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CHAPTER ONE
INTRODUCTION
Background to the Study Taxation is a way of raising revenue for the day to day
and using same to provide security, social amenities, infrastructural facilities, etc,
for the inhabitant of the country. Base on this, it is worthy of note that the objective
over the years, it has been observed that the Nigerian tax system has inherent
problems in its structure. Odusola (2006) opined that the Nigerian tax system is
concentrated on Petroleum Profit Tax (PPT) and Company Income Tax (CIT) while
broad-based indirect taxes like the Value-Added Tax (VAT) and Custom and Excise
Duty (CEXD) are neglected. Thus, the tax system lacks the potential of diversifying
the revenue portfolio for the country to safeguard against the volatility of crude oil
prices and to promote fiscal sustainability and economic viability at lower tiers of
Commissions had been set up. Each Commission recommended a formula for
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revenue sharing depending on the economic fortunes and purposes, which the
government wanted the revenue sharing formula to serve. More so, the revenues are
and other corrupt practices can easily be perpetuated within the direct taxes bracket.
These activities are considered as sabotaging the economy and are readily presented
as reasons for the under development of the country. Government collects taxes in
opportunities and essential public services like the maintenance of laws and order,
The very act of taxation has profoundly beneficial effects in fostering better and
Akhor (2014) stated that the economic effects of tax include micro effects on the
distribution of income and efficiency of resource use as well as macro effect on the
level of capacity output, employment, prices, and growth. Therefore, the use of tax
influenced their economic development through revenue from tax are: Canada,
United States, Netherland and United Kingdom. They derive substantial revenue
from Value Added Tax, Import Duties and have used same to create prosperity
(Oluba, 2008). A significant share of the tax revenue increase in Africa stems from
natural resource taxes. This included income from production sharing, royalties, and
In Nigeria, people, especially the rich and the elites, deliberately dodge this civic
responsibility of paying tax and sometimes employ the service of tax specialists in
order to pay less tax to the government. There is also the problem of falsification of
ages and the number of children and dependents one has in order to reduce the
amount of tax payable. Emanating from these factors, the sub-national governments
(state and local governments) contend that their currently assigned taxes are poor in
terms of their bases and, therefore, accruable revenues are not enough to meet their
expenditure targets. Also the statutory allocation from the federation account has
favour of one tax base or the other (eg oil revenue) in Nigeria. Nevertheless, the
Nigeria cannot be overemphasized (Odusola, 2006). However, the first question is,
are other forms of taxes not important for consideration? Emanating from the above,
there are some questions to ask: what relationship exists between Nigeria’s tax
revenue and her economic growth? And what is the contribution from other tax base
to the overall tax revenue of a nation. Against these backdrops, this research seeks
(a) To examine the causes and reasons for high tax evasion and avoidance.
sector expenditure.
(c) To promote social, economic, and good governance through provision of merit
goods.
(d) To examine the effect on economy, the high incidence of tax evasion and
avoidance.
The topic taxation and its effects of the Nigerian economy will educate the entire
public on how the federation could encourage economic development and also how
a reduced tax could promote the standard of living of the tax payer and increases his
Product (GNP) of the economy (country) and also promote the industrial
Government.
(b) The business community for the purpose of company’s income tax.
(h) The tax-payers, especially the employers of labour and the employees of various
organizations.
This topic, indirect taxation and its effect on the Nigerian economy (A case study of
Enugu state tax system and economy) should have been expected to cover all the 36
states of the federation and Abuja and the entire economy but the writer intends to
limit this topic to only Enugu state due to financial handicap, distance and time
constraints.
Therefore, since the same tax Acts are applied throughout the federation Republic
of Nigeria, the study of Enugu tax system and economy shall be deemed to serve
other states of the federation. Thus, the writer will rely heavily on the board of
internal Revenue and state ministry of finance and Economy planning since they
have adequate information and data on the government of Enugu state of Nigeria,
Since there are often changes in the tax laws of Acts both at the state and federal
level of government, the writer may wish to visit the chief inspector of taxes of some
urban and rural local government areas in the state in other to confirm the
information or data so collected from the Board of Internal Revenue and the state
Direct taxes: This means that taxes are levied on income and property of
Indirect taxes: These are the taxes levied on goods and services and are paid by
Earned income: It is the income which the tax payer actually earned, which may
Unearned income: This income accrued whether or not the tax payer is there or
Other incomes: It is the income which comes once in a while and they are not
e.t.c.
