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Tax evasion simply refers to an intentional effort by people, corporate bodies, trust and other institutions to illicitly refuse to pay their tax and reporting true and fair value of their earnings by a means of evading (Edwin, 2007).

Tax avoidance is the arrangement of the affairs of the tax payer in such a way to reduce tax payable. It is a legal way of paying less tax.

Taxes are essential contribution levied by the government on citizens and corporate institutions for the provision of public expenditure (Nightingale, 1997). It is possible for tax payers not to accept anything detectable for their contribution but rather that, they must have enjoyed the value of living in a reasonably healthy, educated, prosperous and safe society. Nonetheless, according to Fafunwa (2005) the infrastructure which the taxpayers are thought to enjoy is in a dreadful condition. While Lambo (2005) and Obaji (2005) posit that expectation of taxpayers to enjoy social amenities such as educational system, health care system and transportation network are in disorder and disturbing position due to some situational condition. Therefore, these has been a commotion by leaders that an enormous of some of the resources which are available for use by the economy and henceforth to cut off the tax evasion is not properly harness effectively.



Every nation or government depends on taxes for its survival. Without taxes, there is no way a government can operate unless of course it borrows or charges its citizens outrageous fees for the service it renders them. With taxes, government provide amenities and infrastructure for the improvement of its subjects. It is also through taxation that it funds governance for a stable polity.

One of the cardinal factors in evaluating the effectiveness of a government is in its ability to collect taxes. Before the ongoing reforms in the sector, Nigeria’s tax environment was characterized by poor assessment and collection, multiple taxation, misappropriation of tax revenue and general inefficiency in relative terms, the rich Nigerians pay far less tax in comparism with the poorer counterparts.

The desire to uplift one’s society is the first desire of every patriotic citizen (Allingham & Sandmo, 1972). Tax payment is a demonstration of such a desire. The payment of tax is a civic duty and an imposed contribution by government on her subjects and companies to enable her finance or run public utilities and perform other social responsibilities. Taxes, thus, constitutes the principal source of government revenue. However, one of the greatest problems facing Nigerian Tax System as well as Africa is the problem of tax evasion and tax avoidance. While tax evasion is the willful and deliberate violation of the law in order to escape payment of tax which is unquestionably imposed by law of the tax jurisdiction, tax avoidance is the active means by which the taxpayer seeks to reduce or remove altogether his liability to tax without actually breaking the law. These “Twin devils” have created a great gulf between actual and potential revenue. The government has for the umpteenth time complained of the widespread incidence of tax avoidance and evasion in the state as companies and other taxable persons employ various tax avoidance devices to escape or minimize their taxes or deliberately employ fraudulent ways and means of evading tax altogether sometimes with the active connivance of the tax officials. As pointed out by Rynoids (1963), since tax is a principal source of government revenue, if persons are able to escape by legal or illegal means the tax to which they should logically be subject under the general scope of the tax, the theoretical equity of the tax to a large measure is lost.

In Nigeria, the taxation system dates back to 1904 when the personal income tax was introduced in northern Nigeria before the unification of the country by the colonial masters. It was later implemented through the Native Revenue Ordinances to the western and eastern regions in 1917 and 1928 respectively. Among other amendments in the 1930s, it was later incorporated into direct taxation Ordinance No. 4 of 1940. Since then different governments have continued to try to improve on Nigeria’s taxation system. The general opinion among scholars is that Nigeria’s fiscal regime is characterized by unnecessary complex, distortion and largely equitable taxation laws have limited application in the formal sector that dominates the economy.

There are two elements in a tax, the tax base and the tax rate. The tax base is the object which is taxed i.e. incomes, profits, property etc. the tax rate on the other hand is the amount of the tax base which is paid in tax, and it is usually in form of a flat or a percentage.

Tax evasion is the failure to disclose the correct income that should be assessed either by misstatement of facts, falsification of figures, filing of incorrect returns or by misrepresentation of tax liabilities. Thus, through the employment of criminal or fraudulent means, the tax payer pays less tax than he ought to pay. Tax evasion is accomplished by deliberate act of omission or commission which themselves constitutes criminal acts under the tax laws. These acts of omission or commission might include failure to pay tax; failure to submit return; omission or misstatement of items from returns; claiming illegal reliefs; understating income; documenting fictitious transactions; overstating expenses; failure to answer queries and so on. Tax evasion involves willful default and is therefore a criminal offence.

The most common form of tax evasion in Nigeria is through failure to render tax returns to the relevant tax authority.  Types of tax evasion include:

  • Personal income tax evasion,
  • Custom duties evasion,
  • VAT evasion etc.

