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EFFECT OF TAX AUTHORITY IN THE PREVENTION AND DETECTION OF TAX FRAUD IN NIGERIAEFFECT OF TAX AUTHORITY IN THE PREVENTION AND DETECTION OF TAX FRAUD IN NIGERIA

ABSTRACT

The primary goal of this research is to look into the role of the tax authorities in preventing and detecting tax fraud in Nigeria. It mostly focuses on the Ekiti State Tax Authority. Primary and secondary data were used in the project. The administration of 133 questionnaires yielded primary data, and all of the questionnaires were returned. Journals and records were used to gather secondary data. The questionnaire responses were categorized accordingly. Tables of frequency and contingency were created. According to the findings, there is a link between inadequate and inefficient tax management and tax fraud. The study’s significance is that the findings will serve as a valuable guideline for tax administrators, the government, as well as tax payers, financial analysts, and auditors.

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Taxation isn’t a new concept in Nigeria or the rest of the world. Taxation has existed in Nigeria long before the arrival of colonial men or the British. The system of the government levying a compulsory levy on all income, commodities, services, and properties of people, partnerships, trustees, executorships, and corporations is known as taxation (Samuel and Simon, 2011;Yunusa, 2003). One of the most important sources of revenue for all governments is income tax. It is a consideration to consider in the Federal Government’s budget in Nigeria since the taxes collected are returned to the taxpayer in the form of services.

In most civilizations, taxation is acknowledged as a critical tool for national development and prosperity. It is seen as a key vehicle for the state’s long-term infrastructure development.

The options for taxpayers to breach tax rules are developing as businesses grow and globalize (including increased capital mobility and the emergence of e-commerce), necessitating the necessity for the tax administration to constantly update and broaden the techniques it employs to combat this problem.

When an individual or a corporate organization wilfully and purposefully falsifies facts on a tax return in order to reduce their tax liability, this is known as tax fraud. Tax fraud is falsifying information on a tax return in order to avoid paying the full amount due. Claim bogus deductions, claim personal spending as business expenses, and fail to record revenue are all examples of tax fraud.

The vast majority of residents and businesses in most developed countries are subject to direct and indirect taxes, which have a broad base. In contrast, developing countries face social, political, and administrative challenges in constructing a sound public finance system. As a result, developing and emerging countries are more prone to individual taxpayer tax fraud.

This is one of the key causes for substantial variations in the ability of rich and developing countries to mobilize their own resources.

Tax authorities and tax officials are not the only ones responsible for detecting and preventing tax fraud and ensuring that it does not happen again. It is exceedingly difficult to uncover illicit tax malpractice and illegitimate personal gain without the participation of the general people operating in high-risk areas. As a result, it is up to all levels of government to promote an environment of transparency, ethical conduct, and accountability in order to assure proper handling of the critical issues of tax fraud prevention, detection, and resolution among the general population.

Tax fraud, according to the theory, is a type of purposeful tax avoidance that is normally penalized by law. The word ‘tax fraud’ refers to circumstances in which someone purposefully make fraudulent declarations, manufacture bogus documents, and so on. Civil and criminal fines may be imposed.

Finally, government money obtained through taxation is a primary source of funding for federal government capital spending, which is critical for long-term economic growth. The rising rate of tax fraud by both taxpayers and tax officers has posed a significant difficulty for the government in generating this money.

As a result, tax fraud and other associated tax offenses must be taken into account because they have an impact on both the amount and nature of government finances.

STATEMENT OF THE PROBLEM

Tax fraud and other tax offenses committed by taxpayers have a significant negative impact on the economy, lowering investment and reducing government revenue production. Anti-tax evasion and tax authority initiatives are frequently ineffective. Tax fraud can cause enormous harm to the economy and its budgets, ranging from financial loss to a deterioration in the economy’s performance, reputation, credibility, and public confidence.

Many developing countries’ tax systems are characterized by tax structures that do not meet international standards, a lack of tax policy management, low compliance levels, and insufficient tax administration capacity. Economic variables may contribute to the disparity in revenue mobilization (size of the informal sector).

In fact, indirect taxes is becoming more common in most emerging countries. Many of them rely heavily on indirect taxes such as value-added taxes (VAT), which account for up to two-thirds of total tax collections. However, it is not news that tax fraud deprives governments of cash needed for public spending. Taxpayers who are honest are forced to foot the bill. Erodes community trust in the revenue system’s fairness.

Finally, the current method of collecting taxes/levies from taxpayers is inefficient and prone to evident fraud, resulting in a loss of funds for the state government. However, as a result, the government is unable to meet basic project criteria such as rehabilitation. The tax administration system does not clearly identify the strategy for allocating taxes, levies, or charges to key business enterprises such as electronic stores, saloons, hawkers, petty shops, barbing saloons, recharge card resellers, cosmetics shops, and super markets, among others. Random amounts are collected as taxes/levies from these businesses, which may be less than or more than the taxes imposed; and most of the levies/taxes are not remitted to the state government, or if paid, a reasonable proportion is siphoned by the collection officials. This issue exists because there is no suitable framework in place on the ground to establish the exact amount of money and the number of petty shops or saloons in a given location, allowing the State to collect taxes.

OBJECTIVES OF THE STUDY

The primary goal of this study is to evaluate the function of tax officers in preventing and detecting tax fraud in Nigeria.

The research project will place a strong emphasis on a few specific goals, including:

 

Recognize the concepts of taxation and tax fraud in the Nigerian tax system;

 

Determine the legislative and administrative mechanisms in place to combat tax fraud.

 

Examine the methods/techniques used by taxpayers to perpetrate tax fraud. Determine the vulnerabilities in the tax authority’s response to tax fraud.