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CHAPTER TWO
Value added tax is another form of indirect tax applied at each stage of production
to the value added. VAT is a consumption tax levied at each stage of the
consumption chain and borne by the final consumer of the product or service. Each
person is required to charge and collect VAT at a flat rate of 5% on all invoiced
amounts on all goods and services produced in Nigeria. VAT was introduced by The
that the tax was introduced as a means of avoiding taking loans from international
agencies and came into effect on January 1, 1994 to replace the Sales Tax (Ochei,
2010). Taxable persons are obliged to register under VAT Act. The tax is at a single
rate of 5 percent of taxable goods and services. Supply of all goods and services
which transact business in Nigeria, are also required to register for VAT and render
VAT returns using the address of the company in Nigeria with whom they have
who fails or refuses to register for VAT administration within six months of
engaging in any economic activity in the territory of Nigeria is liable to pay a penalty
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of $67.00 for the first month that the failure occurs and a further penalty of $34 for
Owolabi and Okwu (2011) examined the contribution of Value Added Tax to
abstractions of the respective sectors considered in the study. The study considered
VAT revenue proceeds to Lagos State for the study period. Development aspects
results showed that VAT revenue contributed positively to the development of the
only in agricultural sector development. On the aggregate, the analysis showed that
In addition, Unegbu and Irefin (2011) examine the impact of value added tax (VAT)
using regression, discriminant analysis and ANOVA, found out that VAT allocations
have a very significant impact on expenditure pattern of the state during the same
period. They found that, the perceptions citizens across the administrative areas of
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the state suggest that VAT has minimum impact level on the economic and human
the effects of VAT on economic growth and total tax revenue in Nigeria using data
ranging from 1994 to 2010. He formulated two hypotheses that VAT does not have
significant effects on GDP and also on total tax revenue. He found out that VAT has
significant effect on GDP and also on total tax revenue. This indicates that increase
in value added tax would to increase in tax revenue and economic growth (GDP).
Enokela (2010) conducted a study to explore the relationship between Value Added
Tax and economic growth of Nigeria using secondary data and multiple regressions.
He found out that Gross Domestic Product (GDP) is positive and statistically
but insignificant to Value Added Tax, and Gross Domestic Product per Capita
(GDPPC) is negative and statistically significant to Value Added Tax. This in other
words means that increase in value added tax would lead to a significant increase in
economic growth.
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1. Direct taxes
individuals, companies or corporation. In other words, direct taxes are levied on the
income and properties of those who pay them and bear the burdens directly. Other
examples are personal income tax, capital gains tax, petroleum profits tax etc.
certain period of time usually a year. In Nigeria and other developing countries,
personal income tax constitutes a little percentage of total government revenue. This
form of taxes is usually known as PAYE (pay as you earn). In assessing personal
Company income tax: It is levied on the net profit of companies. One of the main
to the fact that companies are clearly identifiable and they keep accurate accounts
on which they are taxed. In Nigeria, where there is a federal system of government,
allowances are granted for expenditure on the capital equipment for plant and
Expenditure Tax: This is a tax levied on that part of a person’s income which he
actually spends with allowance being made for savings since this tax is levied after
savings have been deducted. This type of tax is not common in Nigeria.
Capital Tax: This is another type of direct tax which is imposed on capital assets
on the properties of the decreased and incurement on the value of capital assets and
on land (see the capital gains tax act of 1967 and capital transfer tax of 1979).
This is a tax levied on goods and services rendered which are shifted in part or in
full to the final consumer who does not even know either when he pays or the exact
amount he pays. Examples of indirect taxes are entertainment tax, import duties and
Indirect taxes unlike direct taxes are levied not on income but on commodities or
services. Typical examples of indirect taxes include import duties, export duties,
excise duties (abolished with effect from 1st January 1998) and sales tax.
Import Duties: These are taxes imposed on goods imported into the country. In
Export duties: These are taxes levied on goods which are exported into other
countries. These duties are levied on products like cocoa, groundnut, rubber, hides
and skin and cotton. This also form a good source of revenue to the government.
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Excise Taxes: These are levied locally on manufactured goods such as cigarettes,
bear, matches, cement etc and at present not so many goods are locally made in
Nigeria, but it is hoped that as economy develops, these will repay industrialization
Purchase Tax: This is imposed on a range of selected consumer durable goods such
as cars, cameras, radio and television sets. This is not common in Nigeria but it is
According to Okpe (2000) in 1776, Adam Smith in his famous book “The wealth of
nations” set out four rules of taxation that are of a good tax system, which are; equity,
Certainty: Tax payers should be fully informed about taxes and should be able to
work out their tax dues with certainty. Taxes should be certain not arbitrary clear
Convenience: The time and method of payment of taxes should be convenient for
the tax payers. The pay-as-you-earn system of tax collection is convenient because
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the tax is collected monthly or weekly by the employer before the employee receives
his pay.
