1.1 Introduction
Tax fraud entails cheating on a tax return in an attempt to avoid paying the entire tax obligation. Tax fraud includes, claiming false deductions; claiming personal expenses as business expenses; and not reporting income. Also, tax fraud occur when an individual or corporate organization willingly and intentionally falsifies information on a tax return in order to reduce the amount of tax liability (Okoye and Akamobi, 2009 and Gbegi and Adebisi, 2014). Tax revenue utilization is a basis for supporting developmental activities in less developed economies. That is why different countries in the world today have different fiscal policies that enable them to explore various types of taxation and impose them on their citizens for the purpose of enhancing revenue generation so that to consolidate their economy (Worlu & Emeka, 2012).
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
Taxation is not a new word in Nigeria or the world as a whole. In Nigeria, taxation has been in existence even before the coming of the colonial men or the British. Taxation can be defined as the system of imposing a compulsory levy on all income, goods, services and properties of individuals, partnership, trustees, executorships and companies by the government (Samuel and Simon, 2011; Yunusa, 2003). Taxation is recognized as a very important tool for national development and growth in most societies. It has viewed as a major vehicle for long term development of infrastructures of the state. With the growth and increasing globalization of businesses (including the increased mobility of capital and rise of e-commerce), the opportunities for taxpayers to violate tax laws are expanding, prompting the need for the tax administration to continually update and broaden the strategies it uses to deal with this problem.
Tax fraud occurs when an individual or business entity willfully and intentionally falsifies information on a tax return in order to limit the amount of tax liability. Tax fraud essentially entails cheating on a tax return in an attempt to avoid paying the entire tax obligation. Most developed countries are characterized by a broad base for direct and indirect taxes with tax liability covering the vast majority of citizens and firms. Developing countries, in contrast, are confronted with social, political and administrative difficulties in establishing a sound public finance system. As a consequence, developing and emerging countries are particularly vulnerable to tax fraud activities of individual taxpayers and corporations. This can be considered one of the primary reasons for large differences in the ability to mobilize own resources between developed and developing countries.
Detecting and preventing tax fraud and making sure that it cannot be repeated is not solely the responsibility of tax authority and tax officials. Without the cooperation of general public working in high risk areas, it is very difficult to detect illegal tax malpractice and illegitimate personal gain. Therefore, it is up to all levels of hierarchy in public institutions to create an environment of transparency, ethical conduct and accountability in order to ensure proper handling of the very important issues of prevention, detection and handling of tax fraud cases in among the general taxpayer.
Tax fraud is a general phenomenon that is probably as old as taxation itself. Wherever and whenever authorities decide to levy taxes, individuals and firms try to avoid paying them. Though this problem has always been present, it becomes more pressing in the course of globalization as this process extends the range of opportunities to circumvent taxation while simultaneously reducing the risk of being detected.
The doctrine describes tax fraud as a form of deliberate evasion of tax which is generally punishable by law. The term tax fraud includes situations in which deliberately false statements are submitted, fake documents are produced, etc. Sanctions may include civil or criminal penalties. The revenue generated by the government from taxation forms a major source of finance to the federal government capital expenditure which is crucial to sustainable economic development. A major challenge to the government in generating this revenue has been the increasing rate of tax fraud offences committed by both tax payers and tax officials.
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the role of tax authority in the detection and prevention of tax fraud.
1.3 Statement of Problems
Investigation revealed that tax fraud and other tax offences perpetrated by tax payer heavily harm the economy, lower investment levels and reduce government revenue generation. Anti-tax fraud and tax authority strategies are often not effective enough. Damages done to economy and their budgets as a result of tax fraud can be enormous ranging from financial loss to reduction of economy performance, reputation, credibility and public confidence.
Tax systems in many developing countries are characterized by tax structures being not in line with international standards, by lack of tax policy management, low compliance levels and inappropriate capacities in tax administration. The difference in revenue mobilization also stems from economic conditions (size of the informal sector).
