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THE IMPACT OF TAX EVASION ON REVENUE GENERATION: A STUDY OF KADUNA STATE INTERNAL REVENUE SERVICE

 Format: MS-WORD   Chapters: 1-5

 Pages: 66   Attributes:

 Amount: 3,000

 Oct 25, 2019 |  08:00 am |  2124

CHAPTER ONE

 Introduction

1.1         Background of the Study

Tax Evasion is one of the most common economic crime and has been present since the introduction of taxes. People do not like paying taxes and they pursue many avenues to reduce their payments. Legal methods known as “Tax Avoidance” take full advantage of the tax code. Tax evasion presents illegal and intentional actions by which evaders fails to pay legally due to obligations. Individuals and firms evade taxes by under reporting incomes, sales or wealth; by overstating deductions, exemptions, or credits; or by failing to file appropriate tax returns.

Tax evasion is important for many reasons. It reduces tax collections, thereby affecting taxes that complaint tax payers face and public services that citizens receive. Evasion creates misallocations in resources used when individuals and firms alter their behavior to cheat on their taxes. Its presence requires that government expand resources to determine compliance, to detect its magnitude and to penalize its practitioners. Tax evasion alters the distribution of income unpredictably unless tax evaders are caught, their pay fewer taxes than honest tax payers. Evasion may contribute to feelings of unfair treatment and disrespect for the law, creating a self-generating cycle that feeds upon itself and leads to even more evasion. It affects the accuracy of macroeconomic statistics. More broadly, it is not possible to understand the true impact of taxation without recognizing the existence of evasion. In measuring tax evasion, direct method of survey is involved. This survey is typically designed to elicit tax payers attitude above their reporting, but such surveys can also be used to estimate non compliance.

However, the accuracy of surveys is c-uncertain, individuals may not remember their reporting decisions, they may not respond truthfully or at all, and the respondents may not be representative. Despite these measurement difficulties, it appears that tax evasion is a wide spread and growing problem in the state. The basic theory used is nearly all compliance research builds on the economics-of-crime-model, in which an individual maximizes the expected utility of the tax evasion gamble, balancing the benefits of successful cheating against the risky prospect of detection and punishment. This approach concludes that compliance depends largely upon audit and fine rates. Indeed, its central conclusion is that an individual pays taxes only because of the fear of detection and punishment, and will pay more taxes with increase in the fine or audit rate. Surprisingly, an increase in the tax rate generally has an ambiguous effect on reported income; under plausible assumptions, compliance actually rises with higher rate.

1.2       Statement of the Problem

In Nigeria, there has always been a problem of tax evasion which simply means a criminal attempt to escape tax liability (wholly or partly) by breaking the tax law. This menace has been on the increase as the day goes by, with the government working hard to map out strategies of cording it. In this research, the study will focus on how tax evasion effects has disrupted the economy of Kaduna State Government on the measures that can be taken to ease the effects of tax evasion on their economy.

1.3       Objective of the Study

The main objective of this study is to assess the impact of tax evasion on revenue generation

            Other objectives include:

i.      To assess the extend of the effect of tax evasion on revenue generation in Kaduna State

ii.    To identity the lapses in the law that has led to tax evasion in Kaduna State

iii.   To identify the measure that can be taken to curb tax evasion in Kaduna State.

1.4       Research Questions

Research question is the relevant questions which the research work tends to provide answer to. The researcher has identified the following questions which this research work will illuminate and provide answers to.

i.      How does tax evasion affects revenue generation/

ii.    What are the lapses in the tax law that warrant tax payers to evade taxes in Kaduna State

iii.   What are measures that can be taken to reduce tax evasion in Kaduna State

1.5       Significance of the Study

The importance of this research work is to gain more insight and knowledge on the relationship that exist between revenue generation and tax payers. In the light of this, it is hoped that at the end the result will be beneficial to:

·         Kaduna State Government: The outcome of this research work shall serve as an exposure to the Kaduna State Government to the method of blocking the loopholes in tax administration and establishment of techniques on how to eliminate or minimize tax evasion in order to improve revenue generation.

·         Kaduna State Legislator: The end result of this work shall provide a research based data to be used by the Kaduna State Legislators in the enactment of laws guiding the imposition, assessment, payment and collection of taxes in Kaduna State.

·         General Public: The outcome of this research shall create awareness to the general public on the importance of tax, the need for payment of taxes, also enlighten them on the dangers of evading taxes as well as encouraging them to abstain from the practice of tax evasion.

·         Future Researchers/students: This research work shall serve as a reference material to future researchers and students who would like to carryout further research on tax evasion or such related topic.

1.6       Scope of the Study

Tax and Taxation is a very wide field of study. This study is limited to the area of tax evasion as it affects the revenue generation capacity of Kaduna State. The study covered the period 2005 to 2014.

 

 

1.7       Definition of Terms

In every literature, there are terms exclusive to a particular field. Therefore, in the course of this project work, the use certain terms become inevitable for the purpose of clarity, unfamiliar terms are defined as they are used in this research work. They are as follows:

1.    Tax: This is defined as a compulsory contribution from an individual to the government or body of individuals order to pay for the services of the public power. In other words, tax can in a more broader sense be defined as a compulsory contribution levy by sovereign power on the income, profit, good, services of properties of its citizens, that is individual, partnership and corporate organization for the purpose of carrying out governmental functions so as to meet up its primary responsibility of protecting life and properties of its citizens.

2.    Taxation: This is a means by which government finance their expenditure by imposing charges on citizens and corporate entities. It is the process of levying the citizens within their jurisdiction by the government for the purpose of obtaining compulsory payment to meet the financial, social and economic goals of the government.

3.    Tax Evasion: This is an illegal reduction of tax liability by tax payers. It is also a criminal attempt to escape tax liability (wholly or partly) by breaking the law.

4.    Tax Avoiding: It is an illegal way of which a tax payer finds a way to reducing the tax. It is also an attempt to escape tax liability by circumventing the tax law, that is by capitalizing on the loopholes in tax laws.

5.    Income: Income for tax purpose is defined as all forms of accretion independent of the sources for which it is derived and the use to which it is put. Income is deemed to be income when: it accrued in Nigeria, derived from Nigeria, received in Nigeria and brought into Nigeria. 


 

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