Economy: Taxes should be economical, that is not too expensive to collect and not
According to Osita, (1999), depending on the nature of tax, taxation may have either
a negative or positive effect on the individual and the society. it may be an incentive
With a high marginal rate of tax, in excess of 50% tax will be a disincentive to work,
while a low marginal rate of tax will be an incentive to work. Hence, when an
individual realizes that more than 50k of every additional #1.00 he earns will go for
taxation, then he does not have any further incentive to work harder. The Value
Added Tax is an incentive to save, while the tax levied on interest earned on bank
This topic,tax effects on the economy concerns greatly the role of government.
economic development of any country. To carry out this role effectively, the
government should look at the different needs of the people to be provided from the
spending side and then impose taxes which will enable them to provide these
Thus, according to the great social philosopher known as Socrates “he said that the
government that governs best is the government that governs least”. Therefore, the
role of every government is to provide security, social progress and better standard
of living for its citizens. In achieving this goals, the governemnt has to explore the
basic sources of providing the funds to tackle this objectives.since taxes is one of the
chief sources of funds or revenue to the government and also that government
private sector and what percentage of the Nations resources should be allocated to
the publc sector, they should try to provide sufficient machinery in imposition and
Here, it is very vital to give further consideration to the problems which faces all
understanding the effects of such actions in real terms. The main purpose of taxation
policy must be to impose taxes in such a way that they do the least possible damage
living in an organized and orderly society, for if this not done, the miscreant
produced through the inequality in the system will be a source of constant irritation
Thus, it is not merely a coincidence that over the years increase properly, although
this obviously cannot be taken to imply that increase in taxation itself automatically
the economic and social infrastructure of a country and this in turn may produce
purchasing power from one set of people to another could if the wrong choice is
According to Osita A. (1999), taxation is hence the most important source of revenue
to the government. Owing to the inherent power of the government to impose taxes,
the government is assured at all times of its tax revenue no matter the circumstances.
Furthermore, taxation could be too authoritarian and centralized in the sense that
there may be a point beyond which further increase would result only from a system
In the year 1904, a first form of tax was levied by Lord Lugard in Northern Nigeria.
It was known as the community tax. A first tax law was introduced and called the
“Native Revenue Ordinance” 17 in 1917. In 1918, the N.R.O was extended the south
In 1928, the Native Revenue Ordinance was introduced into the Eastern Region. In
1929, a flat rate of 2% total earned income and of corporate profit was levied. In
1939, an ordinance was passed into bill known as company’s income tax ordinance
(CITO) which meant to guide companies. In 1940, another tax law, (Nigerian
Income Tax Ordinance) was introduced. This took care of book corporate and non-
appointed and it was from the period that Nigeria started having tax laws.
Income tax was first introduced in Great Britain in 1911 by Patt with the intention
till when it was discounted in 1915. It was however resumed in 1942 and till date it
In Nigeria, direct taxation was forced to develop in the Northern parts before the
advent of the British while indirect taxation through custom duties tolls attained a
high level of development in Yoruba kingdom of the southern-west and Igbo of the
southern east. Direct taxation was applied first in the North because Islam by
enjourning the devout to give a portion of their income for charitable or religious
Furthermore, the highly organized administration of the Emirs reached down to the
village level, facilitated the imposition of taxes. In the southern areas, because of the
small size at the kingdom and difficulties of communication, toll was levied on trade
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between kingdom and between towns. Tributes of presents were often made by
The tax system was highly developed in the North pre-1900. The zakka, a title paid
on crops and livestock has its origin in the korari, the kurdan kasa was a tax like a
capitation tax paid by farmers, a plantation tax, shikka-shukka was paid on all crops
not subject to zakka and Jangali or cattle tax was levied on livestock. Smith, weavers,
dyers, leather workers, freymen, gamblers, prostitutes, salt makers, canoe men,
Similarly, special taxes were levied on a special product like date palm, beehives
and on a certain luxury crops like onions, tobacco and sugar-cane. When the British
came in 1900, there was a formalised system of taxation comparable to that in the
North. The Ijebu and Ondo kings relied on tributes toll and arbit vary levies from
their revenues, while in Ibadan, Oyo and Ife, there was a system of annual levies,
special contributions at special festivals, fees, presents and tribes unusual land rent,
payment for personal services and contributions of food. At Abeokuta, the main
revenue came and contributions of food. At Abeokuta, the main revenue came from
tolls, fines, death duties, presents and licenses, while in Bani a large customary taxes
existed.
In the Igbo areas of the east, the tradition of direct taxation to a central authority was
non-existence the community paid taxes in kinds by rendering free services such as
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clearing the bush, digging pit toilet, wells and so on for the progress of the
community.
