Tax evasion is a problem which seemed to have defied solution, had bedeviled the
Nigerian tax system right from the colonial times. While some have blamed the situation on the
tax authorities for not living up to expectation with regards to tax administration, others attribute
it to the unpatriotic attitude of the taxpayers. It was in the light of these contending positions that
this researcher carried out a survey involving state tax authorities and individual taxpayers in
The study sought to identify the causes of tax evasion and avoidance amongst individual
taxpayers, the way through which it is perpetrated and the social and economic consequences
brought about by this problem. It was found, among others, that loopholes in the tax laws,
poverty and lack of adequate public enlightenment are responsible for the problem. The taxpayer
perpetrates this unpatriotic act through such means as concealment of profit and interference
with the Revenue agents through bribery and corruption. The situation results in the inability of
government to render essential services adequately, creation of resentment among honest
taxpayers, and inequality in the society.
It was recommended that tax officials should be constantly trained and re-trained on the
job, a deliberate and more aggressive public enlightenment campaign be embarked upon by
government and the establishment of Revenue Courts by state governments having powers to
impose heavy monetary penalties and criminal sanctions.
Tax evasion is a crime in almost all developed countries and subjects the guilty party to
fines and/or imprisonment – in China the punishment can be as severe as the death penalty. In
Switzerland, many acts that would amount to criminal tax evasion in other countries are treated
as civil matters. Even dishonestly misreporting income in a tax return is not necessarily
considered a crime. Such matters are dealt with in the Swiss tax courts, not the criminal courts.
However, even in Switzerland, some fraudulent tax conduct is criminal, for example, deliberate
falsification of records. Moreover, civil tax transgressions may give rise to penalties. So the
difference between Switzerland and other countries, while significant, is limited. It is often
considered that extent of evasion depends on the severity of punishment for evasion. Normally,
the higher the evaded amount, the higher the degree of punishment. (Allingham, and Sandmo
According to The desire to uplift one’s society is the first desire of every patriotic citizen.
Tax payment is a demonstration of such a desire. The payment of tax is a civic duty and an
imposed contribution by government on her subjects and companies to enable her finance or run
public utilities and perform other social responsibilities. Taxes, thus, constitutes the principal
source of government revenue. However, one of the greatest problems facing the Nigerian Tax
System is the problem of tax evasion and tax avoidance. While tax evasion is the willful and
deliberate violation of the law in order to
escape payment of tax which is unquestionably imposed by law of the tax jurisdiction, tax
avoidance is the active means by which the taxpayer seeks to reduce or remove altogether his
liability to tax without actually breaking the law.
These “Twin devils” have created a great gulf between actual and potential revenue. The
government has for the umpteenth time complained of the widespread incidence of tax avoidance
and evasion in the country as companies and other taxable persons employ various tax avoidance
devices to escape or minimize their taxes or deliberately employ fraudulent ways and means of
evading tax altogether sometimes with the active connivance of the tax officials. As pointed out
by Reynoids (1963), since tax is a principal source of government revenue, if persons are able to
escape by legal or illegal means the tax to which they should logically be subject under the
general scope of the tax, the theoretical equity of the tax to a large measure is lost. Tax evasion
and avoidance no doubt deny any government the tax revenue due to her, which results in a gap
between the potential and actual tax collections. This study is aimed at bridging this gap.
1.2 STATEMENT OF PROBLEM
Although tax evasion is a problem that faces every tax system, the Nigerian situation seems
unique when viewed against the scale of corrupt practices prevalent in Nigeria. Under direct
personal taxation as practiced in Nigeria, the major problem lies in the collection of the taxes
especially from the self-employed such as the businessmen, contractors, professional
practitioners like lawyers, doctors, accountants, architects and traders in shops among others. As
observed by Ayua (1999) these persons blatantly refuse to pay tax by reporting losses every year.
According to him, many of these professionals live a lifestyle inconsistent with reported income,
which is usually unrealistically low for the nature of their businesses. Civil Servants and other
salaried workers are the only class of people that actually pay tax in Nigeria. However, even
among the salaried workers, he added, many have turned the statutory personal allowances and
relief into a fertile ground for tax evasion.
Almost all Nigerian taxpayer is married with four children! Similarly, despite the tax
provision meant to plug loopholes through which taxable persons can minimize tax liability the
self-employed persons employ all kinds of avoidance schemes to minimise or escape tax liability
and makes you wonder whether there are still any tax officials working in that capacity. Such
scenarios, no doubt, say a lot about tax administration system in Nigeria both in its design and in
the disposition of some taxpayers towards taxation. While it immediately presupposes that there
are legal framework put in place to punish tax evaders it perhaps raises a poser on the efficiency
and effectiveness of tax laws and tax administration in Nigeria. Some state governments in an
effort towards solving this problem had even gone to the extent of engaging the services of tax
consultants. This government effort, notwithstanding, the problem of tax evasion and avoidance
still persists (Alabi, 2001). There is no doubt that revenue due any government will be reduced
by the unpatriotic act of tax evaders.
1.3 PURPOSE OF THE STUDY
The major focus of the study is an appraisal of tax evasion on financial crime in Nigeria.
Other needs of the study are:
To know the causes (reasons) of tax evasion
To Identify the problems militating against tax assessment and collection
To know the various ways through which tax evasion is being perpetrated
To assess the economic and social effects of Tax evasion
To evaluate the possible consequences of tax evasion on state’s tax revenue in Nigeria.
