THE EFFECTS OF TAX EVASION AND AVOIDANCE ON THE NIGERIAN ECONOMY

CHAPTER ONE

1.0       INTRODUCTION:

            A well organized society, say a country or a state government owes some fundamental obligations to the people it governs.  These obligations are in the forms of provisions of basic social amenities such good roads, health, security of lives and properties, shelter, good water etc.

            The citizens on there own part owe the government by making equitable contribution in the form of levy on tax.  It is against these background that government levy taxes on its citizenry to pursue the above stated objectives it owns to the people.

            “Tax according to C. S. Ola is defined as:

“non punitive yet compulsory levy on the income and properties of individuals and organizations by government and which it does not account for, the proceeds from the levy on trade the government uses to pursue the accomplishment of some social, economic and political objective in the interest of it’s citizens”

            However, another  school of thought maintain that though tax is non-punitive but compulsory an efforts should be made to pay as little possible with the frame work of the law thus engaging in legal tax evasion.  Thus has led us on one of the most universal social malice effecting the proper administration of government at various levels.

            This tax evasion and avoidance which is the subject matter of this work.  The acid rest of an efficient government is its ability to generate sufficient revenue to finance its enormous expenditure, and all things being equal tax should be in the forefront in government revenue generation, but on the contrary tax has always contributed miserly to government revenue.  Undoubtedly there has been the after math of excessive tax evasion.

            Empirical evidence have shown that the unco-operative and unprogressive attitude of our citizenry towards tax payment result in major financial problems of government.

            Obviously it is an agreed fact, that payment of taxes is among the basic things needed for the survival of any society.  In a State such as Enugu the need for an effective tax assessment and collection cannot be over-emphasized.

            The government is at a major transitory strategy her quest for industrialization and provision of amenities for her citizens.

            The hall mark of technological advancement, economic growth, social satisfaction, the people’s needs and value to the society center exclusively by within the ambit of taxation.  Also the increasing impact government is making in Economic development is such that it requires substantial financial assistance from every individual in the society.

            This phenomenon therefore presupposes a qualitative and practical approach to a good system of base administration and collection.  Admittedly, negative attitudes of the populace especially in the payment of tax have resulted in tax evasion and tax avoidance.  Tax evasion is capable of pulling down a well organized government.

            Again on this background, it is the considered intention of the researcher to verify and ascertain to what extent tax evasion exist in Enugu State and its impact on the totally generated tax revenue.

1.1       BACKGROUND OF THE STUDY:

            “A Tax is a compulsory exaction of money by a public authority for public purposes”.

            Taxation is raising money for the purpose of government by means of contribution from individual persons”, a tax signifies an exaction for the support of the government and the Supreme Court said of tax in Nicholas US Anaes that “the one power upon which the whole national fabric is based, it is necessary to the existence and property of a nation and is in the air he breathes for the natural men.

            It is not only the power to destroy; it is also the power to keep alive. 

According to Eddy C. Ndekwu, in his book tax structure and administration in Nigeria “Increased tax was first introduced in Nigeria in 1904 by late Lord Lugard when tax became operative in the Northern Nigeria.  At this time, taxes were paid in kind.  The first ordinance on tax was in 1912 and this applied to both the Northern region in 1928.  In 1929, 2 percent flat rate income tax was imposed for both salary and wage earner.  This continued until 1939 when the Companies Income Tax Ordinance (CITO) was enacted.  As a result of the lapses in (CITO) the Nigerian Income Tax Ordinance was enacted in 1940.

            In 1961, a major landmark was reached in tax development in Nigeria.  Two tax laws were passed which transformed tax administration in Nigeria, they are:

1)         Income Tax Management Act (ITMA)

2)         Companies Income Tax Act (CITA) a petroleum profit ordinance was passed in 1959 for the purpose of regulating the taxation of companies engaged in petroleum exploration and mining in Nigeria.

            From then onwards, research work by various authors and experts have been done on Tax.  It has to be observed here that a great deal of research done had concentrated on tax structure and administration.   Not much effort was devoted to the crucial aspect of tax evasion and its attendant effects government revenue.  Tax evasion involves a deliberate dishonesty on the part of a tax payer by failing to comply with duties of discourse to the Inland Revenue.

            Tax evasion is quite different from tax ordinance tax avoidance generally refers to a legitimate exploitation of tax legislation so as to pay less than is equitable.  Some notable Nigerians have in the recent past attempted to address the issue of tax evasion.  Ajibola .O. wrote in the Business Time of 1984 on “Decree to curb tax evaders Soon”.  The write up critically analyses the negative effects of tax evasion and how it can be curbed.

            Again, in Business times of February 20^th 1984, Oluruleke A.P. cried out that “Firms falsify Records to invade taxes another work, he called for tax returns in Nigeria – “Taxation in Nigeria, prospects for Reforms” and in his paper published daily times of September 21 1985, he listed the causes of tax evasion.

            Dr. C. S. Ola in his book “Income tax law for corporate and incorporated bodies in Nigeria, listed a number of cases where issues of tax avoidance were tried in law courts.  It is nevertheless generally accepted by most people that a tax-payer is entitled to be astute to prevent so far as he honestly can, the depletion of his means by tax.

            Mezie F. was being practical when he said in debate US commission of Lajeation that “It is perhaps inevitable in an acquisitive society that taxation is regards as a burden from which those who are subject to it will seek to escape by any lawful means available”.

            Nevertheless a empirical evidence has shown that tax evaders or tax avoiders are mostly the minor illiterate elites who with all zeal try illegally and legally to circumvent the various tax laws.  The social and economic consequence of this involves a high tax burden on the majority of the illiteracy in the society.  Attempts were made by the IJM 1961 schedule 2 paragraphs to provide penalties for tax avoidance.

            In Enugu State, the finance law of Eastern Nigeria is applicable.  These are provisions in No. 5 sections 35, 36 and 38 regarding penalties for offences in connection to tax evasion.

            According to Enugu State in Nigeria, Board of Internal Revenue Annual Report 1997 – 2002, the incidence of tax evasion which involves false declaration, impersonation, using frictions address, transfer of ownership of assets of Limited Liability Company are various ways and means people perpetrate tax evasion.  From the investigations carried out, it was a starting revelation.  All the segment of our society engages in tax evasion.

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