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CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Background to the Study Taxation is a way of raising revenue for the day to day

running of government activities. Government activities involve generating funds

and using same to provide security, social amenities, infrastructural facilities, etc,

for the inhabitant of the country. Base on this, it is worthy of note that the objective

of taxation is in tandem with the functions of government (Akhor, 2014). However,

over the years, it has been observed that the Nigerian tax system has inherent

problems in its structure. Odusola (2006) opined that the Nigerian tax system is

concentrated on Petroleum Profit Tax (PPT) and Company Income Tax (CIT) while

broad-based indirect taxes like the Value-Added Tax (VAT) and Custom and Excise

Duty (CEXD) are neglected. Thus, the tax system lacks the potential of diversifying

the revenue portfolio for the country to safeguard against the volatility of crude oil

prices and to promote fiscal sustainability and economic viability at lower tiers of

government (Azaiki and Shagari, 2007).

In Nigeria, revenues have been allocated according to the formula recommended by

Ad-hoc Fiscal Commissions or based on a principle chosen by the state. According

to Taiwo, 2008, from 1946 to date, a total of thirteen revenue allocation

Commissions had been set up. Each Commission recommended a formula for
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revenue sharing depending on the economic fortunes and purposes, which the

government wanted the revenue sharing formula to serve. More so, the revenues are

raised mainly through taxation to finance government expenditure and to influence

other activities in the economy. In addition, tax revenue mobilization as a source of

financing developmental activities in less developed economies has been a difficult

issue primarily because of various forms of resistance, such as evasion, avoidance

and other corrupt practices can easily be perpetuated within the direct taxes bracket.

These activities are considered as sabotaging the economy and are readily presented

as reasons for the under development of the country. Government collects taxes in

order to provide an efficient and steadily expanding nonrevenue yielding services,

such as infrastructure, education, health, communications system, employment

opportunities and essential public services like the maintenance of laws and order,

irrespective of the prevailing ideology or the political system of a particular nation.

The very act of taxation has profoundly beneficial effects in fostering better and

more accountable government (Tax Justice Network, (2012).

Akhor (2014) stated that the economic effects of tax include micro effects on the

distribution of income and efficiency of resource use as well as macro effect on the

level of capacity output, employment, prices, and growth. Therefore, the use of tax

as an instrument to achieve economic growth in most less develops countries cannot

be reliable because of dwindling level of revenue generation.

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Consequently, changing or fine-tuning tax rates has been used to influence or

achieve macroeconomic stability. Critical examples of governments that have

influenced their economic development through revenue from tax are: Canada,

United States, Netherland and United Kingdom. They derive substantial revenue

from Value Added Tax, Import Duties and have used same to create prosperity

(Oluba, 2008). A significant share of the tax revenue increase in Africa stems from

natural resource taxes. This included income from production sharing, royalties, and

corporate income tax on oil and mining companies (Pfister, 2009).

1.2 Statement of the Problem

In Nigeria, people, especially the rich and the elites, deliberately dodge this civic

responsibility of paying tax and sometimes employ the service of tax specialists in

order to pay less tax to the government. There is also the problem of falsification of

ages and the number of children and dependents one has in order to reduce the

amount of tax payable. Emanating from these factors, the sub-national governments

(state and local governments) contend that their currently assigned taxes are poor in

terms of their bases and, therefore, accruable revenues are not enough to meet their

expenditure targets. Also the statutory allocation from the federation account has

been grossly inadequate as a result of a fall on gross domestic product. This

invariably reduces their overall performance, considering their expenditure profiles.

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Taiwo (2008) observed that the distribution of government revenue is skewed in

favour of one tax base or the other (eg oil revenue) in Nigeria. Nevertheless, the

overwhelming evidence of positive impact of oil revenue on economic growth in

Nigeria cannot be overemphasized (Odusola, 2006). However, the first question is,

are other forms of taxes not important for consideration? Emanating from the above,

there are some questions to ask: what relationship exists between Nigeria’s tax

revenue and her economic growth? And what is the contribution from other tax base

to the overall tax revenue of a nation. Against these backdrops, this research seeks

to find the impact of indirect taxation in Nigeria.

1.3 Aim of The Study

The aim of this study include the following:

(a) To examine the causes and reasons for high tax evasion and avoidance.

(b) To generate revenue to help the government to finance ever-increasing public

sector expenditure.

(c) To promote social, economic, and good governance through provision of merit

goods.

(d) To examine the effect on economy, the high incidence of tax evasion and

avoidance.

(e) To examine people’s perception on taxation.

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1.4 Significance of the Study

The topic taxation and its effects of the Nigerian economy will educate the entire

public on how the federation could encourage economic development and also how

a reduced tax could promote the standard of living of the tax payer and increases his

capital formation and investment thereby, resulting in a higher gross National

Product (GNP) of the economy (country) and also promote the industrial

development of the nation and Enugu state in particular.

The study will be of immense benefit to the following group of persons.

(a) Government of the federation of Nigeria, especially the Enugu State

Government.

(b) The business community for the purpose of company’s income tax.

(c) The tax experts especially the practicing professional accountants.

(d) Enugu state university community.

(e) The Nigerian Institute of Management and Nigerian Statisticians.

(f) The economist and financial analysts or capitalist.

(g) The students of Accountancy profession and other allied professions.

(h) The tax-payers, especially the employers of labour and the employees of various

organizations.

(i) Tax researchers.

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1.5 Scope of the Study

This topic, indirect taxation and its effect on the Nigerian economy (A case study of

Enugu state tax system and economy) should have been expected to cover all the 36

states of the federation and Abuja and the entire economy but the writer intends to

limit this topic to only Enugu state due to financial handicap, distance and time

constraints.

Therefore, since the same tax Acts are applied throughout the federation Republic

of Nigeria, the study of Enugu tax system and economy shall be deemed to serve

other states of the federation. Thus, the writer will rely heavily on the board of

internal Revenue and state ministry of finance and Economy planning since they

have adequate information and data on the government of Enugu state of Nigeria,

thereby covering all the local government areas of the state.

Since there are often changes in the tax laws of Acts both at the state and federal

level of government, the writer may wish to visit the chief inspector of taxes of some

urban and rural local government areas in the state in other to confirm the

information or data so collected from the Board of Internal Revenue and the state

Ministry of Finance and Economy Planning.

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1.7 Definition of Terms

Tax evasion: This means trying to escape tax liability by an individual.

Direct taxes: This means that taxes are levied on income and property of

individuals or group of individuals who bears their full burden.

Indirect taxes: These are the taxes levied on goods and services and are paid by

individuals by virtue of their associating with the goods and services.

Earned income: It is the income which the tax payer actually earned, which may

require mental and physical exercise such as salaries, wages, e t c.

Unearned income: This income accrued whether or not the tax payer is there or

not, example, rent, interest, royalties, and dividends.