The British colonial government enacted the national revenue proclamation No.4 of
1904, under which Lord Lugard sort of simplify the complex array or northern taxes,
ensure equity and social justice in the system of taxation and enhance efficiency in
the fiscal administration. The system of taxation was on the annual value of land of
produce thereon, profit of trade and manufacturer the flocks and Lords of pastorist
and other listed sources of incomes. It was an ended trust on 1906 and then 1917 on
introduced taxation in Yoruba areas of Egba land and Ibadan. In Benin the son of
exiled king Orerami, accepted the imposition of direct taxation in 1917. The
imposition of direct taxation in the west involved computation of many tributes and
exaction into single payment of province and Ilesha division voluntarily asked to be
included in the system but in Abeokuta, direct taxation was resisted with much
resistance in which lives were lost and a lot of property destroyed calmmating in
Maxwell commission of 1918. In Ibadan, Ife, Oyo, tax exemption was unbroken by
Oba’s and in Egba land by Ogbonies. By 1920, the Native Revenue Ordinance have
In the east, direct taxation had a more chequered fact. Direct taxation had been
introduced in the south eastern region in 1966 but it was quickly withdrawn for lack
of support. It was not until 1927 that Lord Lugard succeeded in extending the Native
Revenue Ordinance to the area east of the Niger. However, the resistance was stiff
and opposition popular. The Aba women riot 1929 sparked off by rumours that
women were about to pay taxes, that is an indication of the strength of feeling in the
The east was the first to introduce a comprehensive regional finance law –the finance
law No.1 of 1956. The west followed soon with the income tax No.26 of 1957. The
North retained the 1940 Direct Taxation Ordinance (DTO) as amended in 1948 and
therefore in 1962 when it promulgated the personal income tax No.6. the federal
territory retained the income tax ordinance (as amended) of 1943 till 1957 when it
Nigerian constitution order in council of 1960 and formed the basis of the income
tax management Act 1961. The Federal government retained control on the taxation
of individuals in the federal territories and companies throughout Nigeria, while the
regional government obtained their revenue from taxes on income of all persons
within their regions whether Native or expatriates. Furthermore, custom duties and
sales were to be collected by the federal government, while the regional government
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retained export tax on motor vehicles, fuel revenues from exercise and custom duties
on tobacco.
Taxation is essential in financial matters and its objectives includes influencing the
enable the government to command the real resources it requires to perform certain
functions on behalf of the inhabitants of the country as a whole. The need of national
defense for instances, requires that the government shall be able to control resources
that the government shall be able to control resources of labour and capital (including
land) sufficient to supply and operate the weapons that are deemed necessary for this
purpose. Therefore, the real cost of defense is the output that those resources would
produce if used for other purposes, but the cost can be measured in practice only by
by the financial payments made to that effect. It will be shown later that there is no
need for equation between the tax paid by an individual and loss in purchasing power
in real terms.
Secondly, taxation can be used as a tool aimed at improving the performance of the
consumption and capital investment. For instance, a man who would otherwise use
the whole of his purchasing power for current consumption may by taxation be
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forced to handover in respect of a part of it to the government, which may then decide
to use some of it to increase its own capital investment. In doing so, the government
has altered the decomposition of real resources although not necessarily by the
many other factor are not at work and are inextricably interwoven.
economic development. It must also be admitted that government may damage the
However, attempts have been made to analyses the effect of particular taxes in real
One of the disadvantage of this, is that such attempts are dependent on the
consumption written into them and assumptions may not be sufficiently realistic,
It may well be that it is misleading to assume that all other factor will remain
unchanged, in so far as taxation policy may be effective only when linked with
consistent policy.
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Thirdly, taxation is used to transfer purchasing power from one section of the
commodity to another, in the example of burntee holding factory, payment may have
been made by the state to employees who were unable to find other jobs in the period
in which the factory was in operation at real terms. Those employees while leasing
in the short term to contribute to National output, are able to share in the benefits of
that output to the same extent of other people’s ability, to ensure that those benefits
is reduced.
Section 2 (1) to (4) PITD 1993 defines the categories of individuals chargeable to
In the case of an individual, other than an itinerant worker and persons covered under
paragraph (b) of sub- section (1) of this section, tax for any year of assessment may
be imposed only by the state in which the individual is deemed to be resident for that
year under the provisions of the first schedule of this decree and in the case of
persons referred to in sub-section (1) (b) of the section tax shall be imposed by the
Federal Board of Inland Revenue. In the case of an itinerant worker, tax may be
imposed for any year by any state in which the itinerant worker is found during the
year provided that :in an assessment for any year upon an itinerant worker credit
shall be given against the tax payable, but not exceeding the amount thereof, for any
income tax already paid by him to any other tax authority or the same year and
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year of assessment as remains unpaid on the itinerant worker leaving that territory
during that year shall remain in absence during his absence from that territory, and
if he returns to that territory having during his absence paid tax in some other
territory for that year, credit shall be given against any unpaid tax in the first
mentioned territory, but not exceeding that unpaid amount, for the tax paid in that
other territory.
In the case of a village or other indigenous community, tax may be imposed for any
year by the law of the territory in which that community is to be found and such
taxes may be charged on either the estimated total income of all its members or the
family income in which several interests of individual’s members of the family are
indeterminate or uncertain, tax may be imposed only by the territory in which the
members of that family who customarily receives that income in the first instance in
In respect of the cost of any passage to or from Nigeria incurred by the employee
and in respect of the maintenance or education of a child, if the income tax law of
the relevant tax authority provides that any sums received by the employee during a
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year of assessment shall be deducted from the personal relief to be grated to him for
the next following year, any compensation for loss of employments so much of any
amount of rent or allowance, the employee is treated as being in receipt equal to the
annual amount deemed to be incurred by the employee under section 4 of this decree,
so much of the amount of rent allowance paid by employee to or an account for the
employee not the exceeding in amount the rate prescribes under sub-section and the
amount not exceeding N2,436 per annum paid to an employee in respect of motor
vehicle allowance.
