CHAPTER ONE
HISTORICAL BACKGROUND OF THE STUDY
1.1 INTRODUCTION
The word tax first appeared
in the English language only in the 14th
century, it is derived from the Latin word taxare, which means to “Assess” before that,
English used the related word task derived from old French, for a while task
and tax were both in common use, the first requiring labour, and the second
money.
In the Stone Age, tax was
collected in Nigeria long before the coming of Europeans; it was collected by
the local Chief for the purpose of administration and defense. Every one was
expected to give part of his or her proceeds from cultivation of land to the
state, those who were not cultivating were required to give their human
(labour) sources for public work such as clearing the bush, digging the pit
latrine, wells etc. for the benefit of the community, as a whole. Failure to
render such services usually resulted in loss of property which might be
reclaimed after payment. With the coming of the Europeans, taxes were collected
from individuals through local chief in 1964; a legislative council was set for
the whole country which obliged the regional council with a large
Tax is a levy imposed by
the federal board of Inland Revenue (federal government) on the chargeable
income generated by individuals, organizations and other corporate bodies for
the betterment of the society as a whole.
Taxation is the act of
taxing, it is also the amount assessed as a tax, it is revenue raised from
taxes. Taxation is the means of progress through which the government generate
revenue for national development through the contribution by the citizens.
According to Ogundele
(1999) taxation is defined as a process or machinery by which communities or
group of persons are made to contribute in some agreed amount of money for the
propose of the administration and development of the society. It can be
inferred that the payment of tax will in turn be beneficial to the entire
community of they pay their tax properly.
Tax constituted an
important source of revenue to the government of any country both direct and
indirect taxes that are collected by the government inform of income tax,
excise duty, import and export duties, purchase and sales tax and so on help
the government to generate a lot of revenue for the smooth
administration of a nation. There are two elements in every form of taxation
and that is the base and rate element. The tax base is the object which is
taxed or a measure of the private sector income or wealth that can be taxed. The
tax rate is the percentage of the measured amount taken from the tax base. As
earlier stated, taxation is one of the most important and major source of
government revenue, in this case the money realized from is used to provide
social goods and services so that both the rich and the poor will have equal
chance of making use of them through the provision of social amenities such as
good roads, electricity, pipe borne water, hospitals welfare organization,
schools and so on.
In spite of these benefits
from tax, most people still run away from tax indulging themselves in what is
called tax evasion and avoidance. Attempt to avoid some portion of inability or
not to pay tax will affect the revenue generation of the government and that is
the most condition why government frowns at the issue of tax evasion and uses
its authority to enforce compliance. But in spite of the frown by the
government of Nigeria, there have not been adequate and sincere efforts towards
enforcing the tax evaders on the need for them to pay their tax instead, they
concentrated on the revenue from oil sector, while overlooking the taxes
on agriculture which is supposed to yield revenue to the country as a whole.
Arowomole and Oluwalayode
(2006:39) define tax evasion as a deliberate act on the part of the tax payer
to reduce their tax liability through illegal means or an attempt not to pay
tax due. While tax avoidance is defined as a legal way by which a taxpayer
reduces his or her tax liabilities. Tax evasion is considered as a criminal
offence.
1.2 STATEMENT OF THE PROBLEM
The researcher has observed
that tax evasion has become rampant in Akwa Ibom state, individuals and firm
manover or try to evade paying tax based on their perceptions of tax.
The researcher has through this
investigation observed that most people formulate their tax in order to
underpay tax while some companies and individuals as well smuggle goods into
the country in order to evade tax payment.
Most people see tax paying
as government exploiting them while some try to bribe government officials in
order that they may evade tax payment. It has been observed to that most people
fail to register their company or goods in order to equally avoid tax payment.
This is as a result of ignorance or an attempt to cheat the government.
Finally, it has been
observed by the researcher that as tax payment is one of the ways government
generate revenues, tax evasion would only trigger off lack of revenue for
development and tax evasion is detrimental to the government. Hence, the
decision of the researcher is to investigate the stated problem, the reason why
individuals and firms indulge in tax evasion and to offer suggestion for
solving the problem.
1.3 OBJECTIVES OF THE STUDY
i.
To investigate the perception of tax payers
to the payment of tax on ethical reasons.
ii.
To
identify specific key areas that tax payer link to tax evasion.
iii.
To examine the effect of perceived
corruption in government on tax evasion.
iv.
To state the seriousness of tax evasion
according to the Nigerian constitution.
1.4 RESEARCH QUESTIONS
i.
Is tax evasion ethically justifiable?
ii.
What are the reasons for tax evasion?
iii.
What is the attitude of tax payer when
government is perceived to be corrupt?
iv.
What
is the most rampant ethical justification for tax evasion?
1.5
RESEARCH HYPOTHESIS
Because
of the above research questions, the following hypothesis
was formulated;
i.
Tax evasion is not ethically justifiable Tax
evasion is ethically justifiable
ii.
There is no reason for tax evasion There are
reasons for tax evasion
iii.
There is no rampant ethical justification
for tax evasion There is rampant ethical justification for tax evasion
1.6
SIGNIFICANCE OF THE STUDY
This
research work would be referred to various tax authorities, the federal board of Inland
Revenue, local government revenue committee as well as their tax officials who
are responsible of collecting tax on individuals or corporate bodies, it gives
them insight on how to improve the tax administration. The research would also
help the professional bodies like the chartered institute of taxation of
Nigeria and the institute of chattered accountant of Nigeria as well as the
members to see the areas of deficiency on tax collection and call for
improvement in tax revenue. This
research would also be relevant to the future researchers and students of
economics, business administration, accounting and other social and management
sciences as well as the legislations which will also benefit immensely from
this research because it will form basis of tax policy formation,
implementation and administration.
1.7
SCOPE OF THE STUDY
This
research is premised on obtaining evidence on the ethics of
tax evasion, by obtaining
responses from business owners, professional bodies, tax officials, the federal
board of inland revenue, organizations and others in Akwa Ibom state, thus the
study was restricted to some selected local governments in Akwa Ibom state.
1.8
DEFINITION OF TERMS
TAX EVASION: An
illegal practice where a person, organization or corporation
intentionally avoid paying his or her true tax liability.
TAX ETHICS: It
is the rule and regulations governing or guiding the payment of tax.
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