Other incomes: It is the income which comes once in a while and they are not

regular, thereby undetermined example, gift of windfall income, lottery winnings

e.t.c.
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CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 Value Added Tax and Economic Growth in Nigeria

Value added tax is another form of indirect tax applied at each stage of production

to the value added. VAT is a consumption tax levied at each stage of the

consumption chain and borne by the final consumer of the product or service. Each

person is required to charge and collect VAT at a flat rate of 5% on all invoiced

amounts on all goods and services produced in Nigeria. VAT was introduced by The

Federal Government of Nigeria in January, 1993. It was believed by many Nigerians

that the tax was introduced as a means of avoiding taking loans from international

agencies and came into effect on January 1, 1994 to replace the Sales Tax (Ochei,

2010). Taxable persons are obliged to register under VAT Act. The tax is at a single

rate of 5 percent of taxable goods and services. Supply of all goods and services

except those specifically exempted are subject to VAT. Nonresident companies,

which transact business in Nigeria, are also required to register for VAT and render

VAT returns using the address of the company in Nigeria with whom they have

subsisting contract. A taxable person, whether Nigerian resident outside Nigeria,

who fails or refuses to register for VAT administration within six months of

engaging in any economic activity in the territory of Nigeria is liable to pay a penalty
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of $67.00 for the first month that the failure occurs and a further penalty of $34 for

each subsequent month in which the failure continues (Emmanuel, 2013).

Owolabi and Okwu (2011) examined the contribution of Value Added Tax to

Development of Lagos State Economy, using simple regression models as

abstractions of the respective sectors considered in the study. The study considered

a vector of development indicators as dependent variables and regressed each on

VAT revenue proceeds to Lagos State for the study period. Development aspects

considered included infrastructural development, environmental management,

education sector development, youth and social development, agricultural sector

development, health sector development and transportation sector development. The

results showed that VAT revenue contributed positively to the development of the

respective sectors. However, the positive contribution was statistically significant

only in agricultural sector development. On the aggregate, the analysis showed that

VAT revenue had a considerable contribution to development of the economy during

the study period.

In addition, Unegbu and Irefin (2011) examine the impact of value added tax (VAT)

on economic and human developments of emerging Nations from 2001 to 2009,

using regression, discriminant analysis and ANOVA, found out that VAT allocations

have a very significant impact on expenditure pattern of the state during the same

period. They found that, the perceptions citizens across the administrative areas of
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the state suggest that VAT has minimum impact level on the economic and human

developments of Adamawa State from 2001 to 2009. Emmanuel (2013) examined

the effects of VAT on economic growth and total tax revenue in Nigeria using data

ranging from 1994 to 2010. He formulated two hypotheses that VAT does not have

significant effects on GDP and also on total tax revenue. He found out that VAT has

significant effect on GDP and also on total tax revenue. This indicates that increase

in value added tax would to increase in tax revenue and economic growth (GDP).

Enokela (2010) conducted a study to explore the relationship between Value Added

Tax and economic growth of Nigeria using secondary data and multiple regressions.

He found out that Gross Domestic Product (GDP) is positive and statistically

significant to Value Added Tax, Government Capital Expenditure (GCE) is positive

but insignificant to Value Added Tax, and Gross Domestic Product per Capita

(GDPPC) is negative and statistically significant to Value Added Tax. This in other

words means that increase in value added tax would lead to a significant increase in

economic growth.
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2.2 Types of Taxation

1. Direct taxes

According to Okpe (2000), direct tax is defined as a tax levied or imposed on

individuals, companies or corporation. In other words, direct taxes are levied on the

income and properties of those who pay them and bear the burdens directly. Other

examples are personal income tax, capital gains tax, petroleum profits tax etc.

Forms of Direct Taxes

Personal Income Tax: It is a tax levied on an individual earned income during a

certain period of time usually a year. In Nigeria and other developing countries,

personal income tax constitutes a little percentage of total government revenue. This

form of taxes is usually known as PAYE (pay as you earn). In assessing personal

income tax, certain allowances are granted in respects of a family circumstances.

Company income tax: It is levied on the net profit of companies. One of the main

advantages of a company tax is that, it is easier comparatively to collect. This is due

to the fact that companies are clearly identifiable and they keep accurate accounts

on which they are taxed. In Nigeria, where there is a federal system of government,

allowances are granted for expenditure on the capital equipment for plant and

machinery and initial expenditure on mines and plantations.

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Expenditure Tax: This is a tax levied on that part of a person’s income which he

actually spends with allowance being made for savings since this tax is levied after

savings have been deducted. This type of tax is not common in Nigeria.

Capital Tax: This is another type of direct tax which is imposed on capital assets

on the properties of the decreased and incurement on the value of capital assets and

on land (see the capital gains tax act of 1967 and capital transfer tax of 1979).

Indirect Taxes and Its Forms

This is a tax levied on goods and services rendered which are shifted in part or in

full to the final consumer who does not even know either when he pays or the exact

amount he pays. Examples of indirect taxes are entertainment tax, import duties and

value added tax.

Forms of indirect taxes

Indirect taxes unlike direct taxes are levied not on income but on commodities or

services. Typical examples of indirect taxes include import duties, export duties,

excise duties (abolished with effect from 1st January 1998) and sales tax.

Import Duties: These are taxes imposed on goods imported into the country. In

Nigeria, import duties form a substantial proportion of government revenue.

Export duties: These are taxes levied on goods which are exported into other

countries. These duties are levied on products like cocoa, groundnut, rubber, hides

and skin and cotton. This also form a good source of revenue to the government.
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Excise Taxes: These are levied locally on manufactured goods such as cigarettes,

bear, matches, cement etc and at present not so many goods are locally made in

Nigeria, but it is hoped that as economy develops, these will repay industrialization

and revenue will be collected from excise taxes.

Purchase Tax: This is imposed on a range of selected consumer durable goods such

as cars, cameras, radio and television sets. This is not common in Nigeria but it is

widely used in advanced countries.

Qualities of a Good Tax System

According to Okpe (2000) in 1776, Adam Smith in his famous book “The wealth of

nations” set out four rules of taxation that are of a good tax system, which are; equity,

economy, certainty and convenience.

Equality: Taxes should be equals or equitable falling on individuals “like the

expenses of management to joint tenants of a great estate who are obliged to

contribute in proportion to their respective interests in the estate “Equality means

also that should pay taxes according to their ability to pay”.

Certainty: Tax payers should be fully informed about taxes and should be able to

work out their tax dues with certainty. Taxes should be certain not arbitrary clear

and plain to the contributor and every other person.

Convenience: The time and method of payment of taxes should be convenient for

the tax payers. The pay-as-you-earn system of tax collection is convenient because
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the tax is collected monthly or weekly by the employer before the employee receives

his pay.

Economy: Taxes should be economical, that is not too expensive to collect and not

unduly obstructive to collect and discouraging to the tax-payer.

Tax Effects on the Economy

According to Osita, (1999), depending on the nature of tax, taxation may have either

a negative or positive effect on the individual and the society. it may be an incentive

or disincentive to work or save, depending on whether the tax is direct or indirect.

