Showing posts with label Tax evasion. Show all posts
Showing posts with label Tax evasion. Show all posts

Friday, 28 August 2015

TAX ADMINISTRATION IN VIEW TO AVIODING TAX EVASION



This article attempts to look at the Nigeria Tax administration and its capacity to reduce tax evasion and generate revenue for development desire of the populace. It has being found among other things that increasing tax revenue is a function of effective enforcement strategy which is the pure responsibility of tax administration. Nigeria lack enforcement machineries which include among other things, adequate manpower, computers and effective postal and communication system.

Key words: Tax administration; Government revenue; Tax evasion; Tax assessment; Autonomy.  

Nigeria is richly blessed with oil and gas among other mineral resources, but the over dependence on oil revenue for the economic development of the country has left much to be deserved.  According to Ariyo (1997) Nigeria's over dependence on oil revenue to the total neglect of other revenue source was encouraged by the oil boom of 1973/74.  This is unsustainable due to the fluctuation in the oil market which have in most cases plunged the nation into deficit budgets.  It was the view of Popoola (2009) that Nigerian tax administration and practice be structured towards economic goal achievement since government budget for the year centres on the oil sector.  While decrying the low productivity of the Nigerian tax system, “deficiencies in the tax administration and collection system, complex legislations and apathy on the part of those outside the tax net” were identified as some of the root causes.  Those working in the informal sector of Nigerian economy do not see the need to pay tax whereas they dominate the economy.  To them only, civil servants should pay tax on their earnings and this amount to over flogging the willing horse.  Besides, the activities of the strong union in the formal sector do not even pave way for a successful tax policy implementation in the formal sector (Ayodele 2006).  Even revenue collection officers seem to be lenient or even connive with those in the informal sector during enforcement of tax policies.  All this leads to revenue loss. 

In other to reawaken the consciousness of Nigerian government and citizens on the effective use of taxation as a developmental tool, and examine the effect the tax system have so far on the economy; this article becomes very relevant.  There is no doubt that taxation must have affected the economic development of Nigeria.  Effort shall therefore be made in this research to see how much Nigeria have been able to achieve her economic goals with her tax policies and administration.  The administrative role of the Federal, state and local government shall as well be examined in other to identify the causes of tax evasion and avoidance.
Globally, government is saddled with the responsibility of providing some basic infrastructures for her citizens.  Among these are the provisions of Schools, Hospitals, construction Roads, Bridges, Railway lines, Airports and seaports. More so is the security of the life and properties of the citizens in the country against foreign and or local aggression.  Abdulfattah, O. et al (2010), stated, “Most south east governors are spending fortune to keep the Police and other security agencies”.   The stabilization of the economy, the redistribution of income and the provision of services in the form of public goods are among other functions or obligations government may owe her citizens.  Miller and Oats (2009:4) noted that due to the inefficiency of the private market, the provision of public goods such as security of life and property which the public might not be prepared to pay for directly, are left in the hands of the government rather than the private market.  James and Nobes (2008) observed that even without payment, the consumption of “pure public goods cannot be to the total exclusion or in isolation of certain individual.  Government therefore, makes it free for all and sundry.  A very good example is in the area of security e.g. Police, Arm Force etc.  Their services cover all the citizens without specific charges to the people. Besides, public goods do not diminish as consumption increases.  Simply put, the consumption of public goods by one person  does not stop or prevent another from consuming it neither does it reduce the satisfaction the later consumer will derive from its consumption.  It is on the strength of the above two reasons that it becomes practically impossible for the private market or firm to produce public goods as the resultant effort could be underproduction of such goods and services.    Having stated some of the functions of government to the citizens using taxation as a tool, the objective of taxation can therefore be summed up as:

  Raising revenue to finance government expenditure.
 Redistribution of wealth and income to promote the welfare and equality of the citizens.
Regulation of the economy thereby creating enabling environment for business to thrive.