A tax evader may be charged to court for criminal offences with the consequent fines, penalties and at times imprisonment being levied on him for evading tax (Faseun, 2001). As observed by Sosanya (1981), tax evasion has become the favorite crime of the Nigerians; so popular that it makes armed robbery seem like minority interest. It has become so widespread that there now exists a cash economy of vast proportions over which the taxman has no control and which is growing at several times the rate of the national economy.

Tax evasion and avoidance no doubt deny any government the tax revenue due to her, evasion has robbed the Nigerian government of substantial tax revenue which results in a gap between the potential and actual tax collections. Tax evasion is characterized as an intentional wrongful attitude, or as a behaviour involving a direct violation of tax laws, norms and ethics regarding citizenry obligation to escape the payment of tax. The intentional underreporting of income, as well as over-claiming of a tax deduction, is an obvious example of tax evasion (Adebisi & Gbegi, 2013). Soyode and Kojola (2006) define tax evasion as an intentional and conscious practice of not revealing full taxable income. It is a violation of tax laws in which the tax rate due by a taxable person is unpaid after the minimum required period (Temitope, Olayinka & Abdurafiu, 2010). Tax evasion is clear evidence in a situation where taxpayers are reducing, making or proclaiming false statement about their liabilities on the revenue tax through exploiting ineffectiveness in the tax laws and regulations.

Tax avoidance is the legal utilization of the tax regime to one’s own advantage in order to reduce the amount of tax that is payable by means that are within the law. To borrow from Wheatcraft’s aphorison, it is the art of dodging tax without actually breaking the law, or alternatively, the right of every citizen to structure ones affairs in a manner allowed by law, to pay no more than what is required.  In jurisdictions like the United Kingdom, and New Zealand, a distinction is drawn between tax avoidance and tax mitigation. Tax avoidance is a course of action designed to conflict with or defeat the evident intention of the parliament. Tax mitigation otherwise called tax planning, on the other hand, is conduct which reduces tax liabilities without avoidance (not contrary to the intention of parliament), for instance, by gifts to charity or investments in certain assets or industry which qualify for tax relief.  The clear articulation of the concept of an avoidance/ mitigation distinction goes back to the 1970s and was an innovation drawn from the case of IRC v. Challenge Co. Ltd., a New Zealand case.  In practice, this distinction is sometimes clear, but often difficult to draw.  Relevant factors to decide whether conduct is avoidance or mitigation include; whether there is a specific tax regime applicable, or whether transactions have economic consequences. Other approaches in distinguishing tax avoidance and tax mitigation are to seek to identify “the spirit of the Statute” or “misusing” a provision. But this is the same as the “evident intention of parliament” properly understood.

Another approach is to seek to identify “artificial” transactions. However, a transaction is not well described as “artificial” if it has valid legal circumstances, unless some standard can be set up to establish what is “natural” for the purpose.  In all, tax avoidance occurs when a person undertakes transactions that contravene specific anti-avoidance provisions.  That is, tax avoidance includes situations where a person reduces or eliminates tax through a transaction or a series of transactions that comply with the letter of the law but violate the spirit and intent of the law.



The tax administration (collection and assessment of tax) is a difficult task. The assessment and collection of tax as at when due has been a problem associated with tax administration in Nigeria. This problem through observation has been influenced by the following understated factors.

Fraudulent under-declaration of income and making of incorrect returns by companies and individuals coupled with collusion of officials of tax administration staff with company and individuals under assessment.

The problem of tax evasion is real and so much in Nigerian economy where individuals and companies use all means to evade tax. The fact that the federal board of inland revenue (FBIR) is unable to bring their entities within the letter of the law is of a serious concern mostly in the area of highly government spending borrowing and when there is pressing need to improve revenue generations from all sources including taxation.

The problems of revenue losses to government due to fraudulent and illegal deals from her citizens and organizations within the country prompt the need for this research work.



For the purpose of this study the following question were raised for an in-depth study of this research work;

  1. To what extent has sharp practices in administration between the staff collecting taxes and assess companies and individuals contributed to tax evasion
  2. To what extent has there been variation between financial statements used for AGM and that sent to FBIR for tax administration
  3. Has loss of confidence in government officials contributed to tax evasion



The broad objective of the study is to examine the causes and challenges of tax evasion in Nigeria. To find out why people evade and avoid tax and suggest way of minimizing the practices in Lagos. Specifically, the study seeks to satisfy the following objectives:

To determine the existence of tax evasion and tax avoidance in Lagos state

To investigate why people evade and avoid taxes

To determine the effect of tax evasion and avoidance on the revenue generated in Lagos state

To proffer solution to the problems of tax evasion and tax avoidance

Determine if there is a significant relationship between high tax rates and tax evasion in Nigeria;

Ascertain whether poor relationship between taxpayers and tax authority is responsible for tax evasion in Nigeria;

Establish if a significant relationship exists between weak penalties and tax evasion in Nigeria.