With a high marginal rate of tax, in excess of 50% tax will be a disincentive to work,

while a low marginal rate of tax will be an incentive to work. Hence, when an

individual realizes that more than 50k of every additional #1.00 he earns will go for

taxation, then he does not have any further incentive to work harder. The Value

Added Tax is an incentive to save, while the tax levied on interest earned on bank

deposits is a disincentive to save.

This topic,tax effects on the economy concerns greatly the role of government.

Government can be seen as the most important factor or determinants in the

economic development of any country. To carry out this role effectively, the

government should look at the different needs of the people to be provided from the

spending side and then impose taxes which will enable them to provide these

services convinently without encountering much problem.

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Thus, according to the great social philosopher known as Socrates “he said that the

government that governs best is the government that governs least”. Therefore, the

role of every government is to provide security, social progress and better standard

of living for its citizens. In achieving this goals, the governemnt has to explore the

basic sources of providing the funds to tackle this objectives.since taxes is one of the

chief sources of funds or revenue to the government and also that government

decides what percentage of Nations resources which should be allocated to the

private sector and what percentage of the Nations resources should be allocated to

the publc sector, they should try to provide sufficient machinery in imposition and

collection of their taxes.

2.3 Taxation Theory

Here, it is very vital to give further consideration to the problems which faces all

government with regards to impositions of taxes in financial terms and

understanding the effects of such actions in real terms. The main purpose of taxation

policy must be to impose taxes in such a way that they do the least possible damage

or create the greatest possible advantage to the country as a whole.

living in an organized and orderly society, for if this not done, the miscreant

produced through the inequality in the system will be a source of constant irritation

to the wellbeing of the who even have.

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Thus, it is not merely a coincidence that over the years increase properly, although

this obviously cannot be taken to imply that increase in taxation itself automatically

produce greater prosperity rather it can be designed to facilitate the improvement of

the economic and social infrastructure of a country and this in turn may produce

long-term benefits of a substantial but uncertain nature which merely transfer

purchasing power from one set of people to another could if the wrong choice is

made have equally substantial bet adverse result indeed.

According to Osita A. (1999), taxation is hence the most important source of revenue

to the government. Owing to the inherent power of the government to impose taxes,

the government is assured at all times of its tax revenue no matter the circumstances.

With modifications as a result of different manifestos of opposing political parties,

the government’s ability to impose taxes is unlimited.

Furthermore, taxation could be too authoritarian and centralized in the sense that

there may be a point beyond which further increase would result only from a system

of government which is undesirable in itself.

In the year 1904, a first form of tax was levied by Lord Lugard in Northern Nigeria.

It was known as the community tax. A first tax law was introduced and called the

“Native Revenue Ordinance” 17 in 1917. In 1918, the N.R.O was extended the south

and it was only applicable in Benin and Abeokuta.

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In 1928, the Native Revenue Ordinance was introduced into the Eastern Region. In

1929, a flat rate of 2% total earned income and of corporate profit was levied. In

1939, an ordinance was passed into bill known as company’s income tax ordinance

(CITO) which meant to guide companies. In 1940, another tax law, (Nigerian

Income Tax Ordinance) was introduced. This took care of book corporate and non-

corporate residence in Nigeria. In 1940, the first commissioner of taxes was

appointed and it was from the period that Nigeria started having tax laws.

Income tax was first introduced in Great Britain in 1911 by Patt with the intention

that it would be a temporary levy. Consequently, it was being re-introduced annually

till when it was discounted in 1915. It was however resumed in 1942 and till date it

is still in the order.

In Nigeria, direct taxation was forced to develop in the Northern parts before the

advent of the British while indirect taxation through custom duties tolls attained a

high level of development in Yoruba kingdom of the southern-west and Igbo of the

southern east. Direct taxation was applied first in the North because Islam by

enjourning the devout to give a portion of their income for charitable or religious

purposes, provided a religious basis for taxation.

Furthermore, the highly organized administration of the Emirs reached down to the

village level, facilitated the imposition of taxes. In the southern areas, because of the

small size at the kingdom and difficulties of communication, toll was levied on trade
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between kingdom and between towns. Tributes of presents were often made by

kings, but the main source of wealth remained in-direct taxation.

The tax system was highly developed in the North pre-1900. The zakka, a title paid

on crops and livestock has its origin in the korari, the kurdan kasa was a tax like a

capitation tax paid by farmers, a plantation tax, shikka-shukka was paid on all crops

not subject to zakka and Jangali or cattle tax was levied on livestock. Smith, weavers,

dyers, leather workers, freymen, gamblers, prostitutes, salt makers, canoe men,

hunters, fishermen were liable to special tax.

Similarly, special taxes were levied on a special product like date palm, beehives

and on a certain luxury crops like onions, tobacco and sugar-cane. When the British

came in 1900, there was a formalised system of taxation comparable to that in the

North. The Ijebu and Ondo kings relied on tributes toll and arbit vary levies from

their revenues, while in Ibadan, Oyo and Ife, there was a system of annual levies,

special contributions at special festivals, fees, presents and tribes unusual land rent,

payment for personal services and contributions of food. At Abeokuta, the main

revenue came and contributions of food. At Abeokuta, the main revenue came from

tolls, fines, death duties, presents and licenses, while in Bani a large customary taxes

existed.

In the Igbo areas of the east, the tradition of direct taxation to a central authority was

non-existence the community paid taxes in kinds by rendering free services such as
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clearing the bush, digging pit toilet, wells and so on for the progress of the

community.

The British colonial government enacted the national revenue proclamation No.4 of

1904, under which Lord Lugard sort of simplify the complex array or northern taxes,

ensure equity and social justice in the system of taxation and enhance efficiency in

the fiscal administration. The system of taxation was on the annual value of land of

produce thereon, profit of trade and manufacturer the flocks and Lords of pastorist

and other listed sources of incomes. It was an ended trust on 1906 and then 1917 on

the Native Revenue Ordinance.

Therefore, based on the request of H.R Paulines finding and consequent

authorization by London towards the end of 1918, Lord Lugard continually

introduced taxation in Yoruba areas of Egba land and Ibadan. In Benin the son of

exiled king Orerami, accepted the imposition of direct taxation in 1917. The

imposition of direct taxation in the west involved computation of many tributes and

exaction into single payment of province and Ilesha division voluntarily asked to be

included in the system but in Abeokuta, direct taxation was resisted with much

resistance in which lives were lost and a lot of property destroyed calmmating in

Maxwell commission of 1918. In Ibadan, Ife, Oyo, tax exemption was unbroken by

Oba’s and in Egba land by Ogbonies. By 1920, the Native Revenue Ordinance have

been extended to all the west.

