CHAPTER ONE

HISTORICAL BACKGROUND OF THE STUDY

1.1 INTRODUCTION

The word tax first appeared in the English language only in the 14th

century it is derived from the Latin word taxare which means to

“Assess” before that English used the related word task derived from

old French for a while task and tax were both in common use the first

requiring labour and the second money.

In the Stone Age tax was collected in Nigeria long before the

coming of Europeans; it was collected by the local Chief for the purpose

of administration and defense. Every one was expected to give part of

his or her proceeds from cultivation of land to the state those who were

not cultivating were required to give their human (labour) sources for

public work such as clearing the bush digging the pit latrine wells etc.

for the benefit of the community as a whole. Failure to render such

services usually resulted in loss of property which might be reclaimed

after payment. With the coming of the Europeans taxes were collected

from individuals through local chief in 1964; a legislative council was set

for the whole country which obliged the regional council with a large measure of financial responsibility. After independence state

government were to fine out other sources of generating revenue which

is today known as pay as you earn (PAYE).

Tax is a levy imposed by the federal board of Inland Revenue

(federal government) on the chargeable income generated by

individuals organizations and other corporate bodies for the betterment

of the society as a whole.

Taxation is the act of taxing it is also the amount assessed as a

tax it is revenue raised from taxes. Taxation is the means of progress

through which the government generate revenue for national

development through the contribution by the citizens.

According to Ogundele (1999) taxation is defined as a process or

machinery by which communities or group of persons are made to

contribute in some agreed amount of money for the propose of the

administration and development of the society. It can be inferred that

the payment of tax will in turn be beneficial to the entire community of

they pay their tax properly.

Tax constituted an important source of revenue to the government

of any country both direct and indirect taxes that are collected by the

government inform of income tax excise duty import and export duties

purchase and sales tax and so on help the government to generate a lot of revenue for the smooth administration of a nation. There are two

elements in every form of taxation and that is the base and rate

element. The tax base is the object which is taxed or a measure of the

private sector income or wealth that can be taxed. The tax rate is the

percentage of the measured amount taken from the tax base. As earlier

stated taxation is one of the most important and major source of

government revenue in this case the money realized from is used to

provide social goods and services so that both the rich and the poor will

have equal chance of making use of them through the provision of social

amenities such as good roads electricity pipe borne water hospitals

welfare organization schools and so on.

In spite of these benefits from tax most people still run away from

tax indulging themselves in what is called tax evasion and avoidance.

Attempt to avoid some portion of inability or not to pay tax will affect

the revenue generation of the government and that is the most

condition why government frowns at the issue of tax evasion and uses

its authority to enforce compliance. But in spite of the frown by the

government of Nigeria there have not been adequate and sincere

efforts towards enforcing the tax evaders on the need for them to pay

their tax instead they concentrated on the revenue from oil sector while overlooking the taxes on agriculture which is supposed to yield

revenue to the country as a whole.

Arowomole and Oluwalayode (2006:39) define tax evasion as a

deliberate act on the part of the tax payer to reduce their tax liability

through illegal means or an attempt not to pay tax due. While tax

avoidance is defined as a legal way by which a taxpayer reduces his or

her tax liabilities. Tax evasion is considered as a criminal offence.

1.2 STATEMENT OF THE PROBLEM

The researcher has observed that tax evasion has become

rampant in Akwa Ibom state individuals and firm manover or try to

evade paying tax based on their perceptions of tax.

The researcher has through this investigation observed that most

people formulate their tax in order to underpay tax while some

companies and individuals as well smuggle goods into the country in

order to evade tax payment.

Most people see tax paying as government exploiting them while

some try to bribe government officials in order that they may evade tax

payment. It has been observed to that most people fail to register their

company or goods in order to equally avoid tax payment. This is as a

result of ignorance or an attempt to cheat the government.

Finally it has been observed by the researcher that as tax

payment is one of the ways government generate revenues tax evasion

would only trigger off lack of revenue for development and tax evasion

is detrimental to the government. Hence the decision of the researcher

is to investigate the stated problem the reason why individuals and

firms indulge in tax evasion and to offer suggestion for solving the

problem.

1.3 OBJECTIVES OF THE STUDY

i. To investigate the perception of tax payers to the payment of tax

on ethical reasons.

ii. To identify specific key areas that tax payer link to tax evasion.

iii. To examine the effect of perceived corruption in government on

tax evasion.

iv. To state the seriousness of tax evasion according to the Nigerian

constitution.

1.4 RESEARCH QUESTIONS

i. Is tax evasion ethically justifiable?

ii. What are the reasons for tax evasion?

iii. What is the attitude of tax payer when government is perceived to

be corrupt?

iv. What is the most rampant ethical justification for tax evasion?

1.5 RESEARCH HYPOTHESIS

Because of the above research questions the following hypothesis

was formulated;

i. Tax evasion is not ethically justifiable

Tax evasion is ethically justifiable

ii. There is no reason for tax evasion

There are reasons for tax evasion

iii. There is no rampant ethical justification for tax evasion

There is rampant ethical justification for tax evasion

1.6 SIGNIFICANCE OF THE STUDY

This research work would be referred to various tax authorities

the federal board of Inland Revenue local government revenue

committee as well as their tax officials who are responsible of collecting

tax on individuals or corporate bodies it gives them insight on how to

improve the tax administration. The research would also help the

professional bodies like the chartered institute of taxation of Nigeria and

the institute of chattered accountant of Nigeria as well as the members

to see the areas of deficiency on tax collection and call for improvement in tax revenue. This research would also be relevant to the future

researchers and students of economics business administration

accounting and other social and management sciences as well as the

legislations which will also benefit immensely from this research because

it will form basis of tax policy formation implementation and

administration.

1.7 SCOPE OF THE STUDY

This research is premised on obtaining evidence on the ethics of

tax evasion by obtaining responses from business owners professional

bodies tax officials the federal board of inland revenue organizations

and others in Akwa Ibom state thus the study was restricted to some

selected local governments in Akwa Ibom state.

1.8 DEFINITION OF TERMS

TAX EVASION: An illegal practice where a person organization

or corporation intentionally avoid paying his or her true tax

liability.

TAX ETHICS: It is the rule and regulations governing or guiding

the payment of tax.