  • Ho: There is no significant relationship between tax evasion and avoidance and the total revenue generated by the government
  • H1: There is significant relationship between tax evasion and avoidance and the total revenue generated by the government
  • Ho: There is no significant relationship between tax rates and tax evasion or tax avoidance
  • H1: There is significant relationship between tax rates and tax evasion or tax avoidance



This work is one that will show:

The importance of taxation in Nigeria

Why people need to pay tax, how people evade or avoid tax

The effect of tax evasion or avoidance on the revenue of the country

The attitude of tax payers towards taxation

The relationship between tax administrators in Nigeria and tax payers and how it affect taxation.



The scope of this study covers staffs in Lagos state (tax payers and tax evaders), Entrepreneurs, business organizations, Lagos state Inland Revenue Service staff, Government workers etc.

Some factors that may constitute hindrance to the success of this work may include the following:

The time this study is expected to be completed is very short compared to the enormous work involved. Limited financial resources may also constituted a hindrance to the success of this study. A lot of money will be required for transportation to various places for a survey of Lagos state.




This study will be a survey research and will use Lagos state as a survey area for tax administration in the Nigerian tax system and will involve staffs from different types of field e.g. Organizations, Entrepreneurs etc. Descriptive research method will be used and sampling type will be random sampling. Questionnaires and interviews will be used as major sources of data collection



INCOME: There is no statement that defines the word ‘income’ in taxation status. However, for the purpose of this study reference is made to section 5.4 (2) (6) of Income Tax Management Act (ITMA)1961, which recognizes income as including any amount deemed to be income under the act.

ASSESSMENT AUTHORITY: This is the body appointed by the board for the purpose of assessing tax payable.

COMPANY: A company is defined by section 3(1) of the Companies and Allied Matters Act (CAMA) as “any corporation(other than a corporation sole) established by or under any law in force in Nigeria orelsewhere”. The relevant tax authority in respect of company income tax is the Federal Board of Inland Revenue.

INDIVIDUAL: This is a specific person or object

TAX AVOIDANCE: This is the arrangement of the affairs of the tax payer in such a way as to reduce tax payable. Tax avoidance is not a criminal or crime punishable under the law. This was clearly stated in Lord Tumbling declared as follows in his judgement

Every man is entitled to order his affair so that the tax attached under the appropriate tax act is less than is otherwise would be.

According to Longman Dictionary of contemporary English, tax avoidance are Legal way of paying less tax.

TAX BASE: This is simply that object on which tax should be imposed or applies.

TAX RATE: This is the percentage at which an individual or corporation is taxed.

TAX EVASION: Is a fraudulent, dishonest intentional distortions or concealment of fingers by the tax payer in order to reduce the tax payable. It is a criminal and deceitful was of not paying tax or reducing ones tax liability. These offences are punishable under law.

According to Longman Dictionary of contemporary English Tax evasion are the illegal ways of paying less tax.

TAX MITIGATION: This is often the result of forward tax planning. It amounts to a reduction of a taxpayer’s tax liability, not by entering into an arrangement but by a reduction of taxable income or by an increase in deductible expenses, or perhaps the availability of tax credits.

TAX ADMINISTRATTION: This includes assessment, collection, enforcement, litigation, publication and statistical gathering functions of taxation under such laws, statutes or conventions.









Journal of research in national development volume 8, no 1, June 2010

Siokwu Christopher N. Company Income Administration Tax in Nigeria

Olu Grace O. ‘An appraisal of the administration of personal income tax’ March, 2010

Erich Kirchler, Boris Maciejovsky, Friedrich Schneider ‘Everyday Representations of Tax Avoidance, Tax Evasion, and Tax Flight’ April, 2001


Kennedy Prince Modugu and Alade Sule Omoye ‘Asian Economic and Financial Review’, 2014, 4(1):33-40

Adebisi, J. F, and Gbegi,‘American Journal of Humanities and Social Sciences’ Vo1. 1, No. 3, 2013, 125-134

Zakariya’u Gurama, Dr. Muzainah binti Mansor and Abdurrahman Adamu Pantamee‘Research Journal of Finance and Accounting’ ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.6, No.8, 2015

Wheatcraft, G.S.A.: “The Attitude of the legislature and the Courts to Tax Avoidance” (1955) 18 M.L. at 209. 2. IRC v. Willoughby (1986) STC. 548. 3. See Sanford, C.T.: “Hidden Costs of Taxation” (1973) IFS. 4. (1987) 2 WLR 24. 5. “Tax Avoidance and Evasion” download on www.CanadianTax.Com. P.5 6. Ibid p.5.

Global Perspectives in Tax Evasion and Avoidance:  The Legal Quagmire in Nigeria

Sec 5.4 (2) (6) of Income Tax Management Act (ITMA),1961

Longman Dictionary of contemporary English





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