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In the east, direct taxation had a more chequered fact. Direct taxation had been

introduced in the south eastern region in 1966 but it was quickly withdrawn for lack

of support. It was not until 1927 that Lord Lugard succeeded in extending the Native

Revenue Ordinance to the area east of the Niger. However, the resistance was stiff

and opposition popular. The Aba women riot 1929 sparked off by rumours that

women were about to pay taxes, that is an indication of the strength of feeling in the

east against tax payment.

The east was the first to introduce a comprehensive regional finance law –the finance

law No.1 of 1956. The west followed soon with the income tax No.26 of 1957. The

North retained the 1940 Direct Taxation Ordinance (DTO) as amended in 1948 and

therefore in 1962 when it promulgated the personal income tax No.6. the federal

territory retained the income tax ordinance (as amended) of 1943 till 1957 when it

reduced the structural modification in law.

The recommendations of the Raismen Fiscal Commission were embodied in the

Nigerian constitution order in council of 1960 and formed the basis of the income

tax management Act 1961. The Federal government retained control on the taxation

of individuals in the federal territories and companies throughout Nigeria, while the

regional government obtained their revenue from taxes on income of all persons

within their regions whether Native or expatriates. Furthermore, custom duties and

sales were to be collected by the federal government, while the regional government
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retained export tax on motor vehicles, fuel revenues from exercise and custom duties

on tobacco.

2.4 The Objectives and Importance of Taxation and Economic Policy

Taxation is essential in financial matters and its objectives includes influencing the

disposition and availability of real resources. The primary purpose of taxation is to

enable the government to command the real resources it requires to perform certain

functions on behalf of the inhabitants of the country as a whole. The need of national

defense for instances, requires that the government shall be able to control resources

that the government shall be able to control resources of labour and capital (including

land) sufficient to supply and operate the weapons that are deemed necessary for this

purpose. Therefore, the real cost of defense is the output that those resources would

produce if used for other purposes, but the cost can be measured in practice only by

the transfer of purchasing power from individuals to the government as represented

by the financial payments made to that effect. It will be shown later that there is no

need for equation between the tax paid by an individual and loss in purchasing power

in real terms.

Secondly, taxation can be used as a tool aimed at improving the performance of the

National Economy by such means as altering the balance between current

consumption and capital investment. For instance, a man who would otherwise use

the whole of his purchasing power for current consumption may by taxation be
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forced to handover in respect of a part of it to the government, which may then decide

to use some of it to increase its own capital investment. In doing so, the government

has altered the decomposition of real resources although not necessarily by the

amount that the purely financial information suggests. However, it is extremely

difficult to isolate taxation as a casual factor in any economic variation because so

many other factor are not at work and are inextricably interwoven.

The economic and taxation policies adopted by the government should be

economical and rates of taxes should be low, so as to increase people’s investment,

provide employment opportunity, increase the standard of living and encourage

economic development. It must also be admitted that government may damage the

economy by taxation policies which produce the wrong redisposition of resources.

However, attempts have been made to analyses the effect of particular taxes in real

terms, by theoretical reasoning which takes accounting change into consideration.

One of the disadvantage of this, is that such attempts are dependent on the

consumption written into them and assumptions may not be sufficiently realistic,

especially at greater realistic to produce greater complexity in theoretical exercise.

It may well be that it is misleading to assume that all other factor will remain

unchanged, in so far as taxation policy may be effective only when linked with

consistent policy.
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Thirdly, taxation is used to transfer purchasing power from one section of the

commodity to another, in the example of burntee holding factory, payment may have

been made by the state to employees who were unable to find other jobs in the period

in which the factory was in operation at real terms. Those employees while leasing

in the short term to contribute to National output, are able to share in the benefits of

that output to the same extent of other people’s ability, to ensure that those benefits

is reduced.

2.5 Income Chargeable for Taxation

Section 2 (1) to (4) PITD 1993 defines the categories of individuals chargeable to

tax in their respective state of resident.

In the case of an individual, other than an itinerant worker and persons covered under

paragraph (b) of sub- section (1) of this section, tax for any year of assessment may

be imposed only by the state in which the individual is deemed to be resident for that

year under the provisions of the first schedule of this decree and in the case of

persons referred to in sub-section (1) (b) of the section tax shall be imposed by the

Federal Board of Inland Revenue. In the case of an itinerant worker, tax may be

imposed for any year by any state in which the itinerant worker is found during the

year provided that :in an assessment for any year upon an itinerant worker credit

shall be given against the tax payable, but not exceeding the amount thereof, for any

income tax already paid by him to any other tax authority or the same year and
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collection of so much of any tax imposed in a territory on an itinerant worker for a

year of assessment as remains unpaid on the itinerant worker leaving that territory

during that year shall remain in absence during his absence from that territory, and

if he returns to that territory having during his absence paid tax in some other

territory for that year, credit shall be given against any unpaid tax in the first

mentioned territory, but not exceeding that unpaid amount, for the tax paid in that

other territory.

In the case of a village or other indigenous community, tax may be imposed for any

year by the law of the territory in which that community is to be found and such

taxes may be charged on either the estimated total income of all its members or the

estimated total income of those of its members whose income it is impracticable in

the opinion of the relevant tax authority to assess individually.

In the case of income of a family recognized by any law or customs in Nigeria as

family income in which several interests of individual’s members of the family are

indeterminate or uncertain, tax may be imposed only by the territory in which the

members of that family who customarily receives that income in the first instance in

Nigeria usually resides.

In respect of the cost of any passage to or from Nigeria incurred by the employee

and in respect of the maintenance or education of a child, if the income tax law of

the relevant tax authority provides that any sums received by the employee during a
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year of assessment shall be deducted from the personal relief to be grated to him for

the next following year, any compensation for loss of employments so much of any

amount of rent or allowance, the employee is treated as being in receipt equal to the

annual amount deemed to be incurred by the employee under section 4 of this decree,

so much of the amount of rent allowance paid by employee to or an account for the

employee not the exceeding in amount the rate prescribes under sub-section and the

amount not exceeding N2,436 per annum paid to an employee in respect of motor

vehicle allowance.

For the purpose of this section, “allowance” include any sum paid or payable in

respect of expenses and any sum by an employer at the disposal of an employer and

payed away by the employee. “income” includes any amount deemed to be income

under this act, and the gains or profit arising from any other person for the use or

occupation of property under any assessment thereof being rent paid or expressed to

be paid in advance shall be deemed to accrue to the recipient from day to day over

the period for which such rent has been paid. It follows, therefore that provided

where said period exceeds five years, the whole amount of the rent so paid or

expressed to be paid in advance shall be treated as accruing evenly from day to day

over five years commencing on the first day of that said period, employment includes

any services rendered by any persons in return for any gains or profits .
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In this section, “dividend” means in relation to a company not being in the process

of wounding, or liquidated, any profit distributed whether such profits are of a capital

nature or not including an amount equal to the nominal value of bonus, shares,

debentures or securities to the shareholders.