For the purpose of this section, “allowance” include any sum paid or payable in
respect of expenses and any sum by an employer at the disposal of an employer and
payed away by the employee. “income” includes any amount deemed to be income
under this act, and the gains or profit arising from any other person for the use or
occupation of property under any assessment thereof being rent paid or expressed to
be paid in advance shall be deemed to accrue to the recipient from day to day over
the period for which such rent has been paid. It follows, therefore that provided
where said period exceeds five years, the whole amount of the rent so paid or
expressed to be paid in advance shall be treated as accruing evenly from day to day
over five years commencing on the first day of that said period, employment includes
any services rendered by any persons in return for any gains or profits .
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In this section, “dividend” means in relation to a company not being in the process
of wounding, or liquidated, any profit distributed whether such profits are of a capital
nature or not including an amount equal to the nominal value of bonus, shares,
The best system is that which has the best or the least economic effects. Tax
influence on the ability to work, to save and to invest, can affect the volume of
work will be reduced by taxation which reduces its efficiency. This applies to direct
taxes on small incomes and indirect tax on necessaries. Disincentive of high income
taxes may reduce the volume of production thereby increasing the inflationary
Action may be necessary to restrain the rate of investment, example making inflation
resources less favourables on indirect tax upon investment or restricting all sources
value in stimulating the level of effective demand. A reduction in the standard rate
of income tax may not produce immediate increase in spending, particularly where
only relatively few tax payers earn much income upon which tax is levied at this
27
rate. Similarly, reduction in direct taxes on goods with inelastic demand would not
produce more spending. The case might be different with goods with elastic demand
example motor cars, if the proceeds of taxation are well spent, the stimulus to
production due to this expenditure may be far stronger than the check to production
due to taxation.
On the other hand, a reduction of income tax rate serves to raise the level of national
increase in initial consumption spending. This tax- cut may involve large budget
deficit but it also involve an expansion of the private sector of an economic system.
Both the United State of America (USA) and Japan used this tax-cut mechanism
The ideal distribution is that which causes a given amount of production to yield
generally regressive since the larger the person’s income, the smaller the proportion
of its spending on any one of such commodity. But taxes on luxuries are essentially
income. It therefore becomes imperative to discuss the tax effects on them. From the
response of the questionnaire distributed by the project writer, civil servant argued
that since tax is deducted from their salary, that the immediate impact is not delt and
therefore does not in any way affect their rate of consumption and savings since they
depend on their net salry as their real income. Although they agreed that reduction
of tax will mean more disposable income available which will lead to an increase in
increase in tax will mean less disposable income which will lead to a decrease in the
On the other hand, responses from the privat sector and self employed indivduals
shows a negative effect since they argued that they are being over taxed owing to
the present economic situation in the country. We have more causes of tax avoidance
from the private sector due to false declaration of their business incomes and non-
location of those tax-payer, as a result of unnumbered street in most of the urban and
rural areas of the state. a greater percentage of the private sector responses from the
questionnaire agreed that tax affects their rate of consumption and savings which
will mean a positive economy while an increase of tax will lead to a further decrease
Moreover, it is also agreed that in a two sectoe economy, national income is made
Civil servant favoured the argument that tax does not in any way effect their
investment and efficiency in their places of work, Since tax is not felt by them. But
they agreed that a reduction in tax in tax may increase their investment opportunities
and efficency since it will mean disposal income while an increase in tax may
On the other hand, questionnaire responses from private sector and self employed
indivduals argued that tax affects their business profits and are uncertain due to the
present economic situation. They suggested that tax incentives should be introduced
to benefit their business, at this point, the project writer referred them to the existence
industrial development (income tax relief Act of 1971), which they claimed ignorant
of. This is connected with the high rate of illiteracy among the privat sector and self
employed indivduals. They however supported the idea of reduction of tax since this
will increase their investment opportunities and efficiency and create more
employement opportunities for the school leavers, hence, more revenue to the
government in form of more income taxes from the employed citizens while an
increase in tax will mean a further decrease in their investment opportunities and
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efficiency, thereby worsening the economy, hence a further loss of revenue to the
Tas evation is illegal and involves the evasion of tax liability to tax, for instance,
entitlenment.
Tax avidance involves arranging one’s affairs so that liability to tax is avoided or
reduced. Tax avoidance assumed that there is more than one way to achieve one’s
objectives, but that, one method gives rise to a smaller tax liablilty, the tax payer
All taxes must be imposed under the authority of parliamentand therefore to be found
in status. The issue of taxation evolves very many responses from different
individuals. Even in America where it has been accepted that only two things are
comprehensive review of the American tax sytem, objectives were clear inspite of
the overwhelming unanimity that the old system was unwidely tedious and almost
unwokable. Those who wanted to preserve the status-quo were sure that such a
review never the see the light of the day. The house of representatives which was
under the control of the democratic would never approve the measure even if the
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senate did. To the consternation of all both house of the united state congress
CHAPTER THREE
The project work is carried out using the following instruments which includes:
Secondary data
Questionnaire
Interview method
The study is primaryily based on secondary data from seminar papers, journals,
these problems.