1.4 RESEARCH QUESTIONS
What are the causes of tax evasion?
What are the various ways through which tax evasion is being perpetrated?
What are the economic and social effects of Tax evasion?
1.5 SIGNIFICANCE OF THE STUDY
The impact of office automation on organizational productivity is a very important source
of study because of the following reasons:
To expand the knowledge on tax evasion so as to provide useful information to scholars,
practitioners and government that would assist them in understanding the causes, effects and
consequences of tax evasion and possible ways of creating environment conductive for tax
administration in Nigeria.
It will enable accountancy students to understand the causes, effects and the usefulness of
tax the more.
To the management of Oyo State Board of Internal Revenue and other States Internal
Revenue Authorities in Nigeria. It is expected that management of the management of Oyo State
Internal Revenue Board would be guided by the findings of Tax evasion in order to curb
inequality in the society. Since this is one of the major driving force that enable government to
render essential services adequately.
To The Polytechnic, Ibadan for academic purpose, the study will be useful for providing
knowledge for all students at all levels and lecturers.
To any individual or group that may want to carry out research on similar issue in the
Nigerian environment and other part of the African continent with the overall objectives of
persuading tax payers (self-employed & salary earners) and organizations to be more committed
in tax payment.
1.6 DELIMITATION OF THE STUDY
The study will be carried out within Ibadan Metropolis with a focus on the Oyo State
Board of Internal Revenue, Government Secretariat, Agodi, Ibadan, Oyo state, Nigeria. This is to
enable the researcher draw relevant conclusion from the study. The study will make use of
questionnaires to draw data/information from the respondents which would be tested to ensure
validity and reliability.
1.7 LIMITATIONS OF THE STUDY
The results will be limited to Oyo State Board of Internal Revenue, Government
Secretariat, Agodi, Ibadan, Oyo state, Nigeria and other limitations are inadequate finance to
carryout an effective study and the limited time given for the completion of the research work
will not allow the researcher to visit other branches.
1.8 DEFINITION OF TERMS
TAX: Tax can be defined as a compulsory levy by government on goods, services, income and
wealth primarily to obtain revenue.
Tax Policies: represent key resource allocator between the public and private sectors in a
VAT: Value Added Tax is a consumption tax levied at each stage of the consumption chain, and
is borne by the final consumer.
Tax Treaties: Nigeria has a number tax treaties referred to as double taxation agreements with a
number of countries, these are designed to ensure that the tax payable in Nigeria on the profits of
a Nigerian company being remitted into the country are reduced by the amount of foreign Tax
paid abroad and vice versa where an overseas company receives profits from Nigeria that have
already been taxed in Nigeria.
Capital Gains Tax: This accrues on an actual year basis and it pertains to all gains accruing to a
taxpayer from the sale or lease or other transfer of proprietary rights in a chargeable interest
which are subject to a capital gains tax of 10%, such chargeable assets may be corporeal or
incorporeal and it does not matter that such asset is not situated in Nigeria.
1.9 HISTORICAL BACKGROUND OF OYO STATE BOARD OF INTERNAL
The Nigerian Federal Inland Revenue Service, FIRS, was created in 1943. It was carved from the
erstwhile Inland Revenue Department that covered what was then the AngloPhone West Africa
(including Ghana, Gambia, Sierra Leone) during the colonial era. Tax provides revenue to fund
governance, ensures resource redistribution, streamlines consumption of certain goods and
services, reduces inflation and generates employment. The Federal Inland Revenue Service is
constitutionally empowered to collect taxes. In 1958, the Board of Inland Revenue was
established under the Income Tax Ordinance of 1958. The name was later changed in 1961 when
the Federal Board of Inland Revenue (FBIR) was established under Section 4 of the Companies
and Income Tax Act (CITA) No. 22 of 1961. FBIR operated then as a department in the Federal
Ministry of Finance.
A further transformation took place in 1993 when the Finance (Miscellaneous Taxation
Provisions) Act No 3 of 1993 established the Federal Inland Revenue Service FIRS as the
operational arm of FBIR. The Act also created the office of the Executive Chairman of the
Board. In 2007, the Federal Inland Revenue Service Establishment Act, (2007), which granted
autonomy to the service, was enacted.
Board Of Internal Revenue Objectives are:
To administer the personal income tax decree, 1993 and any tax or levy shall be under the
care and management of the board;
Formulate from time to time, proposals, for the expansion and increase of the internal
sources of revenue for the State;
Identify sources of revenue available in the State;
Enlighten the public on the subject of taxation;
Appropriately assess all sources of revenue and taxes in the State;
Design an effective revenue collection and machinery and implement it;
Enforce all laws relating to taxation and revenue collection;
Keep proper account and records in relations to all tax and revenue collections made by
Monitor and co-ordinate the collections of taxes and revenue in the State by all agencies
of the Government such as the Ministries, Parastatals and Public Companies;
Do all such things as it may consider necessary or expedient for the assessment and
collection of taxes and revenue;
Ensure the effectiveness and optimum collection of all taxes and penalties due to
Government under the relevant laws;
Make recommendations, where appropriate to the joint tax board on tax policy, tax
reform, tax legislation, tax treaties and exemptions, as may be required from time to
Generally exercise control over the management of the State’s internal revenue service on
matters of policies
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