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The case of tax evasion and tax avoidance has predicated the tax system for decades. Individuals and corporate entities have been found wanting in this criminal act. Tax to some countries is a major source of revenue and evading it means a contribution to the stagnancy of development and growth in that country. Nigeria has taxation as one of its sources of income. The country dwells mainly in the revenue that comes from the oil sector but cannot deny that taxation has generated a great portion of income to the country and has contributed immensely to the country’s gross domestic product. This study on the impact of tax evasion and avoidance is poised on examining the economic effects of avoiding tax both by individuals and corporate entities. It is a criminal act to be frown at and strategies must be adopted to curb this criminality. The study selected the internal board of revenue as a case study and employed the chi-square statistical method of SPSS to test the hypotheses.



1.1 Background of the Study

In Nigeria their so many form of taxation dating back of thedays of our great ground father whose by communities dated themselves through communal labour to prosecute community projects.Taxation is process on machinery by which group or communities made contribution from their income in some agree amount and method for the purpose providing amentias for the society.  It is because of this it I often referred to as civic responsibility. A nation’s tax system is often a reflection of its communal values and the values of those in power (Ross, 2007). Thus, to create a system of taxation, a nation must make choices regarding the distribution of the tax burden and how the taxes collected will be spent. In democratic nations where the public elects those in charge of establishing the tax system like Nigeria, these choices reflect the type of community that the public or government wish to create. Parkin (2006) states that in countries where the public does not have a significant amount of influence over the system of taxation, that system may be more of a reflection on the values of those in power as governments use different kinds of taxes and vary the tax rates. This is done to distribute the tax burden among individuals or classes of the population involved in taxable activities, such as businesses, or to redistribute resources between individuals or classes in the population in addition, taxes are applied to fund foreign aid and military ventures, to influence the macroeconomic performance of the economy, or to modify patterns of consumption or employment within an economy, by making some classes of transaction more or less attractive (Parkin, 2006). In a report of the Federal Inland Revenue Services (FIRS) and presented to the federal executive council on National Tax Policy for 2009, it says that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs thus, in this context sustainable development refers to the pattern of revenue generation, which is able to meet the needs of the present generation of Nigerians, without negatively impacting the ability of future generations to meet their own needs. Generally, taxation is regarded as a sustainable source of Government revenue due to the stability and certainty of the tax system (Aguolu, 1999). Unlike other sources of revenue, taxes are constantly available in so far as economic activity is carried on in the society (Cobham, 2005). However, recent developments in the global and local economy which have significantly impacted Government revenue has directed focus on taxation as a sustainable source of income (FIRS, 2009). It is in line with this that the National Tax Policy intends to create awareness on the importance of the role, which taxation can play in securing a stable flow of revenue for the Government. Nigeria is currently viewed as a mono-product economy with significant reliance on oil revenue due to historical developments in the Nigerian economy (FGN, 2009).

However, taxation has been identified as an alternative to oil revenue and a more reliable source of’ revenue (McKerchar, 2003). The tax policy shall therefore promote and encourage a shift in focus from non-tax revenue to tax revenue by Governments at all levels of the Nigerian economy (FGN, 2009). Following from the above, the tax policy shall also promote and encourage healthy competition amongst tax and revenue authorities in Nigeria at the Federal and State level to facilitate rapid development of the tax sector in Nigeria. The focus of the competition shall be to maximise tax revenue within the jurisdiction of each Government in line with Constitutional and statutory provisions. It is expected that there would be increased collaboration as a result of the need to grow tax revenues by each level of Government and that improved collaboration would enhance tax yield between and among Federal, State and Local Kiabel and Nwokah (2009) say although tax 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. As observed by Ayua (1999) self-employed persons blatantly refuse to pay tax by reporting losses every year and many of them 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 observed, many have turned the statutory personal allowances 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 taxable persons can minimize tax liability the self-employed persons employ all kinds of avoidance schemes to minimise 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. It is important to note that the present tax has in Nigeria was been out of the Rouseman’s Commission of inquiry of last.