The project writer also used the interview method particularly in the relevant
industries, ministries, parastatals and some local government offices in Enugu state.
the interview was conducted to substantial facts that have been gathered from
questionnaire approach.
The survey method used in this study is to help the project writer to know the
reactions of the tax tax-payer especially business men and women, workers or
employees in both public and private sector of the economy and this has also
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contributed to his own suggestions and recommendations on this project topic, that
is taxation and its effect on Nigerian Economy,” a case study of Enugu State.
The sources of data or information used by the project writer were as follows:
Library
Journal (Accountancy)
Newspapers
Organisation
In using the library, the writer found all relevant materials on this study and then
Nigeria (ICAN) publication which treated this topic in detail with current
information.
Thus references were made to some textbooks such as the Nigerian taxation by
C.S.Ola, Taxation laws and Acounts I and II by Ikechukwu .I. Okpe, Taxation and
The writer also consulted organizations such as some business premises the Board
of Inland Revenue, and Enugu State Ministry of Finance and Economic Planning.
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The project writer solicited for the ideas on this topic “Taxation and its effects on
the Nigerian Economy, a case study of Enugu state tax system and Economy” and
therefore she used the contributions of tax experts in Accountancy department and
The population of the tax system for the research is made up of 180 employees and
management staff. The population of the study is compose and selected from various
The obscurity of carrying that research with the whole population is obvious,
therefore it is imperative to choose or select an adquate sample out of the lot that
determine the sample size adequate for the exercise. The outcome of the exercise
𝑵
𝒏=
𝟏 + 𝑵𝒆𝟐
Thus, out of the populationof 180 staffs of the above sectors, 147 of them were used
In the computation of the relevant statistics, the writer made used of the followings:
Test of hypothesis
Data analysis
Percentages.
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The hypothesis is being tested and restated in a “Null form H0. A null hypothesis is
variable 1 = variable 2.
test of hypothesis, the result obtained from the sample (in form of calculated sample
quantities) is inconsistent with the hypothesis being tested, she therefore rejects the
hypothesis or reject the null hypothesis, it is called the alternative hypothesis and it
is denoted by Hi .
Hi; p = po
Here, the level of significance of a test is the probability of committing the type one
error, that is, the probability of rejecting the Ho. In fact, it should be accepted.type
two error has been commited, if she accepts the null hypothesis Ho. Then it is false.
Thus, in testing the hypothesis, the most frequently used level of significance are
level of significance, it means that there are 95% chances in a hundred that a true
null hypothesis would be rejected and it is said to be significant if the null hypothesis
there is only five chance in a hundred that a null hypothesis would be rejected and a
information. Simple percentages were used in qualifying the chart and relationship
Other relevant formulae are applied such as Yaro yamenes and soon to determine
the sample size and distribution at the chosen sample for the entire population in the
study.
Chi-square test of independence was used to test the formulated hypotheses in the
2
(𝑜 − 𝑒)2
𝑥 =∑
𝑒
Where X2 = Chi-square
∑ = summations
o = observed frequency
e = expected frequency
38
CHAPTER FOUR
In this chapter, all the data collected from the questionnaires are presented, analyzed
and interpreted. The presentation and analysis were done in tabular form so as to
Meanwhile the questionnaires were distributed and returned in the order shown in
table 1 below:
Table 4.1.1
Table 4.1.1 shows that all the 147 questionnaires disributed were returned, this fiqure
or 62.6% were from public sector, 36 or 24.5% were from private sector, and 16 or
Analysis of Response
Question 1: How do you earn your living, what is your area of specialization?
The responses of those interviewed to the above question are as shown in the table
below:
Table 4.1.2
Based on the above data, it was found that 39.5% (58) questionnaires earn their
living through the public servant, while private sectors show 33.3% of the
Table 4.1.3
Yes 100 68
No 47 32
From table 4.1.3 above, it is clear that only 68% of the respondents consider taxation
Table 4.1.4
Yes 80 54
No 67 46
From the responses, it is believed that 54% pay their taxes regularly while 46% do
not comply.
41
Question 5: Do the taxes you pay affect your efficiency in your business as a
profession?
Table 4.1.5
Yes 97 66
No 50 34
It was found from the above data that 66% of the respondent agreed that taxes affect
Question 6: Do the taxes you pay affect your investment in any way?
Table 4.1.6
Yes 60 41
No 87 59
The above responses showed that 41% of the respondent agreed that taxes do not
affect their investment, while 59% respondent strongly disagreed with the questions.
42
Question 7: Do the taxes you pay affect your productivity in your place of work?
Table 4.1.7
Yes 92 63
No 55 37
From the above data, it was shown that 63% of the respondent agreed that taxes they
Question 8: Do the taxes you pay affect your savings and standard of living?
