25,0.02,8,14.5,-

6.5,42.25,2.91,6,14.5,-8.5,72.25,4.98,X2,

22.41,

51
Computed value

Tabular value

57

Decision Rule

From the chi-square table for 3 degree of freedom at 5% level of significance, the theoretical X'e

value is 7.81, or falls in the rejection region. The computed value of x2> X'e i.e

22.41>7.81.Reject the null hypothesis (H0) which states that "the causes of tax evasion and tax

avoidance are not high tax rate, ignorance on the part of tax payers and loopholes in tax law" and

accept the alternative hypothesis (HI) which states that "the causes of tax evasion and tax

avoidance are high tax rate, ignorance on the part of tax payers and loopholes in tax law"

Reject (H0) null hypothesis

52
Accept (HI) alternative hypothesis

HYPOTHESIS 2

4. HO: There is no significant effect of tax avoidance and evasion on economic development of a

nation.

HI: There is a significant effect of tax avoidance and evasion on economic development of a

nation.

58

53
Table 10 data on "there is significant effect of tax avoidance and tax evasion on economic

development of a nation"

S/N,RESPONSE,NO OF RESPONSE,PERCENTAGE%,1,Strongly Agree

(SA),18,31%,,,25,43%,3,Disagree (D),6,10%,4,Strongly Disagree(SD),9,16%,TOTAL,

58,

100,

Source:Field Survey 2015

Step 1: Determination of degree of freedom (DF)=n-1

DF=4-1=3

54
Step 2: Determine the level of significance 5%=0.05

Critical table value X2e=7.8

59

55
Fo,Fe,Fo-Fe,(Fo-Fe)2,,18,14.5,3.5,12.25,0.84,25,14.5,10.5,110.25,7.60,6,14.5,-

8.5,72.25,4.98,9,14.5,-5.5,30.25,2.09,X2,

15.51,

1.

Computed value

Tabular value

Decision Rule

56
From the chi-square table for 3 degree of freedom at 5% level of significance, the theoretical X'e

value is 7.81, or falls in the rejection region. The computed value of i.e 15.51>7.81.We therefore

reject the null hypothesis (H0) which states that “There is no significant effect of tax avoidance

and evasion on economic development of a nation" and accept the alternative hypothesis (HI)

which states that

60

-There is a significant effect of tax avoidance and evasion on economic development ofa nation"

Reject (HO) null hypothesis

Accept (HI) alternative hypothesis

HYPOTHESIS 3

57
1. HO: The tax laws guiding the citizensare not effective in this country.

HI: The tax laws guiding the citizens are effective in this country.

Table 10 data on "the tax laws guiding the citizens are effective in this country."

S/N,RESPONSE,NO OF RESPONSE,PERCENTAGE%,1,Strongly Agree

(SA),18,31%,2,,20,34%,3,Disagree (D),15,26%,4,Strongly Disagree(SD),5,9%,TOTAL,

58,

100,

Source:Field Survey 2015

Step 1: Determination of degree of freedom (DF)=n-1

DF=4-1=3

61

ermine the level of significance 5%=0.05

58
tical table value X2e=7.81

Fo,,Fo-Fe,,,18,,3.5,,,20,,5.5,30.25,,,15,14.5,0.5,0.25,0.02,5,,-9.5,90.25,6.22,,

9.17,

59
omputed value

Tabular value

Decision Rule

From the chi-square table for 3 degree of freedom at 5%s level of significamce,the theoretical

X'e value is 7.81, or falls in the rejoction evgion.The computed value of We therefore reject the

mall hypothesis(10)which states that

"The tax laws guiding the citizens are not effective in this country" and accept the alternative

hypothesis (HI) which states that "The tax laws guiding thecitizens are effective in this country."

Reject (H0) null hypothesis

Accept (HI) alternative hypothesis

63

CHAPTER FIVE

60
SUMMARY OF FINDINGS,CONCLUSION AND RECOMMENDATION

5.0INTRODUCTION

In this chapter, an attempt is made to discuss the findings of this study, conelusion drawn and

recommendation made are hoped to help to reduce, eliminate the problems of tax evasion and

avoidance in the state and nation.

