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1.1       Background of the Study

Taxes are an immensely vital instrument and primary source of revenues to a government. The revenues are needed to finance critical programs (e.g., health care and education), services (e.g., law enforcement and public utilities), and infrastructures (e.g., road construction and environmental protection) which are essential to the society. According to Worlu and Emeka (2012), tax revenue utilization is a basis for supporting developmental activities in less developed economies. However, it has been difficult to maximize tax revenue collection due to various forms of tax evasions. According to Eschborn (2010), tax evasion is an issue that is conceivable as longstanding as taxation alike. Tax evasion occurs when people or organizations deliberately fail to abide by their tax responsibility (Simser, 2008).

Irrespective of its values, tax evasion drastically reduces the amount of state budgets every year all around the countries globally. Tax evasion denies every government the tax revenue due to the system, which results in a gap between the potential and actual tax collection (Adebisi and Gbegi, 2013). Tax evasion is a global phenomenon that has been practiced in both developed and developing nations. Confronting tax evasion is serious to overcome illegal financial cash flows and close channels of corruption (CR) and wrongdoings (UN, 2007). According to Murphy (2011), the worth of tax evasion worldwide exceeds US$3.1 trillion or 5.1% of global gross domestic product. In another instances, a report from Leadership (2013) shows that the world top ten countries with the majority of illicit financial depletions are Mexico ($476 billion), China ($2.74 trillion), Malaysia ($285 billion), Saudi Arabia ($210 billion), Russia ($152 billion), Philippine ($138 billion), Nigeria ($129 billion), India ($123 billion), Indonesia ($109 billion) and lastly United Arab Emirate ($105 billion). The report further explains that around 60-65% of the amount was due to tax evasion activities from the period of 2001-2010.

Tax evasion has attracted renewed international interest by nations globally, Nigeria inclusive. The concept has been extensively acknowledged by prior studies (Richardson & Sawyer, 2001), and therefore has quite a good literature. The problem of tax evasion is a major concern for developing countries like Nigeria; as economic development can be significantly hampered by poor tax revenues because of the problem of tax evasion (Picur & Beikaoui 2006). Accordingly, it is necessary for policy makers to identify the factors that influence tax evasion, in order to undertake reforms and minimize it negative impacts on the economy and the nation at large (Kwlef & Achek, 2015).

Tax evasion according to Uadialeet al. (2010) is an outright dishonest action whereby the taxpayer endeavors to reduce his tax liability through the use of illegal means. Tax evasion is accomplished by a deliberate act of omission or commission which constitutes criminal acts under the tax laws these acts include: failure to pay tax e.g. withholding tax, failure to submit returns, omission of items from returns, claiming relief (in Personal Income Tax), for example, of children that do not exist, understating income, documenting fictitious transactions, overstating expenses, Failure to answer queries. (Farayola, 1987; Uadialeet., 2010).

Jackson & million (1986) provided the first detailed review of the determinants of tax evasion by identifying fourteen keys variables which include: age, gender, education, income level, income source, marginal tax rates, fairness, complexity, revenue authority-initiated contact, tax morale, occupation, status, situations and probability of detection, compliant peers, and ethnics. These determinants were grouped in: demographic determinants, economic determinants and behavioral determinants. This paper therefore considers the impacts or influence of gender (a proxy of demographic determinant of tax evasion), income level (an economic determinant) and tax morale (a proxy of behavioural determinant) on tax evasion; particularly in Nigeria’s Informal Sector.

Gender of the tax payer has been revealed to be significant in previous studies by Vogel (2004) and Mason & Calvin (2008). Those two studies showed that the levels of compliance of female tax payers are normally higher than the male tax payers. Jackson & Milliron (1986), on their part, established that the compliance gap between the female and male tax payers is reducing overtime; as a result of a new generation of freed women emerge globally. Nevertheless, other studies show that the compliance gap between the male and female tax payers has been maintained. These were encapsulated in the works of Brooks & Doob (1990) and Collins, et al (1992).

Income level represents another key factor. Here, income level typically denotes the adjusted gross income or total positive income of a tax payer (Jackson & Milliron 1986). Mason &Lowry (1981) and Witte & Bury (1983) concluded that middle income taxpayers are generally compliant with tax laws, while low income level tax payers and high-income taxpayers are relatively non – compliant with tax laws.