 

Examine the impact of tax fraud on the government’s revenue in particular and the country’s economy in general.

 

Recommend techniques for controlling and reducing tax fraud offenses.

 RESEARCH QUESTIONS

People discuss taxes, moan about them, and try to avoid them whenever possible. Some people always pay, while others always cheat, and still others cheat when they think they can get away with it. Businesses respond to taxes in two ways: how they structure their activities and, maybe, where they are carried out.

The goal of this study is to uncover probable answers to the following questions:

What is the Nigerian tax system’s idea of taxation and tax fraud offenses?

What legislative and administrative procedures are in place in Nigeria to combat tax fraud?

Are there any flaws in the tax authority’s response to tax fraud in Ibadan?

Is there any impact of tax evasion on the government’s revenue in particular and the country’s economy as a whole?

Recommend techniques for controlling and reducing tax fraud offenses.

Hypotheses of the study

The following hypotheses were developed and tested in accordance with the study’s aims.

Hypothesis one

Ho: Tax evasion does not have a big influence on the government’s revenue.

H1: Tax evasion has a substantial impact on the government’s revenue.

Hypotheses two

In Nigeria, the Tax Authority is ineffective in preventing and detecting fraud.

H1: Nigeria’s Tax Authority is effective at preventing and detecting fraud.

SIGNIFICANCE OF STUDY

Tax fraud is a widespread problem that dates back to the beginning of taxation. Individuals and businesses try to avoid paying taxes wherever and whenever authorities decide to impose them. Though this issue has always been, it has become more important as a result of globalization, which has increased the number of ways to avoid paying taxes while also lowering the danger of getting caught. This research study’s goal is to add to the current literature on tax fraud by focusing on tax reform in Nigeria with the goal of identifying major issues with tax collection and causes of tax fraud among taxpayers so that suitable actions may be implemented to address them. This study will also examine the role of tax officials in supporting tax fraud, tax avoidance, tax evasion, and other associated tax offenses in Nigeria. Finally, this research will be useful to the government, tax officials, tax authorities, small-scale entrepreneurs, investors, corporate organizations, schools, and students who are regular taxpayers. It will also serve as a starting point for students who want to conduct future research or contribute to the existing literature.

SCOPE AND LIMITATION OF THE STUDY

The researcher focuses on the role of the tax authority in detecting and preventing tax fraud in Nigeria, particularly among tax payers in Ado-Ekiti, Ekiti State, due to its large scope.

The researcher focused his investigation on small-scale entrepreneurs in Ado-Ekiti Metropolis since they make up a substantial number of taxpayers in the state, and some of them are accustomed to avoiding paying taxes, lowering the state’s internal revenue. The researcher encountered some constraints during the study; limited time and funds: the researchers were unable to generate complete and concrete research material due to time and money constraints at their disposal, on the one hand, and the unwillingness and inability of the researchers, on the other.

However, we had to persuade the respondents by assuring guys that the identities of the business firms would not be revealed in our study, and that the materials would only be used for this research.

There hasn’t been enough prior research done on this study, resulting in a large amount of work for the researcher and lengthening the time it takes to complete the research study.

DEFINITION OF TERMS

Tax fraud occurs when a person or a company deliberately and purposefully falsifies information on a tax return in order to reduce the amount of tax owed.

Personal Income Tax, Road Taxes, Pool Betting and Lotteries, Business Premises Registration, Development Levy, Street Naming in State Capitals, Right of Occupation on State-Owned Land, and Market Taxes on State-Funded Taxes are all examples of state taxes.

Tax evasion: In general, tax evasion refers to the use of illicit methods to avoid paying taxes. To do this, taxable income, taxable profits, or other taxable activities are concealed, the amount and/or source of income is misrepresented, or tax-reducing elements such as deductions, exemptions, or credits are purposefully inflated (see Alm and Vazquez, 2001 and Chiumya, 2001).

Tax evasion can happen as a one-time occurrence inside otherwise legitimate operations. Alternatively, tax evasion occurs in the informal economy, where the entire activity is conducted in an informal manner, implying that the business is not only evading tax payments but is also not registered as a formal enterprise.

Tax avoidance, on the other hand, occurs within the legal context of the tax system, in which individuals or businesses take advantage of the tax code and exploit “loopholes,” i.e. engage in activities that are legal but contradict the tax law’s purpose. Tax evasion usually refers to a set of activities carried out solely for the goal of lowering one’s tax liability. Strategic tax planning is an example of tax evasion.

Non-compliance is characterized as a taxpayer’s failure to file returns accurately, disclose actual income, claim the correct deductions, reliefs, and rebates, and timely remit the actual amount of tax due to the authority.

Individual economic entities or corporate bodies must pay a mandatory levy to the government without receiving any direct benefit from the government.

 

FRAUD: is a purposeful act or series of deception carried out to achieve an unlawful or unfair advantage at the expense of another.

 

Direct and Indirect Tax: direct taxes are levied on persons or property, while indirect taxes are levied on manufacture, sale, consumption, and the like, and are indirectly paid by the consumer.

ORGANIZATION OF THE STUDY

This research paper is divided into five chapters for easy comprehension. The first chapter is dedicated to the introduction, which includes the (overview of the study), statement of problem, aims of the investigation, research question, significance of the study, research methodology, definitions of words, and historical backdrop of the study. The second chapter focuses on the theoretical framework that the study is built around, as well as a review of related literature. The third chapter discusses the study’s research design and methodology. Chapter four concentrate on the data collection and analysis and presentation of finding. The study’s summary, conclusion, and suggestions are presented in Chapter 5.

 

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