ABSTRACT
This research project examined the significance of Taxation As A Source of
GovernmentRevenue, a case study of Ado-Odo/Ota local government. The method and
design of the study adopted the survey (descriptive) design in collecting data from the
case study sample size of seventy (70) were drawn which is the total population. Data
were sourced from primary and secondary methods. The primary method involved the
use of questionnaire methods while the secondary instrument made use of relevant text
books, articles in journal, and website information. Analysis of variance (ANOVA) and
correlation analysis were used to test hypotheses. Findings revealed that if government
engages in a complete re-organization of the tax administrative machineries, the twin
problems of the tax evasion and avoidance will be reduced to a tolerable limit. In
conclusion, the emphasis in this is not for the tax board to rush into a serious societal
problem but to plan their strategies well and carefully address the major set-back on
revenue collection in Nigeria.
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TABLE OF CONTENT
Title page (i)
Certification (ii)
Dedication (iii)
Acknowledgement (iv)
Abstract (v)
Table of content (vi)
CHAPTER ONE
1.1 Background information to the study 1
1.2 Statement of the problem 4
1.3 Significance/ Justification of the study 5
1.4 Objectives of the study 5
1.4.1 Scope of the study 6
1.4.2 Research Question and Hypotheses 6
1.4.3 Limitation to the study 7
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1.5 Definition of Terms 8
CHAPTER TWO
2.0 Literature review 9
2.1 Conceptual framework 9
2.1.1 Concept of taxation 9
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2.1.2 Classification of taxes 13
2.1.3 Types of taxes 15
2.1.4 Principles of a good tax system 16
2.2 Theoretical frame work 18
2.2.0 Tax evasion and avoidance 18
2.2.1 Contingency theory 20
2.2.3 Optimal tax theory 22
2.3 Empirical study 26
2.3.1 Empirical studies from developed countries 26
2.3.2 Causes of high cases of tax evasion in Nigeria 29
2.3.3 Ways of tax evasion by people/citizens 31
2.4 Conceptual model 32
CHAPTER THREE
3.0 Methodology 35
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3.1 case study/historical background 35
3.2 Research design 35
3.3 Population 36
3.4 Sample and sampling technique 37
3.5 Method of data collection 37
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3.6 Method of data analysis 37
CHAPTER FOUR
4.0 Data analysis, result and discussion of findings 38
CHAPTER FIVE
5.1 Summary 45
5.2 Conclusion 45
5.3 Recommendation 46
Questionnaire 48
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CHAPTER ONE
1.0 INTRODUCTION
Since the intervention of government in the economy, there has been the
problem of how government is going to fund their activities in the economy.
Taxation has been a useful tool for government to plough back resources
from the public. The impact of tax evasion on government revenue will be
better appreciated if one if one has adequate knowledge of tax and tax
evasion.
In this view, it is imperative to give the definitions of tax and tax evasion.
Tax is defined as a compulsory payment imposed on the revenue, wealth,
goods, services, property, individuals, and corporate bodies by the
government for the benefits of all citizens and for which there is no
guaranteed compensatory benefit (Alm and Michael, 1990).
Over the years, there has been a growing concern to increase revenue
generation through tax collection. Although, it is just one out of many means
that government source for revenue but it has been the most effective of all.
The effect of taxation as a source government revenue on the economy is
what this study aims to examine. Taxation has been bedeviled by a lot of
impediment of which this research work will shed more light on as well as
proffering means to actually solve the problems. Ado-Odo/ Ota Local
government will be used as a case study to buttress the facts on the subject
matter.
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1.1 BACKGROUND INFORMATION TO THE STUDY
The Nigerian nation as we know it today is the amalgamation of two major
regions. The British effectively managed these regions for a long period of
time before Nigeria obtained her independence.
Prior to the advent of colonial rule, there has been a particular system of
direct taxation except for the fact that the system varied from one part of
what is presently called Nigeria to the other. The forms that taxation took
varied from the normal structure of modern taxation.
It must be emphasized that during the pre-colonial era, taxation functioned
primarily on an ethic basis. In the chieftaincies with a centralized authority,
administrative machinery, and judicial institutions such as Northern Nigeria,
Yoruba land and Benin kingdom where there were Emirs and obas
respectively, there was a system of taxation. This was not so in the non
chieftaincies like the Ibos, Tivs, Buras, Egbira, and Bachalama areas, there
existed little or no form of organized taxation. During these periods, the
forms of tax operating in the Northern area are as follows:
Zakal; This was on muslims for charitable, religion and educational
purposes.
Kurdinkasa was an agricultural purposed tax. It is collected by the dongaris
ho are errand boys for the Emirs. In the south western area, the forms
taxation took varied from place to place. For instance, in the western part of
Nigeria, taxation took different forms. Taxes were paid in cash, kind and
obligatory personal services. Some of these are Isakole payment for
obeisance to the local.
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Local chief, owoori a general tax paid by a small community to a large
society due to fear of domination. Community efforts entail contribution
from members of each community for specific project and purpose.
The eastern area of Nigeria is quite different from the north and west. Some
of the tax system practiced areEgbunku is imposed before palm oil is
harvested and it is premised on the communal belief that the palm tree from
which this is to be harvested belongs to the whole community. Also
community effort is a system of tax levied on the people of the community.
