EFFECT OF TAX PLANNING, EVASION AND AVOIDANCE ON THE REVENUE GENERATION OF ENUGU STATE
1.1 Background of the Study
A tax is a compulsory exaction of money by a public authority for public purposes. Aguolu, (2000) is of the view that taxation is raising money for the purpose of government by means of contribution from individual persons. Dandago and Alabade (2002) define tax as a compulsory contribution made by individuals and organizations towards defraying the expenditure of the government.
According to Ndekwu (2000) tax was first introduced in Nigeria in 1904 by late Lord Lugard where tax became operative in the Northern Nigeria. At this time, taxes were paid in kind. The first ordinance on tax was in 1992 and this applied to both the Northern region in 1928. In 1929, 2 percent flat rate income tax was imposed for both salary and wages earned. This continued until 1939 when the companies income tax ordinance (CITO) was enacted. As 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. They are
- Income tax management act (ITMA)
- 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.
Tax according to Ola (2010) 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 interest of its citizens”
However, another school of thought maintain that since tax is non-punitive but compulsory, an effort should be made to pay as little as possible with the frame work of the law thus engaging in legal tax evasion.
Anyafo (1996) posited that tax is an imposed levy by the government against the income, profits, property, wealth and or consumption of individuals and corporate organizations to enable her obtain the required revenue to provide basic amenities, security and well-being of the citizens.
The importance of these issues to tax administration in the developing countries such as Nigeria, can be seen from the following extract from tax administration in under developed countries.
It is perceived that tax evasion and avoidance are linked with shadow economy, Schneider and Enste (2001) as cited by Faseun (2002) reported that shadow economy is that economy in which people do not show their real income. Ojo (2009) distinguished between tax evasion and tax avoidance. He defined tax evasion as a phenomenon where the taxpayer practically neglects to pay tax either by not declaring the correct position or does not file any return at all. While tax avoidance is a phenomenon that occurs when a taxpayer utilizes the provisions of the tax laws, identify the loopholes in the tax laws and use such for his own advantage.
Tax evasion is an attempt to escape tax liability (wholly or partially) by breaking the law; therefore, it’s a criminal Act while tax avoidance is an attempt to escape tax liability by circumventing the law. Thus both the tax evader and tax avoider have similar end; reduce their tax liability, but their means to that end differs (Ayua, 1996).
Sharm and Dang (2011) was of the view that tax avoidance is the legal utilization of tax regime to one’s own advantage, to reduce the amount that is payable by means that are within the law
Tax planning is the exercise undertaken to minimize tax liability through the best use of all available allowances, deductions, exclusion, exemption etc. to reduce income and or capital grant.
1.2 Statement of the Problem
The problem of tax planning, evasion and avoidance in revenue generation in Enugu State economy has resulted to a less poor revenue generation in Enugu State Board of internal revenue.
The problem associated with tax compliance, planning, evasion and avoidance in revenue generation in Enugu State will drastically reduce the revenue generated and this will consequently lead to budget deficit, where government expenditure will be more than it’s income. Although tax is not the only sources of revenue generation in Enugu State but it is the major source.
It is also viewed that the various taxes by the government which may be income tax, road tax, entertainment tax, pool belting tax, property tax, value added tax etc. have not yielded enough revenue for government projections made in Enugu State.
1.3 Objective of the Study
The general objective of the study is to ascertain the effect of tax planning, evasion and avoidance on revenue generation in Enugu State, using Board of internal revenue as a study.
To achieve this, the following specific objectives of the study are as follows:
- To ascertain the effectiveness and efficiency of tax by Enugu State Board of Internal Revenue
- To examine the use of mechanical and outdated method of tax in the revenue generation in Enugu State.
- To examine the effect of tax planning, evasion and avoidance on income generation and distribution in the revenue of Enugu State.
- To investigate the effect of tax evasion in the growth and development of Enugu state.
1.4 Research Questions
The study is set out to answer the following question
- To what extent has the effectiveness and efficiency of tax by Enugu State Board of Internal Revenue?
- To what extent has it to do with the use of mechanical and outdated method of tax in revenue generation in Enugu State?
- To what extent has tax planning, evasion and avoidance affected income distribution of Enugu State?
- To what extent has the effect of tax evasion affected the growth and development of Enugu State?
1.5 Statement of Hypotheses
Ho1: Tax collection and administration in Enugu State is not effective and efficiently managed
Hoi: Tax collection and administration in Enugu state is effective and efficiently managed
Ho2: The use of mechanical and outdated system affect tax administration and collection in Enugu State board of internal revenue.
Ho2: The use of mechanical and outdated system does not affect tax administration and collection in Enugu State board of internal revenue
Ho3: Tax planning, evasion and avoidance of income does not help in the distribution of revenue generation of Enugu State.
H03: Tax planning evasion and avoidance of income help in the distribution of revenue generation of Enugu State.
Ho4: Tax evasion does not have effect in the growth and development of Enugu State.
Ho4: Tax evasion has effect in the growth and development of Enugu State.
1.5 Significance of the Study
This study will contribute immensely both theoretically and practically to the field of accounting and taxation in Nigeria. It will enhance the quality of literature on tax planning, evasion and avoidance. The operational significance of this study therefore lies in the fact that: Tax authorities will tend to be more oriented toward seeking result, through cooperation rather than by coercion alone, and prefer to see themselves as services providers rather than as strict law enforcers.
The study will also expose problems affecting tax effectiveness, in the state which if appropriate corrective measures are taken will go a long way in improving the state internally generated revenue machineries of the government.
Lastly, the general public at large will benefit immensely from this work as the revenue generated will be redistributed for the benefit of the entire citizens.
1.6 Scope of the Study
Tax planning and evading, avoidance are problems faced by every tax system. Hence one cannot possibly undertake a study on tax planning evasion and avoidance concerning every tax paper. This research will therefore, be restricted to why people avoid and evade tax in Nigeria specifically in Enugu State. The study will cover and rate of revenue generation, and the manner of sourcing for tax in Enugu State government for the past few years.
1.7 Limitations of Study
It must be stated here that, this work are limited by;
Sourcing of related materials or document posed a serious problem to the researcher. This was abated by the diligence and prudence of the researcher in sourcing the materials from internet, libraries of various institutions in Nigeria.
Poor attitude of respondents pose its own challenges. Success of research depends on the availability of information or data. In this research, staffs of Board of Internal Revenue, Enugu State are afraid of release certain information which contributed in limiting the scope of the research work. It affected the study in the sense that it delays the completion of the work on time.
1.8 Definition of Terms
Tax word that is used in this work is short listed and briefly discussed below:
Tax: This can be said as a compulsory transfer of resources and income from the private sector in order to achieve some of the nation “economic goals” Okpe (1998.109).
Tax evasion: This is where the tax payer adopts illegal means so as to pay less than he should ordinarily pay Nwadialor (2009:352).
Tax avoidance: This is where the tax payer arrange his affairs legally so that he pay less than he should otherwise pay.
Tax planning: Is the act of arranging your affair in ways that postpone or avoid taxes.
Revenue: This is the income accruable to a person or organization or government.
Revenue generation: It is the systematic way of collecting income.
Taxation: is the raising of money for the purpose of government by means of contribution from individual persons.
P.A.Y.E: (Pay as You Earn) is the personal income tax based on the proportion of the income usually dedicated at source.
Board of Internal Revenue: this is government department charged with the responsibility of assessing, collecting of taxes and other fees accruing to the state.
Tax administration: This refers to all managerial arrangement to collect state revenue from citizens.
Tax system: This is the means by which taxes are raised and collected in accordance with the tax legislation.
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