2.6 Taxes Effects on Production and Distrbution

The best system is that which has the best or the least economic effects. Tax

influence on the ability to work, to save and to invest, can affect the volume of

production by combining consumers demand and investment. Person,s ability to

work will be reduced by taxation which reduces its efficiency. This applies to direct

taxes on small incomes and indirect tax on necessaries. Disincentive of high income

taxes may reduce the volume of production thereby increasing the inflationary

pressures. Inflation may be the result of excessive pressure of demand upon

resources to satisfy consumers needs and also resources for investment.

Action may be necessary to restrain the rate of investment, example making inflation

resources less favourables on indirect tax upon investment or restricting all sources

of credit. However,variations in the sructure and amount of taxation may have

powerful anti-inflationary effects. It is unlikely, atleast in the short run, to be of much

value in stimulating the level of effective demand. A reduction in the standard rate

of income tax may not produce immediate increase in spending, particularly where

only relatively few tax payers earn much income upon which tax is levied at this
 27

rate. Similarly, reduction in direct taxes on goods with inelastic demand would not

produce more spending. The case might be different with goods with elastic demand

example motor cars, if the proceeds of taxation are well spent, the stimulus to

production due to this expenditure may be far stronger than the check to production

due to taxation.

On the other hand, a reduction of income tax rate serves to raise the level of national

income. Tax reduction leads to an increase in peoples disposal income and to

increase in initial consumption spending. This tax- cut may involve large budget

deficit but it also involve an expansion of the private sector of an economic system.

Both the United State of America (USA) and Japan used this tax-cut mechanism

repeatedly to increase their employement and income levels, a remarkable example

of modern physical policy at work.

The ideal distribution is that which causes a given amount of production to yield

maximum of economic welfare. This is distributed according to needs or according

to capacity to make use of income. Taxes on commodities of wide consumption are

generally regressive since the larger the person’s income, the smaller the proportion

of its spending on any one of such commodity. But taxes on luxuries are essentially

progressive as between rich and poor.

 28

2.7 Tax Effects on Consumption and Savings

In a two economy, it is said that consumption plus savings is equal to national

income. It therefore becomes imperative to discuss the tax effects on them. From the

response of the questionnaire distributed by the project writer, civil servant argued

that since tax is deducted from their salary, that the immediate impact is not delt and

therefore does not in any way affect their rate of consumption and savings since they

depend on their net salry as their real income. Although they agreed that reduction

of tax will mean more disposable income available which will lead to an increase in

the rate of consumption and savings, resulting in a progressive economy, while an

increase in tax will mean less disposable income which will lead to a decrease in the

rate of consumption and savings, resulting in a depressed economy.

On the other hand, responses from the privat sector and self employed indivduals

shows a negative effect since they argued that they are being over taxed owing to

the present economic situation in the country. We have more causes of tax avoidance

from the private sector due to false declaration of their business incomes and non-

location of those tax-payer, as a result of unnumbered street in most of the urban and

rural areas of the state. a greater percentage of the private sector responses from the

questionnaire agreed that tax affects their rate of consumption and savings which

will mean a positive economy while an increase of tax will lead to a further decrease

of their rateof consumption and savings thereby resulting in a negative economy.

 29

Tax Effects on Investments and Efficiency

Moreover, it is also agreed that in a two sectoe economy, national income is made

up of consumption and investment, and that investment is equal to savings, that is

C+S =C+I. Therefore, savings = investments.

Civil servant favoured the argument that tax does not in any way effect their

investment and efficiency in their places of work, Since tax is not felt by them. But

they agreed that a reduction in tax in tax may increase their investment opportunities

and efficency since it will mean disposal income while an increase in tax may

decrease their investment opportunities resulting from less disposal incme.

On the other hand, questionnaire responses from private sector and self employed

indivduals argued that tax affects their business profits and are uncertain due to the

present economic situation. They suggested that tax incentives should be introduced

to benefit their business, at this point, the project writer referred them to the existence

industrial development (income tax relief Act of 1971), which they claimed ignorant

of. This is connected with the high rate of illiteracy among the privat sector and self

employed indivduals. They however supported the idea of reduction of tax since this

will increase their investment opportunities and efficiency and create more

employement opportunities for the school leavers, hence, more revenue to the

government in form of more income taxes from the employed citizens while an

increase in tax will mean a further decrease in their investment opportunities and
 30

efficiency, thereby worsening the economy, hence a further loss of revenue to the

government since most of them might be forced to close down.

2.8 Tax Evasion and Avoidance

Tas evation is illegal and involves the evasion of tax liability to tax, for instance,

failing to declare a taxable income or claiming a relief to which there is no

entitlenment.

Tax avidance involves arranging one’s affairs so that liability to tax is avoided or

reduced. Tax avoidance assumed that there is more than one way to achieve one’s

objectives, but that, one method gives rise to a smaller tax liablilty, the tax payer

adopts this one method.

All taxes must be imposed under the authority of parliamentand therefore to be found

in status. The issue of taxation evolves very many responses from different

individuals. Even in America where it has been accepted that only two things are

certain which includes death and taxes, reaction to taxation varies.

Therefore, when president Renald Reegan, first introduce the idea of a

comprehensive review of the American tax sytem, objectives were clear inspite of

the overwhelming unanimity that the old system was unwidely tedious and almost

unwokable. Those who wanted to preserve the status-quo were sure that such a

review never the see the light of the day. The house of representatives which was

under the control of the democratic would never approve the measure even if the
 31

senate did. To the consternation of all both house of the united state congress

approved the presidenttax plan.

 32

CHAPTER THREE

RESEARCH DESIGN AND METHODODLOGY

3.1 Research Instrument

The project work is carried out using the following instruments which includes:

Secondary data

Questionnaire

Interview method

3.2 Survevey Instrument

The study is primaryily based on secondary data from seminar papers, journals,

newspapers and pamphlet of Enugu State Board of internal Revenue.

In questionnaire approach, the questions were designed to cover the statement of

problems and its sub-problems in a situable way and to find answers/solutions to

these problems.

The project writer also used the interview method particularly in the relevant

industries, ministries, parastatals and some local government offices in Enugu state.

the interview was conducted to substantial facts that have been gathered from

questionnaire approach.

The survey method used in this study is to help the project writer to know the

reactions of the tax tax-payer especially business men and women, workers or

employees in both public and private sector of the economy and this has also
 33

contributed to his own suggestions and recommendations on this project topic, that

is taxation and its effect on Nigerian Economy,” a case study of Enugu State.

3.3 Sources of Data

The sources of data or information used by the project writer were as follows:

Library

Journal (Accountancy)

Text boobs on taxation

Newspapers

Lecturer’s material and advice

Organisation

In using the library, the writer found all relevant materials on this study and then

studied the Nigerian Accountancy Journal of institute of Chartered Accountants of

Nigeria (ICAN) publication which treated this topic in detail with current

information.

Thus references were made to some textbooks such as the Nigerian taxation by

C.S.Ola, Taxation laws and Acounts I and II by Ikechukwu .I. Okpe, Taxation and

tax management in Nigeria by O sita Agudu.