It is the contribution from members of each community for specific purpose
as was also applicable for the western area.
The mission of any modern government is to fulfill the mission of providing
maximum social welfare for the citizens. The levying of taxes coupled with
other forces for example market system and obtaining adequate revenue
from other sources are the ways to fulfill the mission.
Over the years, there has been a growing concern to increase revenue
generation through tax collection in Nigeria. It must be noted that what
government produces is public goods. These goods have two characteristics
that distinguish them from other goods.
Firstly, they are indivisible. They cannot be divided into units and
distributed to potential consumers in proportion to their needs. Such goods
must be used in it’s entirety for all the potential consumers.
Secondly, public gods are nonexclusive that is they have spill-over effects
(Bhatia 2002). Examples of such public gods include; administration of
justice, regulatory services, national defense service, internal security,
general administration and so on.
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It could now be clearly seen that the benefits from the public goods provided
by the government is enjoyed by all, so every citizen in return is expected to
contribute in one way or the other towards achieving this aim. One of the
ways of increasing revenue generation of the government is to institute an
efficient and effective tax collection machinery for all and sundry to be
under the obligation to pay tax.
It is however been realized that the revenue derived from tax is dwindling on
daily basis. This could be attributed to the sophistication of the methods
being employed in evading tax.
One of the ways of increasing revenue generation is to reduce the rate of tax
evasion in the country.
1.2 STATEMENT OF THE PROBLEM
Using the case study, the following problems were identified as some of the
hindrances to the success of taxation as a source of government revenue for
the government.
1. High rate of tax evasion and lack of tax morality in the people to pay
taxes.
2. Lack of efficient and honest administrators in tax offices.
3. Inefficient taxation policies.
4. The problem of implementation of policies and collection of various
taxes.
5. The problem of lack of motivation for the tax collectors and officials, it
should be noted that tax collection is not a simple tax. It is done with
caution, especially in a developing country like Nigeria, where voluntary
compliance is lacking.
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1.3 OBJECTIVES OF THE STUDY
The ugly incidence of tax evasion is very alarming. This research work seeks
to objectively determine the importance and effect of taxation as a source of
government revenue. Thus, the objectives of this study are;
1. To investigate if tax constitutes the bulk of government revenue.
2. To examine the contributions of taxes towards the growth and
development of Ado-Odo Ota LGA.
3. To evaluate the extent government has been using revenue generated
from tax.
4. To examine the relevance of tax in Ado-Odo Ota, LGA.
1.4 SIGNIFICANT OF THE STUDY
This research work is of inestimable importance because
1. Efforts will be made to analyze the main criteria for successful taxation
as a source of government revenue.
2. The general public will be more enlightened on the various services
provided by the government with revenue from taxes
3. The government will also benefit from the research exposure with respect
to problems of taxation by coming up with suitable policies to ensure
prompt payment of taxes.
1.5 SCOPE OF THE STUDY
The research work is limited to Ogun state, Ado-odo/Ota Local government
Area precisely.
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1.6 RESEARCH QUESTIONS AND HYPOTHESIS
To determine the accuracy of the hypothesis to be stated, answers will be
provided to the following research questions;
1. To what extent can it be justified that the inefficient taxation policies in
Ado-odo/Ota Local government area is a problem facing taxation as a
system in the local government?
2. How significant is the problem of implementation of policies and
collection of various taxes to taxation?
3. Should high rate of tax evasion be considered a major problem of
taxation?
4. What role does the problem of lack of motivation for tax collectors and
tax officials play in the failure o taxation as a source of government
revenues?
Statement of Hypotheses
To really measure the impact of taxation as a source of government revenue
on the economy, the hypothesis formulated is stated thus;
Hypothesis 1:
(H0): Taxationdoes not have positive effect on the total revenue of the
government
(H1): Taxation has a positive effect on the total revenue of the government
Hypothesis 2: Does the revenue generated from tax have any positive impact
on the economic development of Ado-Odo Ota local government area.
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(H0): Revenue generated from tax does not have any positive impact on the
economic development of Ado-Odo Ota local government area.
(H1): Revenue generated from tax have positive impact on the economic
development of Ado-Odo Ota local government area.
1.7 LIMITATIONS TO THE STUDY
This research work has been constrained to the lack of recent and adequate
materials, unwillingness of the case study local government staff to divulge
vital facts about the Ado-odo/Ota local government. Considering these
limitations, I am of the believe that the reliability, validity, and level of
significance of these study will be very high.
1.5 DEFINITION OF TERMS
Taxation: Taxation is a well known and widely used method of withdrawing
resources from private sector for use in the public sector. It is the concept
and science of imposing tax.
Tax: Tax is a compulsory payment that has no quid prod quo. Quid prod quo
here means something given or taken as equivalent to another.
Tax evasion: This is a deliberate act on the part of the tax payers to reduce
their tax liabilities through illegal means or an attempt not to pay tax due.
Therefore it is considered as a criminal offence
Tax avoidance: This is the effort by individuals and companies to take
advantage of loopholes in the tax laws where some doubt (s) exist as regards
the interpretation of a tax law, to benefit from such doubt(s).
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Tax shifting: This occurs when a person shifts the burden of tax to someone
else. E.g sales tax, Value added tax,e.t.c
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