5.1 SUMMARY OF FINDINGS

Some findings were obtained from the questionnaire and the hypotheses are the answers to our

research questions and problems. It was discovered that high tax rate,ignorance on part of tax

payers and loopholes in tax laws are the causes of tax evasion and tax avoidance. Tax evasion

and tax avoidance has a negative effect on the state government revenue. There has been a

difference between expected tax revenue and the amount actually paid by those who evade and

avoid tax. There has been much difference between the tax office and the registration of business

unit.All the registered companies and enterprises do pay their tax. Inadequate punishments are

given to those companies and individuals that refuse to pay their tax. These two practices have

reduced revenue accruing to the government and have greatly led to under development of a

61
nation evidenced in shortages of road, electricity, Social security required, like employment etc

due to tax evasion and tax avoidance.

64

5.2CONCLUSION

Tax evasion and tax avoidance in this country,especially kogi state has been a serious problem to

the revenue/profit of the government to be very low and hence it earn be easily execute. It is not

known how much tax lost by "artificial"as opposed or "legitimate" tax avoidance scheme or tax

evasion there is little direct evidence that avoidance lead to evasion although the resentment that

comes from watching others same tax may cause a décline in tax payer morality.

A proposition which leads to an examination of the tax base and of those item of income tax

altogether just as much as those who escape tax through artificial devices causes more increase

in the burden on other tax payer. It would be unities to leave this problem without nothing, the

62
commit of the royal commission that the existence of widespread of tax avoidance and tax

evasion and evidence that the system has the tax payers and is in need of radical reform.

5.3 RECOMMENDATION

In the light of the finding the following recommendation are made although these

recommendations are not conclusion but are supplement to the already suggested measures by

the federal and state government of kogi state and other tax expect in the state.

a. Tax laws should be properly implemented by punishing the offenders.

65

b. The tax laws should be moderate because it is not high tax rates that generate income but a

moderate rate with full enforcement.

c. The internal revenue service should require some class of self employed to submit to them

statement of fixed period containing details of accuracy of the tax payers returns.

63
d.The tax authorities should organize educative program to enlighten the tax payers about the

different laws guiding the Nigeria tax system why he/she should pay tax and the effect of non-

payment of tax.

e. In order to ensure that the incidence of tax evasion and avoidance is minimize and members of

registered enterprises is brought into the tax bracket. There should be better co-ordination

between the government which is responsible for the registration of business unit and internal

revenue services.

f. Government should provide infrastructural facilities like water, good roadsand electricity for

those in the rural areas.

g.The direct bank lodgment system should be put in place for all taxes collection by all ties of

government in order to prevent fraud.

h. A special monitoring unit should be created and daily monitoring, collecting examine bank

lodgment and bank statement, in order to prevent delays by tax officials in paying gains collected

from government revenues, also a tax artificial must be present in the bank to issue receipts on

the spot to persons who pay in taxes.

66

1. The prospect for a better tax administration in Nigeria will be bright, when the

recommendation made are implemented. The setting up of the study group on the review of

64
Nigeria tax system is a step in the right direction which will cnable govemment to establish the

designed refective and efficient tax administration which Nigeria needs.

65
66
67

BIBLIOGRAPHY

Aguolu, O (1999).Taxation and Tax Management in Nigeria, Enugu: Meridian

Associates.

Agyei, A.K(1983).Principle Of Personal Income Taxation In Nigeria.Nigeria:West African book

publisher's Ltd.

Aronomold,A. & Oluwalaoyode,F.(2006). Classical Introduction, Nigeria Taxation.

Nigeria: King Julius Education Publisher.

Ibid,(2001). Guide To Nigeria Companies Taxation. Enugu: Ochumba Printing and

Publishing Company Limited.

67
Lakan, S.(2006).Taxation Principles And Practices In Nigeria. Ibadan: Silicon

Publishing Company.

Okpe,I.I. (2000).Personal Income Tax In Nigeria. Enugu: Ochumba Printing and

Publishing Company Limited.