But before that, we only had what was called the income tax ordinance for the colonies and which was very similar Raismars recombine nature was the basis for providing in section to, subsection of the Nigeria prospects for reform (Anarticle published in Business Time on May 20, 1786).

Taxation can be divided in two basic profiles we have the direct taxation sand indirect tax is based on ascertainment of income rather on individual a group of individuals co-operate bodies and institution under this was have personal income tax and company income tax.  The personal income is one which of individual is assessed and resident by the state on those individual resident in the state, which the companies income tax is cleared on corporate bodies is the responsibility of federal government through the federal board of inland revenue indirect taxation is lived on consumption of goods or services and each of consumption.

In various countries, various government rely heartily on taxation on as in aid to encouraging capital formation policy.

In a developing economy, tax may be collected strutted in such way that the high may be collected and even raise revenue for the economy of the country.


Taxes are one of the major sources of revenue for allgovernment in Nigeria.

The taxes collected income back to the tax payer in the form of social amenities, like building as school, hospital.Nigeria tax is an assessment imposed by the State of Federal Government to enable them provide service for Nigeria citizens present day tax administration in Nigeria is guided by the following Act Decree:

1.   Income tax management Act (ITNIA) 1961.  This governs the taxation of individual.  (Individuals, trustees, executors, partnership and families) the Act was amended by the finance (miscellaneous taxation provision) Decree 1986,1983,1990,1992, 1994 and 1996.

2.   Company Income Tax act (CTA) 1979, this registered companies. It also suffered some amendments.

3.   Petroleum Profit Tax Act (PPTA), 1959 as amended this Act regulates the assessment and collection of petroleum. Tax payable by entries that engage in the secretion and sale of petroleum oil in Nigeria.

4.   Capital Gains Decrees (CGD), 1976, this was introduced by Decree 44 of 1967.  it takes care of gain accruing to any person on or after 1st of April 1967 on the disposal of fiscal assets.


The existence of tax evasion and tax avoidance in Nigeria taxsystem poses a lot question in the inquisitive mind of some people especially in the board of inland revenue as to the way and how of this existence.This brings about reactions from various sections of the economy. This reaction are the problems this research work going to address itself to.


Based on the statement of problem this study, the study intends to x-ray the following issues as decide the mind of the public:

·        Reason for tax evasion and avoidance

·        To x-ray the impact of tax avoidance

·        To make recommendations the board on Inland Revenue.

1.4   HYPOTHESIS    

The null hypothesis (Ho)

Revenue generated from tax has a negative impact on the development of Nigerian Economy.

The alternative hypothesis;

Revenue generated from tax has a positive impact on the development of Nigerian Economy.

Hypothesis II

Null hypothesis (Ho):

Tax aviation and avoidance has created a reduction in the revenue generated from tax

The alternative hypothesis

The revenue generated from tax is more merger compare to revenue generated from other source as such government cannot do without tax.


The way in this study has been planned and carried outoff enough information and explanation to inquisitive minds.  This project is aimed to be beneficial to the following:

1.   Through this study, enough awareness will be created so that the public attitudes of not paying tax will be nullified.

2.   This study will offer a source of secondary data collection for research students

3.   To the Board of Inland Revenue, this will enable them to know how they will treat any tax evader they come across.


Tax is defined as a levy imposed by the government againstthe income profit or wealth of the individuals, partnership and organization, also it is a levy the government makes no direct benefit to the tax payer.

Taxation is divided into various types such income tax, corporate tax, capital transfer tax.

Tax Avoidance

Tax avoidance is the reorganization of economic activity possibly at some cost to lower tax payment.

Tax Evasion

This means that the tax payer is doing something that is against the law that is illegal something and if found he/she will be dealt with under the law.

Tax Code

This is total relief and alliance grant to an individual tax payer divided by two.

Income Tax

This is tax on income.  It may be personal or company income.

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