CHAPTER ONE
INTRODUCTION
1.1.
BACK
GROUND TO THE STUDY
The essence of economic
development is to enable the citizens of a Country to be free from poverty. In
Nigeria it is vital and necessary to create citizens’ freedom from poverty,
corruption, poor governance, illiteracy, bad health etc. It means developing
the economic wealth of Nigerians to improve the quality of life. Economic
development is influenced by certain factors which include; natural Resources
and proper utelisation, capital and Economic stability. These are all referred
to as economic factors. Others are literary level of labour and physical
amenities such as Roads, hospitals etc which are regarded as Social factors. Political
factor which involve government is part of them. This is the policy framework
and environment which makes it favourable for economic development. The policy
framework and peaceful environment which include laws and implementation is a
key function of government. To carry out this function, the finance of
government needs to be strengthened. In Nigeria, the major source of government
revenue is from crude oil. Unfortunately, the price of oil is experiencing a
downward trend. In view of this, there is a need to strengthen revenue through
taxation. Taxation is one of the most important sources of revenue to the
government, from the point of view of certainty and consistency (Aguolu, 2004).
Owing to the inherent power of the government to impose taxes, the government
is assured at all time of its tax revenue no matter the circumstances. Most
developed countries have gotten this foresight while Nigeria gives less
attention to tax. A research showed
that in 2005, the average tax revenue to GDP ratio in the developed world was
approximately 35%. In the less developed countries, it was equal to 15%, and in
the poorest of these countries, the group of low income countries, tax revenue
was just 12% of GDP (Clemens & Nadine,
2009). Taxation is An imposed
contribution by government on her subjects and companies to enable her finance
or run public utilities and perform other social responsibilities (Adebisi
& Gbegi , 2013).
This makes the payment of tax a compulsory duty
as it is one of the key sources of Government Revenue. Unfortunately, on like
other less developed countries which include Nigeria, revenue from taxation are
always punctured through tax evasion and tax avoidance. Tax avoidance is the legal
arrangement of the taxpayers’ affairs in order to minimize the tax liability,
whereas tax evasion is an illegal tax avoidance (Nightingale , 1997).
Overdoing tax avoidance may lead a taxpayer to enter into tax evasion, tax
evasion begins where tax avoidance ends ( Soyode & Kajola,2006).
The simple implication of tax avoidance and tax evasion is reduction of the
amount of tax collected by government at a particular period. Ayua (1996) pointed out that tax
evasion and tax avoidance are problems that face every tax system but ours seem
to be unique in the sense that considering the scale of corrupt practices,
there is no comprehensive tax avoidance and tax evasion legislation to curb tax
evasion coupled with lack of skilled tax personnel. Soyode and Kajola, (2007)
added that, tax evasion and tax avoidance represent one of the fundamental
problems of tax administration in a less developed country like Nigeria. The
practice of tax evasion and tax avoidance has an affect
on the revenue that is ought to be generated by the government. This has
touched the economic life of the country. To this end, this project seeks to
study the causes of tax evasion and tax avoidance and its effect to economic
development in Nigeria.
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