The writer also consulted organizations such as some business premises the Board

of Inland Revenue, and Enugu State Ministry of Finance and Economic Planning.
 34

The project writer solicited for the ideas on this topic “Taxation and its effects on

the Nigerian Economy, a case study of Enugu state tax system and Economy” and

therefore she used the contributions of tax experts in Accountancy department and

other allied department before arriving at its conclusion.

3.4 Population of The Study

The population of the tax system for the research is made up of 180 employees and

management staff. The population of the study is compose and selected from various

sectors and presented below.

Distribution and Population of the Sectors

Sectors No of staff Percentage(%)

Public sector 120 66.7

Private sector 40 22.2

Self employed individual 20 11.1

Total 180 100%

 35

3.5 Sample Methods

The obscurity of carrying that research with the whole population is obvious,

therefore it is imperative to choose or select an adquate sample out of the lot that

will give an appreciable representation of the entire population to avoid obtaining a

biased information to achieve this, the researcher conducted a survey in order to

determine the sample size adequate for the exercise. The outcome of the exercise

using the formular originated by an author whose name is TARO YAMENES.

𝑵
𝒏=
𝟏 + 𝑵𝒆𝟐

Where n = the sample size

N = the population size
e = level of significance (5% or 0.05)
180
mple size = = 147
1 + 180 x 0.052

Thus, out of the populationof 180 staffs of the above sectors, 147 of them were used

as sample for the study.

3.6 Statiistical Treatment

In the computation of the relevant statistics, the writer made used of the followings:

Test of hypothesis

Data analysis

Percentages.
 36

The hypothesis is being tested and restated in a “Null form H0. A null hypothesis is

therefore a statement of no difference between two variables, example, H0-H1 or

variable 1 = variable 2.

A test performed in order to verify whether a hypothesis is true or false is called a

test of hypothesis, the result obtained from the sample (in form of calculated sample

quantities) is inconsistent with the hypothesis being tested, she therefore rejects the

hypothesis. A statistical hypotheis is formulated for the purpose of rejecting this.

Furthermore, when hypothesis is being tested and rejected, it is called a null

hypothesis and is denoted by Ho, while when there is willingness to accept

hypothesis or reject the null hypothesis, it is called the alternative hypothesis and it

is denoted by Hi .

Hi; p = po

Hi; p = po( a two-tailed test and non-directional)

Ho; p ≤ po ( a one tailed test to the left).

The Levels of Significance:

Here, the level of significance of a test is the probability of committing the type one

error, that is, the probability of rejecting the Ho. In fact, it should be accepted.type

two error has been commited, if she accepts the null hypothesis Ho. Then it is false.

Thus, in testing the hypothesis, the most frequently used level of significance are

95% or 0.05 that is 5% level of significance. Assuming a test is performed at 95%

 37

level of significance, it means that there are 95% chances in a hundred that a true

null hypothesis would be rejected and it is said to be significant if the null hypothesis

is rejected at 95% level.

Supposing that another test is performed at 5% level of significance, it means that

there is only five chance in a hundred that a null hypothesis would be rejected and a

test is said to be signifcant if the null hypothesis is rejected at 5% level.

3.7 Data Analysis

The analysis of data involves more of statistical tools in the presentation of

information. Simple percentages were used in qualifying the chart and relationship

one datum to another.

Other relevant formulae are applied such as Yaro yamenes and soon to determine

the sample size and distribution at the chosen sample for the entire population in the

study.

Chi-square test of independence was used to test the formulated hypotheses in the

research. The chi-square formular is given as follows:

2
(𝑜 − 𝑒)2
𝑥 =∑
𝑒

Where X2 = Chi-square
∑ = summations
o = observed frequency
e = expected frequency
 38

CHAPTER FOUR

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA.

4.1 Data Presentation, Analysis and Interpretation

In this chapter, all the data collected from the questionnaires are presented, analyzed

and interpreted. The presentation and analysis were done in tabular form so as to

facilitate a complete coverage of response.

Meanwhile the questionnaires were distributed and returned in the order shown in

table 1 below:

Table 4.1.1

The Distribution and Return of Questionnaires

Sectors No of respondents Percentages (%)

Public sector 92 62.6

Private sector 36 24.5

Self employed individual 19 12.9

Total 147 100

Table 4.1.1 shows that all the 147 questionnaires disributed were returned, this fiqure

represent 100% of the administered questionnaires. Out of the 147 respondents, 92

or 62.6% were from public sector, 36 or 24.5% were from private sector, and 16 or

12.9% are from self employed individual.

 39

Analysis of Response

Question 1: How do you earn your living, what is your area of specialization?

The responses of those interviewed to the above question are as shown in the table

below:

Table 4.1.2

Suggested Option No of respondent Percentage (%)

Private sector 49 33.3

Public servant 58 39.5

Self employed individual 40 27.2

Total 147 100

Based on the above data, it was found that 39.5% (58) questionnaires earn their

living through the public servant, while private sectors show 33.3% of the

respondent and self employed individual were found to be 27.2%.

 40

Question 3: Do you consider taxation necessary?

Table 4.1.3

Option No of respondent Percentage (%)

Yes 100 68

No 47 32

Total 147 100

From table 4.1.3 above, it is clear that only 68% of the respondents consider taxation

necessary, while 32% disagreed.

Question 4: Do you pay taxes regularly?

Table 4.1.4

Option No of respondent Percentage (%)

Yes 80 54

No 67 46

Total 147 100

From the responses, it is believed that 54% pay their taxes regularly while 46% do

not comply.
 41

Question 5: Do the taxes you pay affect your efficiency in your business as a

profession?

Table 4.1.5

Option No of respondent Percentage (%)

Yes 97 66

No 50 34

Total 147 100

It was found from the above data that 66% of the respondent agreed that taxes affect

their efficiency in business, while 34% respond negatively.

Question 6: Do the taxes you pay affect your investment in any way?

Table 4.1.6

Option No of respondent Percentage (%)

Yes 60 41

No 87 59

Total 147 100

The above responses showed that 41% of the respondent agreed that taxes do not

affect their investment, while 59% respondent strongly disagreed with the questions.
 42

Question 7: Do the taxes you pay affect your productivity in your place of work?

Table 4.1.7

Option No of respondent Percentage (%)

Yes 92 63

No 55 37

Total 147 100

From the above data, it was shown that 63% of the respondent agreed that taxes they

pay affect their productivity, while 37% showed negative responses.

Question 8: Do the taxes you pay affect your savings and standard of living?

Table 4.1.8

Option No of respondent Percentage (%)

Yes 74 50

No 73 50

Total 147 100

From the above data, it is believed that 50% of the respondent agreed that taxes they

pay affect their savings and standard of living while 50% disagreed with the motion.
 43

Question 9: How do you pay taxes? (Deduction from salary)

Table 4.1.9

Option No of respondent Percentage (%)

Public sector 85 57.8

Private sector 60 40.8

Self employed 2 1.4

Total 147 100

From the above data, it is shown that private sector that private sector respond with

40.8% while public servant pay their taxes through deduction from salary by

responding with 57.8%, while self employed pay their taxes through deduction from

salary by responding with 1.4%.