Ola,C.S.(2000).Income Tax Laws For Corporate And Unicorporated Bodies In

Nigeria. Ibadan: Heineman Education books limited.

Umoru, T.A (2003). Research Methods: An introduction (2nd ed.).Lokoja:

Onavivi and Co. Ltd

Yamane,T.(1967).Statistics:An Introductory Analysis. New York: Harper and Row

publishers.

68

JOURNALS

Adebisi,J.F.and Gbegi,D.O.(2013)."Effect of Tax Avoidance and Tax Evasion on

68
personal income tax administration in Nigeria". American Journal

of Humanities and Social Sciences,1(3).125-134.

Chime,F.C.(1993).The Nigeria Accountant taxation And Economic Reformation

Editiorial.April/June. 16(2).

INTERNET

ALOZIE.A. (2001). Principle Of economic Luttetie Oren. Enugu state.

www.nigeriaeconomy.com.

ALDURAZAQ M.T (2001). Tax Evasion And Avoidance Business Time. Nigeria.

www.msn.tax.com.

69

APPENDIX 1

69
Department of Accounting,

Faculty of Management Sciences,

Kogi State University,

P.M.B 1008,Anyigba,

Kogi State.

8/7/2015

Dear Sir/Madam

This research works "the effects of tax avoidance and evasion on the Nigerian economy". A case

study of Kogi state board of internal revenue is being conducted by SANNI ABDULRAHEEM,

a final year student of Accounting in Kogi State University, Anyigba, Kogi State as pre-requisites

for the award of a Bachelors Degree (B.Sc Hons) in Accounting.

The following information received through this questionnaire will be treated in street

confidence, the exercise is purely for academic purpose, please do complete the question and I

will be grateful.

70
Thanks for your corporation.

Yours Sincerely,

SANNI ABDULRAHEEM

70

APPENDIX 2

QUESTIONNAIRE

i. Please thick either Yes or No in the appropriate box

ii. Please thick either-(SA) Strongly Agree, (A) Agree, (D) Disagree (SD) Strongly Disagree.

SECTION ONE

71
1.Sex Male [ ] Female [ ]

2.Age group 21-below [ ] 22-31[] 40-above[ ]

3.Martial status Single [ ] Married [ ]

4.Are you employedYes [ ] No [ ]

5. If yes do you pay your income tax? Yes [ ] No[ ]

6.How often do you pay personal tax?

Monthly [ ]

Quarterly []

Yearly [ ]

72
71

SECTION TWO

I The causes of tax evasion and tax avoidance are high tax rate,ignorance on part of tax payer and

loopholes in tax law.

SA [] A [] D[ ] SD []

2. Tax evasion and tax avoidance has a negative effect on the state government revenue

SA [\ A[ ] D [] SD [1

73
3. There has been difference between expected tax revenue and the amount actually paid by those

who evade and avoid tax.

SA[ ] A [] D[ ] SD [ 一

4.There is a relationship between tax office and the registration of business unit.

SA [] A,[ ] D [ ] SD [ 1

5.All the registered companies and enterprises do pay their tax

74
SA [] A[ ] D [ ] SD [ ]

6.Punishment are given to those companies and individual that refused to pay their

tax

72

SA[1 A[ ] D - 1 SD 1 1

7.The punishment given to those tax defaulters are harsh and reasonable

SA[] A [ ] D [ ] SD [ 1

8.All business in this country are registered

SA[] A[ ] D [ ] SD [ ]

75
9.Everybody pays their personal income tax monthly

SA [] A[ 1 D [ ] SD [ ]

10. Poor revenue gotten for development is due to the major effect of tax avoidance and tax

evasion.

SD[ 1SA [ ] A[ ] D[ ]

11. Shortage of road and electricity, built from taxation are due to low revenue following tax

evasion and tax avoidance

SA[ ] A[ ] D[ - SD[ ]

12. Social security required, like employmentetc are not provided by the government due to tax

evasion and tax avoidance

SA [] A[ ] D [ ] SD [ ]

73

76
B.The tos cpreng t

77