Taxation is therefore, one among other means of revenue generation of any government to meet the need of the citizens some of which have been pointed out above.  According to Public Finance General Directorate (2009) the purpose of taxation as enshrined in the French laws is “for the maintenance of public force and administrative expenses”.  Miller and Oats (2006:3) maintained, “Taxation is required to finance public expenditure”.  It is worthy of note however, that there are other sources   of revenue generation by the government e.g. borrowing, grants etc.   If taxation is for public expenditure, public goods ought to have been consumed equally.  The elites in the society have retinue of security men attached to them for protection especially in emergency cases but not the common man whose safety is just by implication even when they represent a higher percentage of the taxpaying population.  Since the use of most of the facilities for which the general tax revenue is raised as a right for some compared to others, tax therefore remain a punitive levy on the deprived of these services.  This is even worsening with the definition by Nightingale (2002:5) “…imposed by government while taxpayers may receive nothing identifiable in return for their contribution….”  Osunkoya (2009) on his part warned, “Payment of tax does not mean that government must do something within the locality of the taxpayer”. These respected tax experts seems to forget that evidence of taxation seen in public goods encourage the taxpayer. 
This may account for the high evasion rate as tax is assumed exploitative instead of development.  Popoola (2009) observed that people do not pay tax because of the “culture of give and take”.  The epileptic services of some of the social amenities financed with tax revenue in developing and underdeveloped countries left much to be deserved.  Popoola (2009) asserts that electric supply and social infrastructure need to be financed with taxpayer’s money.  Ordinarily, nobody would want to make “compulsory payment” for substandard goods or bad services.     Gordon (2010) argued that corporate and personal income taxes create distortion. High tax rate distort the demand and supply of labour hence productivity is impaired.  Some countries tax system is structured purely towards revenue generation and that has negative effect on the economy.  Very low tax may impact on education as a larger population will prefer to work than school but a very high tax might reduce productivity as people would prefer longer leisure hours.  This does not enhance economic development.  Laffer (2009) cautioned that “A government simply cannot tax a country into prosperity”. As important as tax revenue is to a nation, many people still find it difficult to comply with their tax obligation.  According to Nightingale (2002:6), “No one really likes paying taxes yet they are inevitable for the provision of social welfare”. 

With the exception of countries like UK, America, France and a few others where taxation seems to be the main sustenance of the economy, every other nation almost look up to the government as the almighty provider.  Some argue that payment of taxes to the government is just a way of enriching the selected few political elites who have fortified themselves with powers unquestionable. Others believe that they are not getting enough from the government in return for what they are paying; a lot more believe that government is so rich that imposing tax on the people is another way of exploiting the innocent citizens.  The excuses for non-compliance with tax obligations are enormous.  In all, these reasons though with some relevant facts, amounts to share ignorance as the importance of tax revenue cannot be overemphasised.  Ordinarily, people abhor tax payment due to its effect on their income.  Owens (2006) noted that only a few people are enthusiastic about paying tax.  Tax policy must be generally accepted by the people if it must gain compliance (Nightingale (2002).  It therefore means that a good tax system must be in consonance with (Adam Smith 1776) cannon of taxation cited in Nightingale (2002): Equitability, Neutrality, efficiency, flexibility and simplicity.  

Diversification of revenue sources for economic development is very important if Nigeria must rank among equals in the improvement of the lives of her citizens.  The focus on revenue from oil and gas amounts to putting all her eggs in one basket.  In this modern days the speedy technological development will in no distance time render obsolete the use of such mineral resources like oil and gas and possibly replace same with solar energy which is more environmental friendly.  Besides, the end of fluctuations in the oil price which characterise the oil market is not in sight.  Therefore, to build and maintain the culture of sustainable development, there is urgent need for a review and restructure of the nation’s tax policy and administrative system. Why government takes step to address the perennial annual budget deficits and tax gap, the citizens should wake up to their civic responsibilities in terms of tax compliance. Unless the citizens work in hand with the government, every effort of the later to better their lives may prove abortive.  Inequitable tax which is one of the major problems in taxation was promoted by the actions of those in the informal sector.  However, government should note that it is not possible to tax a nation into prosperity.  

High tax rates will not only increase evasion but will equally discourage investment.  This is the case of fiscal neutrality.  Economic decisions may be influenced due to high tax rates and that may impact negatively on the nation’s economy.  (Bowles 1999) cited in Richardson 2006, posit that the higher the marginal tax rate, the higher the likelihood of evasion. In this era of globalization, unfriendly tax policies may create room for capital flight from Nigeria to other countries with more relaxed tax policies.  The move towards borderless world has opened up new opportunities for taxpayers to minimise their tax liabilities (Owens 2006).  Government should not only create an enabling environment for business establishment but also give all necessary support for its survival because profits of businesses are one of the major sources of tax revenue.