Table 4.1.8
Yes 74 50
No 73 50
From the above data, it is believed that 50% of the respondent agreed that taxes they
pay affect their savings and standard of living while 50% disagreed with the motion.
43
Table 4.1.9
From the above data, it is shown that private sector that private sector respond with
40.8% while public servant pay their taxes through deduction from salary by
responding with 57.8%, while self employed pay their taxes through deduction from
Question 10: Do the taxes you pay affect you in any way as stated in question 5-8
above?
Comment:
The public servant shows a positive responds by stating that since tax is deducted
from their salary, the immediate impact is not felt and therefore does not affect their
rate of consumption and savings, since they depend on their net salary as their real
income.
On the other hand, the private sector and self employed individuals show a negative
effect since they agreed that they are being over taxed owing to the present economic
44
situation in the country. They also agreed that taxes affect their rate of consumption
Question 11: How many times have you made a false declaration of your income?
Table 4.1.11
From the above data, it was found that none of private sector about 64.6% of them
while about 35.4% of the self employed are involved in the false declaration of their
business income but civil servants have no response because their taxes are deducted
Question 12: How many times have you petitioned the state board of internal revenue
Comment: Nil
Questionnaire number 16 -31 is for only the employees of the state board of internal
Question 13: Is the collection of taxes in Enugu state done as and when due?
45
Table 4.1.13
Yes 78 53.1
No 69 46.9
It was shown that from the above data 46.9% of respondents do not agree due to tax
Question 14: If the collection of taxes in Enugu state is not done as when due, why?
Comment:
It is as a result of non –location of the tax payers and un-numbered streets in most
of the urban and rural areas of the state. In addition, it is due to tax avoidance by the
Question 15: Have you participated in the collection of taxes from individuals?
Table 4.1.15
Yes 90 61.2
No 57 38.8
From the above question on whether they have been collecting taxes from
individuals, the responses as the table has shown reveals that 61.2% of the
46
respondents are actually participating in the collection of taxes while only 38.8% of
people said “No” even though they are staffs of the board of internal revenue, Enugu.
Question 16: Do you think that money collected by the tax collectors is to the amount
expected of them?
Table 4.1.16
Yes 72 49
No 75 51
Following the above data, it is clear that only 49% of the respondents agreed that tax
collected by the tax collectors are up to the amount expected from them while 51%
Question 17: Do you think that all collected funds are properly accounted for?
Table 4.1.17
Yes 47 31.97
No 100 68.03
From the responses, it is believed that 31.97% of the workers agreed that the funds
collected are properly accounted for, while 68.03% of the workers strongly agreed
47
that the amount are not properly accounted for. Though they are the workers of the
board of internal revenue, nothing prevented them from telling the truth.
Question 18: Do you think that taxes you pay contribute to the amenities provided
by the government?
Table 4.1.18
Yes 74 50
No 73 50
From the above data, half of the workers that is, 50% agreed that the tax they pay
contribute to the social amenities supplied by the government, while half of them
Question 19: Do you think that deficiencies contribute to fraud and dishonesty in the
Table 4.1.19
Societal norms 47 32
Government 50 34
Disinterestedness
Embezzlement on the 50 34
The above responses shows that 32% of the people responded that societal norms
Question 20: Apart from the tax evasion, what do you consider the greatest hindrance
Table 4.1.20
Dishonesty 15 10.2
Illiteracy 35 23.8
Government 12 8.2
incompetence
Machinery
About 13.6% of the respondents agree that harsh laws contributed immensely to the
hindrances of revenue collection. About 10.2% were of the view that it was illiteracy
on the part of the collectors that hinders revenue collection by the board while 44.2%
50
of the respondents are of the opinion that it is poor collection machinery contributes
Table 4.1.21
From the table above, 37.4% are of the view that the tax collectors are involved in
the acts of dishonesty while 55.1% of the repondent answered that the tax payers are
those involved in tha act of dishonesty. It is only 7.5% of the repondents who agreed
that the government contributes to the act of dishonesty in accounting for the money
collected.
51
Question 22: when a tax payer is over taxed, how is he/she be treated?
4.1.22
refunded
tax liability.
From the table, 34.7% of the respondent agreed that the excess amount in any case
of over payments is refunded, while 61.2% of the respondent agreed that excess
amount of the tax is deducted from the future tax liability. It is only 4.1% of the
respondent agreed strongly that nothing is done even when they are aware of the
excess tax.
52
Table 4.1.23
amount.
immediately
It is observed from the above data that 61.2% of the respondent were of the view
that when a tax defaulter is caught, he will be charged to court, while 25.2% agreed
that if a tax defaulter is caught, he is made to pay double the amount involved rather
than going to court. Only 13.6% of the respondent suggested that ordinary
Question 24: how are you educating the public on the importance of taxation?
Table 4.1.24
It is only half of the respondent who suggested that a better way of educating the
While the remaining half (50%) of the respondent agreed strongly that the Board of
Inland Revenue should advertise the necessity for the payment which is a very good
Question 25: what are the factors that contributes to fraud and dishonesty in tax
adminstration?
