Causes and Effects of Tax Evasion and Avoidance on the Economy

Description

– Causes and Effects of Tax Evasion and Avoidance on the Economy –

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Abstract

This study was on the causes and effect of Tax Evasion and Avoidance on the economy (Board of Internal Revenue in Abia State). The major objective of the study is to identify the causes and effect of Tax Evasion and Avoidance in the state and how it is done.

It also the aim of the study to suggest ways of at least minimizing this ugly incidence in the state, and the study sought the opinions of the staff (Senior and Junior) of the organization.

The population size of the research work is 120 which includes the senior official and some staff of inland revenue department of ministry of finance make up the sample frame. The sources of this data was both primary and secondary source which includes interview, questionnaire, textbook, internet search, newspaper etc.

The researcher uses simple percentage method in analyzing the data and the major findings is that the imposition of high tax rate will drastically reduce the level of income and profit on the part of the tax payer.

From the findings, the researcher, therefore recommends that government should find a way of checking and balancing tax payments so as not to discourage tax payment on the part of the payers.

Introduction

1.1 Background of the Study

Tax is one of the main source of Government Revenue. It is a strong social and economic tool of the government in regulating the economy and maintaining health social like of the citizens. Tax can be defined as a compulsory payment by individual and companies to the state to enable her attain the National goals objectives.

Tax is a non-punitive but compulsory levy by the Government on properties and income of individuals and corporations within the territory. The money raise there of constitutes part of source of finance for general government expenditure in the economy.

According to Aguei (1983:276) tax is the transfer of resources from the private to the public sector in order to accomplish some of the Nation’s Economic and Social Goals.

It is levy imposed by the government on the income profit or wealth of an individual, partnership and corporate organization.

Tax is therefore the system whereby individual are assessed and the final collection of the money for and on behalf of the government. It is a machinery through which Income Earner is obliged to pay a fraction of his income to the government.

There are various type of Taxation which could be classed under two main headings: direct and indirect tax. These two types of tax may be distinguished in terms of the possibility of shifting the tax burden. However, taxes according to Economist is classified whether the tax is proportional, progressive or regressive.

The importance of taxation in Nigeria arises out of the important roles, which the government in the light of numerous imperfections and short coming that often beset the economy has to play in order to ensure greater economic development, transformation and growth.

Other objective of taxation include influencing economic activities in the country, to bridge the gap between the rich and the poor, to curtail consumption of undesirable and harmful goods and services to combat inflation, to encourage investment to protect infant industries and as well as correct the country’s balance of payment.

However, this phenomenon is not restricted to any part of the world. In New Zealand, the loss of revenue resulting from tax evasion and avoidance is a problem that has been described as “Reaching epidemic proportions”.

The unfortunate aspect of this phenomenon is that the rate of this happening in the developing countries is always higher than what is obtained in developed countries.

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