In fact, most developing countries show a trend towards the prevalence of indirect taxation. Many of them rely to a great extent on indirect taxes such as value-added taxes (VAT) with indirect taxes amounting for up to two-thirds of total tax revenues, yet it is not new that, the negative menace of tax fraud deprives governments of revenues needed for public spending Forces honest taxpayers to pick up the tab Erodes community confidence in the equity of the revenue system.
The tax administration system does not clearly states the strategy that is being used to apportion taxes or levies or charges to some key business enterprise like electronic shops, saloon, hawkers, petty shops, barbing saloon, recharge card resellers, cosmetics shops, super markets etc. Random amount is being collected as taxes/levies from these business enterprises, which might be below or over charged taxes; and most times the levies/taxes might not be remitted to the state Government or if remitted, a reasonable amount would have been diverted by the officers in charge of the collection. This situation occurs because there is no proper structure on ground to determine the exact monies and the number of petty shops or saloons in a given location, to enable the State Government to ascertain the actual figures, in terms of Naira and Kobo that is generated from most small scale businesses majority of who are individual taxpayers.
Finally, the current method of collecting taxes/levies from tax payers lack proper organization and prone to obvious fraudulent activities, thereby resulting to loss of funds by the State Government. This however, leads to the inability of the Government meeting the basic projects requirements like rehabilitation of roads, building/ renovation of hospitals, schools and so on.
1.4 Aim and Objectives of Study
The aim of the study is to assess the role of tax authority in the detection and prevention of tax fraud in Nigeria. In achieving this aim, the following specific objectives were laid out as follows to:
- Identify the concept of taxation and tax fraud offences under Nigeria tax system;
- Identify legal and administrative measures used to address tax frauds;
- Evaluate the techniques/modes adopted by the taxpayers in committing tax fraud;
- Examine the impact of tax fraud offence on the revenue of the Government in particular and the economy of the country, as a whole;
- Identify weaknesses in addressing tax fraud by tax authority; and
- Recommend mechanisms that should be used to control and curb tax fraud offences.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Is there any effect of tax fraud offence on the revenue of the Government in particular and the economy of the country, as a whole?
- Are there weaknesses in addressing tax fraud by tax authority?
- What do you understand about taxation and tax fraud offences under Nigeria tax system?
- What are the legal and administrative measures used to address tax frauds?
- What are the various techniques/modes adopted by the taxpayers in committing tax fraud?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: Tax officials plays no significantly role in the reduction/prevention of tax Fraud among taxpayers.
- H1: Tax officials plays a significantly role in the reduction/prevention of tax Fraud among taxpayers.
Hypothesis Two
- H0: Tax fraud has not drastically reduced revenue generation in Nigeria.
- H1: Tax fraud has drastically reduced revenue generation in Nigeria.
1.7 Significance of Study
This relevance of this study would contribute to the existing literature on tax fraud by focusing on reform of tax laws and policy in Nigeria with a view to identifying the critical problems on the collection of tax levy and causes of tax fraud among taxpayers so that appropriate measures could be taken to tackle them.
This study shall also seeks to set out, a concrete analysis of other tax fraud offences such as tax evasion/avoidance perpetrated by individual tax payers and corporations, and it will also consider the ‘dark’ side of professional practice by examining the involvement of tax officials in facilitating tax fraud, tax avoidance, tax evasion and other related tax offences in Nigeria.
Finally this study will be of great significance to government, tax officials, tax authority, small scale entrepreneur, investors, corporate organizations, schools and students who are regular taxpayers, it will serve as a reference point for student who would like to make future research or contribute to the existing literature.
1.8 Scope of Study
The scope of the research is focused on the role of tax authority in the detection and prevention of tax fraud in Nigeria.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Definition of Terms
Tax Evasion: Tax evasion is a deliberate and willful practice of not disclosing full taxable income so as to pay less tax.
Tax Avoidance: Tax avoidance has been defined as the arrangement of tax payers’ affairs using the tax shelters in the tax law, and avoiding tax traps in the tax laws, so as to pay less tax than he or she would otherwise pay.
Tax Fraud: tax fraud occurs when an individual or business entity willfully and intentionally falsifies information on a tax return in order to limit the amount of tax (tariff) liability.