In Nigeria, the contribution of revenue from taxes is not encouraging because the government is heavily generating revenue from crude oil. According to Ariyo (1997), over dependability of Nigerian government on oil revenue resulted in relinquishment of other sources of government revenue such as taxes. Asada (2010) stresses that tax evasion denotes some of the perplexing problems facing Nigerian economy. Asada also argues that, where ever and whenever authorities decide to enforce tax laws, individual and firms try to avoid compliance. According to Bismarck (2013), Nigerian authority had lost N90 billion equivalent to $550 million USD to tax evasion in automobile industry alone in the year 2013. Also, it was reported that the Federal Inland Revenue Services has sued a client of evading 5 years taxes amounting to N4.86 billion naira and for faking of tax clearance document against his company (Sadoke, 2012). Moreover, Muhammad and Muhammad (2012) asserts that, in a contemporary report by the Nigerian Economic and Financial Crime Commission, it shows an estimated figure of $129 billion dollars (N21 trillion Naira) was dishonestly taken out of the country in the last 10 years 2003-2013. One of the sources of the dishonest relocation of the fund is tax evasion.

1.2       Statement of the Problem

Tax evasion has undoubtedly affected adversely the government revenue generation capability and the economy as a whole. However, despite the government efforts to bridle the practices of tax evasion in Nigeria, the problem still persists. There is no doubt that the revenue due to the federal government of Nigeria will be reduced by the lack of good governance and unpatriotic act of tax evaders and as observed by Toby (1983), the taxpayer indulges in evasion by resorting to various practices. These practices erode moral values and build up inflationary pressures.

1.3       Objectives of the Study

The study sought to investigate the causes of tax evasion. Specifically, the study sought to;

  1. determine whether the high rate of tax is responsible for tax evasion in Nigeria.
  2. examine whether the level of income affects tax evasion in Nigeria?

1.4       Research Questions

  1. Does high rate of tax responsible for tax evasion in Nigeria?
  2. Does the level of income affect tax evasion in Nigeria?

1.5       Research Hypotheses

Ho1: High rate of tax is not responsible for tax evasion in Nigeria.

Ho2: Level of income does not affect tax evasion in Nigeria.

1.6       Significance of the Study

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

1.7       Scope/Limitations of the Study

This study is on investigation into the causes of tax evasion with a view of finding solutions to the problem.

Limitations of study

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).

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8       Definition of Terms

Tax: A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer (an individual or other legal entity) by a governmental organization in order to fund various public expenditures.

Tax Evasion: The illegal non-payment or underpayment of tax.


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Ariyo, A. (1997), Productivity of the Nigerian Tax System: 1970 – 1990. African Economic Research Consortium (AERC) Research Paper 67. Nairobi, Kenya: AERC

Asada, D. (2010), The socio-economy problem of tax avoidance and evasion in Nigeria: An overview. Available from:

Bismarck, R. (2013), This Day News. A Financial Analyst, March 14

Brooks N. and Doob, A. H. (1990). Tax evasion: searching for a theory of compliant behaviour. Arabian Journal of Business and Management Review, 1(9), 77-99.

Eschborn, (2010), Addressing Tax Evasion and Tax Avoidance in Developing Countries. Available from: tw/./2011-09-09_GTZ_Addressing-taxevasion- and-a

Farayola, G.O. (1987) Guide to Nigerian Taxes, Lagos: All Crowns Nig. Ltd

Jackson, B and Millron, V. (1986). Tax compliance research: findings, problems, and prospects. Journal of accounting literature. 4 (6), 125-165.

Muhammad, M.M., Muhammad, A. (2012), Reasons of tax avoidance and tax evasion: Reflections from Pakistan. Journal of Economics and Behavioral Studies, 4(4), 217-222.

Sadoke, O. (2012), Sahara Reporters. The case of FIRS vs. Air Nigeria on Forgery of N5 Billion Tax Fraud-NAN.

Simser, J. (2008), Tax evasion and avoidance typologies. Journal of Money Laundering Control, 11(2), 123-134.

Toby, R.(1983) The Theory and Practice of Income Tax Macmillan Press Ltd

Uadiale, O.M., T.O. Fagbemi and J.O. Ogunleye (2010) An Empirical Study of the Relationship between Culture and Personal Income Tax Evasion in Nigeria.

Worlu, C.N., Emeka, N. (2012), Tax revenue and economic development in Nigeria: A macro ecometric approach. Academic Journal of Inter Disciplinary Studies, 1(2), 211-223.



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