Question 10: Do the taxes you pay affect you in any way as stated in question 5-8

above?

Comment:

The public servant shows a positive responds by stating that since tax is deducted

from their salary, the immediate impact is not felt and therefore does not affect their

rate of consumption and savings, since they depend on their net salary as their real

income.

On the other hand, the private sector and self employed individuals show a negative

effect since they agreed that they are being over taxed owing to the present economic
 44

situation in the country. They also agreed that taxes affect their rate of consumption

and savings as well.

Question 11: How many times have you made a false declaration of your income?

Table 4.1.11

Option No of respondent Percentage (%)

Private sector 95 64.6

Self employed 52 35.4

Civil servants Nil -

Total 147 100

From the above data, it was found that none of private sector about 64.6% of them

while about 35.4% of the self employed are involved in the false declaration of their

business income but civil servants have no response because their taxes are deducted

from their salary.

Question 12: How many times have you petitioned the state board of internal revenue

on the objections and appeals as regard your notice of assessment?

Comment: Nil

Questionnaire number 16 -31 is for only the employees of the state board of internal

revenue that is, from question 13-26

Question 13: Is the collection of taxes in Enugu state done as and when due?
 45

Table 4.1.13

Option No of respondent Percentage (%)

Yes 78 53.1

No 69 46.9

Total 147 100

It was shown that from the above data 46.9% of respondents do not agree due to tax

evasion and avoidance in the state.

Question 14: If the collection of taxes in Enugu state is not done as when due, why?

Comment:

It is as a result of non –location of the tax payers and un-numbered streets in most

of the urban and rural areas of the state. In addition, it is due to tax avoidance by the

private sector and tax evasion.

Question 15: Have you participated in the collection of taxes from individuals?

Table 4.1.15

Option No of respondent Percentage (%)

Yes 90 61.2

No 57 38.8

Total 147 100

From the above question on whether they have been collecting taxes from

individuals, the responses as the table has shown reveals that 61.2% of the
 46

respondents are actually participating in the collection of taxes while only 38.8% of

people said “No” even though they are staffs of the board of internal revenue, Enugu.

Question 16: Do you think that money collected by the tax collectors is to the amount

expected of them?

Table 4.1.16

Option No of respondent Percentage (%)

Yes 72 49

No 75 51

Total 147 100

Following the above data, it is clear that only 49% of the respondents agreed that tax

collected by the tax collectors are up to the amount expected from them while 51%

said that they were not collecting up to the expected amount.

Question 17: Do you think that all collected funds are properly accounted for?

Table 4.1.17

Option No of respondent Percentage (%)

Yes 47 31.97

No 100 68.03

Total 147 100

From the responses, it is believed that 31.97% of the workers agreed that the funds

collected are properly accounted for, while 68.03% of the workers strongly agreed
 47

that the amount are not properly accounted for. Though they are the workers of the

board of internal revenue, nothing prevented them from telling the truth.

Question 18: Do you think that taxes you pay contribute to the amenities provided

by the government?

Table 4.1.18

Option No of respondent Percentage (%)

Yes 74 50

No 73 50

Total 147 100

From the above data, half of the workers that is, 50% agreed that the tax they pay

contribute to the social amenities supplied by the government, while half of them

that is, 50% disagreed.

Question 19: Do you think that deficiencies contribute to fraud and dishonesty in the

tax assessment and collection?

 48

Table 4.1.19

Suggested option No of respondent Percentage (%)

Societal norms 47 32

Government 50 34

Disinterestedness

Embezzlement on the 50 34

part of the tax collectors

Total 147 100

The above responses shows that 32% of the people responded that societal norms

contributed to the deficiencies and dishonesty in tax assessment and collection.

 49

Question 20: Apart from the tax evasion, what do you consider the greatest hindrance

to improve revenue collection by the Board of Internal Revenu?

Table 4.1.20

Option No of respondent Percentage (%)

Harsh laws 20 13.6

Dishonesty 15 10.2

Illiteracy 35 23.8

Government 12 8.2

incompetence

Poor collection 65 44.2

Machinery

Total 147 100

About 13.6% of the respondents agree that harsh laws contributed immensely to the

hindrances of revenue collection by the Board of Internal Revenue, while 8.2%

suggested that it is due to the government incompetence that contributed to the

hindrances of revenue collection. About 10.2% were of the view that it was illiteracy

on the part of the collectors that hinders revenue collection by the board while 44.2%
 50

of the respondents are of the opinion that it is poor collection machinery contributes

to the hinrances of the revenue collected by the board.

Question 21: Who are those involved in the acts of dishonesty?

Table 4.1.21

Options No of respondent Percentage (%)

The tax collectors 55 37.4

The tax payers 81 55.1

The government 11 7.5

Total 147 100

From the table above, 37.4% are of the view that the tax collectors are involved in

the acts of dishonesty while 55.1% of the repondent answered that the tax payers are

those involved in tha act of dishonesty. It is only 7.5% of the repondents who agreed

that the government contributes to the act of dishonesty in accounting for the money

collected.
 51

Question 22: when a tax payer is over taxed, how is he/she be treated?

4.1.22

Suggested option No of respondent Percentage (%)

The excess amount is 51 34.7

refunded

The excess amount is 90 61.2

deducted from his future

tax liability.

Nothing is done 6 4.1

Total 147 100

From the table, 34.7% of the respondent agreed that the excess amount in any case

of over payments is refunded, while 61.2% of the respondent agreed that excess

amount of the tax is deducted from the future tax liability. It is only 4.1% of the

respondent agreed strongly that nothing is done even when they are aware of the

excess tax.
 52

Question 23: if a tax defaulter is caught, how is he/she treated?

Table 4.1.23

Suggested options No of respondent Percentage (%)

Charge him to court 90 61.2

Make him pay double the 37 25.2

amount.

Penalise him 20 13.6

immediately

Total 147 100

It is observed from the above data that 61.2% of the respondent were of the view

that when a tax defaulter is caught, he will be charged to court, while 25.2% agreed

that if a tax defaulter is caught, he is made to pay double the amount involved rather

than going to court. Only 13.6% of the respondent suggested that ordinary

purnishment will be given to the defaulter immediately he is caught.

 53

Question 24: how are you educating the public on the importance of taxation?

Table 4.1.24

Suggested options No of respondent Percentage (%)

Organise a public lecture 74 50

Advertise the necessity 73 50

for tax payment

Total 147 100

It is only half of the respondent who suggested that a better way of educating the

piblic about the importance of taxation is by organising a public services lecture.

While the remaining half (50%) of the respondent agreed strongly that the Board of

Inland Revenue should advertise the necessity for the payment which is a very good

means of educating the public about the importance of taxation.