Table 4.1.25
respondent
authorities.
an efficient worker,
From the above responses, it is clear that 25 respondents out of 147 suggested that
one of the factors which contributes to the fraud and dishonesty in tax administration
is lack of proper supervision by the top executives, making this 17.01% of the
respondents.
55
It is only 6.80% of the respondents are of the opinion that the internal revenue staff
do connive with the tax payers to cause fraud by issuing them with tax clearance
About 57.82% of the respondent agreed that lack of administration, while 18.37%
of the workers suggested that it is due to the fact that there is no compensation for
collectors of the year. This may be true because it can motivate the workers to put
more effort in collecting more taxes and properly accounting for taxes collected.
Question 26: what problems do you encounter in meeting your tax obligations?
-lack of workers.
Question 27: in your own opinion which other forms of taxes will you recommend
-any other forms of taxes that is found necessary and in line with the four cannons
CHAPTER FIVE
In summary of this work, taxation and its effect in the Nigeria economy, there should
be adaptation of tax systems to the needs of the country and there should be need to
adapt this systems and policies to the stages of economic development and the
existing institutional setting of the country. How extent should taxation be carried
and how great use should be made of particular taxes can only be decided by
2. Some well known businessmen with lots of properties dodge being adeguately
assessed through refusing to consult accountant to audit their books, some of them
convert their private property to business property, theirby saying that their property
has been transfered to their limited liability companies, whereas they are still earning
3. The owners of the property refuse to disclose their ownership, some of them
recruit tenants into their house without completing the certificate of occupancy
58
requirement, resulting to the tax authorities not knowing when the house are
completed.
tax to the Board Inland Revenue. They tag their salaries to a very small amount
which is not really the income they consume having regards to their lifestyle.
5. Some people who are involved in tax evasion and avidance points some fake
identify cards as a civil servant so that when the tax collectors come in contact with
them, they will believe that their tax have been deducted from their salary.
6. Some of the tax agents appointed may hide their relatives and prevent them from
7. There is the need to adopt the tax system and policies to the stages of economic
8. There isno limit to increase of taxation in general provided that the loss from
such an increase is not greater than the gain from the corresponding increase of
public expenditure.
their tax obligation are lack of facilities, insufficient trained officers, lack of good
roads to the rural areas, and lack of good respondent from the tax payer.
59
5.2 Conclusion
Tax has been defined simply as a compulsory contribution to the public authority to
meet the expense of government and the provision of general benefits of the citizens
of the country. Therefore, it must be distinquished from other fees, which is payment
for a specific service. This is unavoidable and must be paid since it is imposed by
Thus, having conducted a thorough research on taxation and its effects on the
Nigerian Economy with a particular reference to the Board of Inland Revenue Enugu
The researcher found out that it has both negative and positive effect which has been
fully discussed in chapter two. To this end, the project writer made a number of
Conclusively, the labour and benefits of this research will only yield fruit. If there is
a means of alerting the government of Enugu State to upheld the Adams Smith
assessment, introducing suggested tax laws, collection and accounting system, if the
taxation in Enugu State tax system in particular and Nigeria must survive the test of
time.
60
5.3 Recommendation
Since we have examined the effects and problems of taxation in chapter two, the
researcher of this work wish to recommend the following points which he feels will
help in the development of the Nigerian taxation system and its economy in order to
a) Government should consolidate on the existing tax laws, review and up-date them
to reflect the present circumstances to arrest the rapid tax evasion and aviodance in
the country, just like the current review of the 1996 tax law. In addition Enugu State
tax system should include road and radio tax. Thus the state government should
promulgate traffic and entertainment tax laws,” if not yet in existence to take care of
roads and vehicle radio taxes. This will help the government to recover more revenue
from those who evade tax especially the wealthy class of indivduals.
land use decree of 1978 which empowers all the state government to hold intrust all
land in that state. with this view any undeveloped land in the urban area is to be
taxed, this will encourage the owners (s) to develop them thereby increasing
investment opportunities for the citizen of the country and as well improve the
government and carried about whole travelling on the public roads, in hospitals both
d) Government should allocate more money to the Board of Internal Revenue for
training of their officers and recruit more workers and tax agents and set up at least
one tax office in all the communites in Enugu State, since the sucessor failure of any
tax law in Enugu State depends on them. The Board of Inland Revenue should set
up special task force on tax collection in all the local governments of Enugu State to
e) The tax executives should allocate their agents to a place where they have no
relative or allocate three agents from different places at the same time so that
importance of paying taxes and as well provide adequate social amenities such as
good roads, hospitals, pipe born water, electricity etc and bring it to the notice of the
public, so that they should see the need of paying taxes and realise that without these
h) Government should above all justifies all these taxes by increasing their
expenditure to benefit the masses also ensures that the current directorate of food,
roads and rural infrastructure popularly known as DFRRI is intensified in every part
of Enugu State. This will reflect the three sector model economy of consumption,
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