CAUSES AND EFFECTS OF TAX EVASION AND AVOIDANCE ON THE ECONOMY (A CASE STUDY OF BOARD OF INTERNAL REVENUE IN ABIA STATE)
Since the past fifteen years of there about, the Nigeria economy has been unstable moving towards the negative directions. It is perhaps a good option for the future that many research have been carried out and still being carried out what the causes are and suggest way of moving economy.
According to Bassey (1998:13), it is true that tax had existed in the world before Christ was born, during his adulthood he saw the need to support Roman government through tax payment. He advised his fellow citizens to give to Caesar’s as recorded in the gospel according to St. Matthew chapter 22 vs 21. Abraham was the first man to pay tax (tithe). Abraham gave to Melchizedek a tenth of all loot he had recovered (Gen. 14:20). Another instance could also seen in the gospel of St. Luke chapter 2 vs 1-5.
In the word of Sir Fredrick Luggard (1916:110), partly the result of the financial problem of the North, there was Amalgamation of 1914 from there, revenue that was accruing to the south only was then for the whole country. This system of indirect rule through the established native administration ensures the success of direct taxation introduced to the place in 1916. Until 1927, direct taxation introduction to the eastern area of country following the introduction was the major riot in 1929. This riot was known as Aba Woman riot caused by an attempt of the colonial authority to assess the wealth of male individuals in the area for income tax purposes. A census was taken in 1929 to be realized that women and children and domestic animals should be included in the count, women felt they are going to be taxed and therefore demonstrated against it.
According to Majesty (1960:48) from 1960 to date since the power of her majesty had ceased to function in Nigeria that has been various new laws enacted which has introduced various firm of taxes prominent among them are the 1976 Company Income Tax Act, 1959 Petroleum Profit Tax Act, Capital Gain Tax Act 1967, Capital Transfer Tax Degree. But Personal Income Tax Act (PITA) 1993 through decree 104 of 1993 replaced all the previous laws on personal income tax and is presently the law guiding all operations and administration of Personal Income Tax in Nigeria.
However, various firms of taxes such as Education Levy, Entertainment Tax, Sales Tax, Road Taxes etc have been introduced by state government at different point in time to widen their revenue generation bases.
CONCEPTIONAL FRAMEWORK
TAX AVOIDANCE
According to Bassey (1998:10), he said that is the active device by which the tax payers seek to reduce or remove altogether his tax liability without actually breaking the law. Tax avoidance though contrary to the spirit of the law effects tax savings by making use of the tax payers to pay less than he ought to pay.
In the word of professor wheat craft in the attitude of the legislature and the court to tax avoidance says that avoidance is an art of winning games without actually cheating thereby beating the internal revenue and the government at their own game. He also said that tax avoidance is tax dodging and is an unpatriotic and anti-social.
TAX EVASION
According to Ezebeke (1978:539), he said that Tax Evasion is the willful and deliberate violation of the law in order to escape payment of tax, illegal method of reducing one’s tax liability.
According to Bassey (1998:24) the quite a large number of people both in the urban and rural areas do not know why they pay tax and does the government take the trouble to explain to the people why it is demanded. This is because it is difficult to respond positively to demands without knowing why the demands are make.
The method of asking and collecting taxes also contributes its quota why people evade taxes. The uncivilized method used in demanding tax from people, for instance, by bundling and throwing them into police cells, at times for non-production of receipts only to harden the people and make them look on tax more as an oppressive weapon.
EFFECT OF TAX AVOIDANCE AND EVASION ON THE INTERNAL REVENUE AND ECONOMIC DEVELOPMENT
In (1986:121) Adesola, to the tax evader, it is both psychological and physical pains that he inflicts on himself from not paying tax. At times when is caught by tax agents he gives them bribe so as to allow him go, this is waste of resources on his part because at the end, he will pay more than is legally required of him. To avoid tax, it will equally cost him money since he will have to pay the expert for advice on how to avoid paying tax. Tax avoidance and evasion has an adverse effect on the growth of the country since tax evaders and tax agents get involved in bribery.
PRINCIPLES OF TAXATION
According to Adam Smith (1978:112) in his popular book called “Wealth of Nation”, he provided the framework on which to evaluate tax assessment and it is called “Cannon of taxation”. These principles include the following:
EQUAL SACRIFICE: This principles state that citizens should be levied on the basis of their ability to pay.
CERTAINTY: This principles state that amount to be paid by any tax payer should be made clear and not arbitrarily fixed by the tax administrator. Time, place and manner of payment should be clear and certain to tax payer and official.
Economy: This stipulates that, the cost of administering tax should not be higher than the amount collected.
Convenience: This demands that the system of payment should be designed in such a way that those paying should not be burdened. This means that tax offices should be situated nearer to the area of payers and its collection should be the time which is most convenient to the tax payers. e.g. PAYE candidates pay during every salary.
COLLECTION PROCEDURE FOR DIRECT ASSESSMENT
According to Adesanya (1984:130), individual who are under direct assessment received notice of assessment for each year. Direction as to payment of tax assessed is given to the notice. The payment is normally on a before 1st September falling not less than 30 days after date of issue of the notice.
In other to aid tax collection, a 10% withholding tax scheme is established under the scheme 5% of contract payment are deducted and paid to the board account. Such credits are set off against tax payable by the tax payer when assessment is subsequently raised on him.
CURRENT LITERATURE BASED ON THEORIES/ MODELS AND RESEARCH METHOD:
From the work of different authors above, the researcher has their point and other sourced out of elaborate.
PROBLEMS OF INCOME TAX MANAGEMENT
Low-level enforcement of tax laws encourages tax evasion and avoidance. Income Tax Management Act (ITMA 1961) provides that “any person who for the purpose of obtaining any deduction, set off relief or repayment in respect of tax for himself of any other person is guilty of an offence and shall be conviction to a fine of one thousand naira for or to information”.
One of the four cannon’s of taxation formulated by Adam Smith is that of equity. This principle emphasizes on moral justice and that taxpayer should be taxed according to his income and ability. The performance of this duty has been hindered by the following problems:
TAX INFORMATION: It is very difficult to gather information of tax purpose as most taxpayers operate with fake names and fake addresses.
FALSE DECLARATION OF INCOME: Some tax-payers either through tax interview and assessment of account make declaration of their income.
STATEMENT OF ACCOUNT: Many business especially sole proprietors do not keep accounts as a result of that, taxing profit becomes a problem.
CAUSES OF TAX EVASION IN ABIA STATE
Going through the response from the questionnaires, I discovered that various reasons were given as responsible for tax evasion on the state. These factors can be summarized under three headings;
UNPATRIOTISM: By unpatriotic, it refers to such act that are against the tent of a good citizen such as incorrect returns of income, falsification of income statement, refusing to pay correct tax and sabotage of government efforts to raise fund through another means.
LACK OF BENEFIT RECEIVED: These include non-satisfaction with government programme, lack of infrastructural facilities, inadequate provision of social welfare etc.
ADMINISTRATION MACHINERY: By administration machinery problems, we refer to problems of laws ranging from loophole in the tax laws, transportation problem, lack of trained personnel, corrupt attitude of taxpayer etc.
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