 54

Question 25: what are the factors that contributes to fraud and dishonesty in tax

adminstration?

Table 4.1.25

Suggested options No of Percentage (%)

respondent

Lack of proper supervision by the tax 25 17.01

authorities.

Collaborating with the tax payers by 10 6.80

providing tax receipts even when they

did not pay.

Lack of admnistrative machinery 85 57.82

Awarding scholarship or promotion to 27 18.37

an efficient worker,

Total 147 100

From the above responses, it is clear that 25 respondents out of 147 suggested that

one of the factors which contributes to the fraud and dishonesty in tax administration

is lack of proper supervision by the top executives, making this 17.01% of the

respondents.
 55

It is only 6.80% of the respondents are of the opinion that the internal revenue staff

do connive with the tax payers to cause fraud by issuing them with tax clearance

certificate even when they do not pay tax.

About 57.82% of the respondent agreed that lack of administration, while 18.37%

of the workers suggested that it is due to the fact that there is no compensation for

an efficient staff either by promotion or by award of scholarship to the best tax

collectors of the year. This may be true because it can motivate the workers to put

more effort in collecting more taxes and properly accounting for taxes collected.

Question 26: what problems do you encounter in meeting your tax obligations?

Comments: the problems encountered by tax officials includes:

-lack of facilities example, vehicles, computer systems.

-lack of good roads to the rural areas.

-lack of trained officers

-lack of good respondent from the tax payers and

-lack of workers.

Question 27: in your own opinion which other forms of taxes will you recommend

for Enugu State Government?

Comments: the recommendation includes:

-impose taxes on undeveloped land.

-tax on roads and ratio.

 56

-any other forms of taxes that is found necessary and in line with the four cannons

of taxation of Adam Smith.

 57

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION.

5.1 Summary of Findings

In summary of this work, taxation and its effect in the Nigeria economy, there should

be adaptation of tax systems to the needs of the country and there should be need to

adapt this systems and policies to the stages of economic development and the

existing institutional setting of the country. How extent should taxation be carried

and how great use should be made of particular taxes can only be decided by

consideration of the maximum social advantage to be derived.

The following are some of the findings.

1. Based on hypothesis, deficiencies contribute to fraud and dishonesty in tax

assessment and collection.

2. Some well known businessmen with lots of properties dodge being adeguately

assessed through refusing to consult accountant to audit their books, some of them

convert their private property to business property, theirby saying that their property

has been transfered to their limited liability companies, whereas they are still earning

the income from such property.

3. The owners of the property refuse to disclose their ownership, some of them

recruit tenants into their house without completing the certificate of occupancy
 58

requirement, resulting to the tax authorities not knowing when the house are

completed.

4. The business executives who incorporate their companies do so to avoid paying

tax to the Board Inland Revenue. They tag their salaries to a very small amount

which is not really the income they consume having regards to their lifestyle.

5. Some people who are involved in tax evasion and avidance points some fake

identify cards as a civil servant so that when the tax collectors come in contact with

them, they will believe that their tax have been deducted from their salary.

6. Some of the tax agents appointed may hide their relatives and prevent them from

paying the adequate tax during revision of the norminal roll.

7. There is the need to adopt the tax system and policies to the stages of economic

development and the existing institutional setting of the country.

8. There isno limit to increase of taxation in general provided that the loss from

such an increase is not greater than the gain from the corresponding increase of

public expenditure.

9. It is discovered that the problems encountered by the tax officials in meeting

their tax obligation are lack of facilities, insufficient trained officers, lack of good

roads to the rural areas, and lack of good respondent from the tax payer.
 59

5.2 Conclusion

Tax has been defined simply as a compulsory contribution to the public authority to

meet the expense of government and the provision of general benefits of the citizens

of the country. Therefore, it must be distinquished from other fees, which is payment

for a specific service. This is unavoidable and must be paid since it is imposed by

the state on her citizens.

Thus, having conducted a thorough research on taxation and its effects on the

Nigerian Economy with a particular reference to the Board of Inland Revenue Enugu

State, the researcher has to draw a conclusion of the findings.

The researcher found out that it has both negative and positive effect which has been

fully discussed in chapter two. To this end, the project writer made a number of

recommendations to rectify the situation, if fully implemented.

Conclusively, the labour and benefits of this research will only yield fruit. If there is

a means of alerting the government of Enugu State to upheld the Adams Smith

Cannons of taxation at all times and subsequent realisation of an improved tax

assessment, introducing suggested tax laws, collection and accounting system, if the

taxation in Enugu State tax system in particular and Nigeria must survive the test of

time.
 60

5.3 Recommendation

Since we have examined the effects and problems of taxation in chapter two, the

researcher of this work wish to recommend the following points which he feels will

help in the development of the Nigerian taxation system and its economy in order to

reflect to the increase in standard of living and economic development.

a) Government should consolidate on the existing tax laws, review and up-date them

to reflect the present circumstances to arrest the rapid tax evasion and aviodance in

the country, just like the current review of the 1996 tax law. In addition Enugu State

tax system should include road and radio tax. Thus the state government should

promulgate traffic and entertainment tax laws,” if not yet in existence to take care of

roads and vehicle radio taxes. This will help the government to recover more revenue

from those who evade tax especially the wealthy class of indivduals.

b) Government should introduce “undeveloped land tax in accordance with the

land use decree of 1978 which empowers all the state government to hold intrust all

land in that state. with this view any undeveloped land in the urban area is to be

taxed, this will encourage the owners (s) to develop them thereby increasing

investment opportunities for the citizen of the country and as well improve the

standard of living and economic development.

 61

c) Operation show your tax clearance certificate should be introduced by the

government and carried about whole travelling on the public roads, in hospitals both

private and public.

d) Government should allocate more money to the Board of Internal Revenue for

training of their officers and recruit more workers and tax agents and set up at least

one tax office in all the communites in Enugu State, since the sucessor failure of any

tax law in Enugu State depends on them. The Board of Inland Revenue should set

up special task force on tax collection in all the local governments of Enugu State to

check tax avoidance and tax evasion in the state.

e) The tax executives should allocate their agents to a place where they have no

relative or allocate three agents from different places at the same time so that

sufficient tax should be collected.

f) Government should re-examine the four cannons of taxation of Adam Smith

which includes equality, convenience, certainty and economy, to ensure its

conformity in Enugu State tax system.

g) Government should organise seminars aimed at educating the public on

importance of paying taxes and as well provide adequate social amenities such as

good roads, hospitals, pipe born water, electricity etc and bring it to the notice of the

public, so that they should see the need of paying taxes and realise that without these

taxes all this infrastructure cannot be provided.

 62

h) Government should above all justifies all these taxes by increasing their

expenditure to benefit the masses also ensures that the current directorate of food,

roads and rural infrastructure popularly known as DFRRI is intensified in every part

of Enugu State. This will reflect the three sector model economy of consumption,

investment and government expenditure.

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