Tax payment is a civic duty and an imposed contribution by the government to contribute to her principal source of revenue to provide public goods and services to its citizenry. It is a compulsory unrequited payment to the Government. Tax evasion prevalence is vast and greatly impairs taxation‟s macro- economic objectives thus creating a gulf between actual and potential government tax revenue raising many issues which need urgent attention and solutions. However much the government endeavors to exercise its sovereign right to collect taxes, nobody likes paying taxes although there is great appreciation that taxes need to be paid and this drives some people into tax evasion making the government constantly fail to raise targeted tax revenue. The study sought to establish how tax evasion affects tax revenues in Nigeria. The study employed a survey research design which involved collection of information from a sample of individuals through response to questions. The study targeted 50 tax evaders investigated by Federal Inland Revenue Service. The study relied on secondary data informed by FIRS investigated cases, related materials published by government authorities, organizations such as Tax Justice Network, work of other researchers and authors in the form of journals, books, bulletins and newspapers articles as well as sources from the internet. The researcher used quantitative methods to quantify the problem by way of generating numerical data. A regression analysis was used to identify the effect of tax evasion on tax revenue. From the regression model, the study found out that there were factors influencing tax revenue in Nigeria, which are total tax evasions, money supply, GDP per capita and exchange rate. They either influenced it positively or negatively. The study found out that the intercept was 0.861 for all years. The four independent variables that were studied (total tax evasions, money supply, GDP per capita and exchange rate) explain a substantial 74.2% of tax revenue in Nigeria with equity as represented by adjusted R2 (0.742). The study established that the coefficient for total tax evasions was -0.728, meaning that total tax evasions negatively but significantly influenced the tax revenue in Nigeria. The study therefore concluded that tax evasion negatively but significantly affects tax revenue in Nigeria. The study recommended that due to the potential negative effects of tax evasion on economic development of Nigeria, new policy guidelines contained in the budget speeches and other tax policy documents should be implemented, as a matter of urgency, almost immediately.

1.1 Research Background
Tax is the money that must be paid to the state charged as a proportion of personal income and business profit or added to cost of goods and services. It can be deduced that an individual tax avoider/evader may indulge in it simply because he is unable to enjoy any benefit that would be pertained to him after payment of such tax. Taxation is the price which civilized communities pay for the opportunity of remaining civilized Albert Bushnell. Some of the reasons why taxes are introduced and imposed are to generate government revenue for the purpose of financing certain projects that will ensure reliable and functional economic growth and development.

Through introducing taxation, income redistribution and the delivery of essential services for residents through the promotion of living standards would take place. The tax system of a country is a major determinant of other macroeconomic indices, especially for both developing economies. A relationship exists between the fiscal framework and the level of economic growth and development. Likewise, the economic parameters for determining the tax structure and the relative importance of each source of tax vary over time Vincent (2001). For example, the sole objective of tax revenue was to raise during the colonial era and immediately after Nigeria's political independence in 1960. Later, the focus shifted to child protection and income redistribution targets in the infant industries.

Tax revenue is a powerful economic reform tool and a major player in all the world's economies. It is never static but dynamic, and should reflect current economic realities. The tax system provides the government with the opportunity to collect additional income in addition to other sources of income needed to fulfill its pressing obligations. A good tax system offers itself as one of the most efficient means of mobilizing the nation's internal resources and creates an environment that encourages and promotes economic growth and development Ogbonna (2010).

In fact, the simplistic existence of the economy precludes the form of retail taxes. Taxes are also difficult to collect at this level due to the lack of expertise and tax administration facilities Kiabel (2009). Having said that, a complicated tax system is not feasible and the amount of income tax revenue would depend on taxpayers ' compliance and tax collectors ' efficiency.

Nigeria is richly blessed with oil and gas among other mineral resources, but the over-dependence on oil revenue for the economic development of the country has left much to be deserved.

According to Ariyo (1997) Nigeria’s over-dependence on oil revenue to the total neglect of other revenue source was encouraged by the oil boom of 1973/74. This is unsustainable due to the fluctuation in the oil market which have in most cases plunged the nation into deficit budgets. It was the view of Poopola (2009) that Nigerian tax administration and practice be structured towards economic goal achievement since government budget for the year centers on oil sector. While decrying the low productivity of the Nigerian tax system, “deficiencies in the tax administration and collection system, complex legislations and apathy on the part of those outside the net” were identified as some of the root causes says Ijewere (1991) and Ndekwu (1991) as cited in Ariyo (1997).

Those working in the informal sector of Nigerian economy do not see the need to pay tax whereas they dominate the economy. To them, only civil servants should pay tax on their earnings and this amount to over flogging the willing horse. Besides, the activities of the strong union in the formal sector do not even pave way for a successful tax policy implementation in the formal sector Ayodele (2006). Even revenue collection officers seem to be lenient or even connive with those in the informal sector during enforcement of tax policies. All this leads to revenue loss. In other to reawaken the consciousness of Nigerian government and citizens on the effective use of taxation as a developmental tool, and examine the effect the tax system has so far on the economy; this research wok becomes very relevant. There is no doubt that taxation must have affected the economic development of Nigeria. Tax evasion and avoidance have adverse effect on government revenue. Tax avoidance generates investment distortion in the form of the purchase of assets exempted from tax or under-valued for tax purposes Klabel (2009) and Nwokah (2009). As observed by Toby (1983) the taxpayers indulges in evasion by resorting to various practices. These practices erode moral values and build up inflationary pressures. This point can be buttressed with the fact that because of tax evasion, individuals and businesses have a lot of money at their disposal and companies declares higher dividends and individuals have a high take home profit. This increases the quantity of money in circulation but without a corresponding increase in goods and services, this then build up what is known as inflationary trends where large money chases few goods (Toby,1983).

Effort shall therefore be made in this research to see how much Nigeria have been able to achieve her economic goals with her tax policies and administration.

Over half of the world‟s population live in the urban settings and this is expected to rise to 70% by 2050 (UNHCS-HABITAT, 2009). The outcome of increased urbanization has been and increases to be a fundamental change in the social economic environment of human activities as it involves new forms of employment, economic activity and lifestyle. Across all countries over time, the level of urbanization is strongly correlated to the level of economic development and one defining feature though is that increasing poverty levels in the developing countries and environmental challenge continue to affect urbanization whose transition cannot be halted or reversed but in face of the emerging economic challenges based on increasing urbanization, the informal sector activities continues to stand tall and has over the years seen rapid growth of small scale trade in Nigeria that lack of adequate incorporation in the tax among other systems making it a good ground for tax evasion hence the interest of my study in this area.

The informal economy can hardly be ignored in Nigeria with 35 percent of urban and 59 percent of rural households respectively involved in small businesses (UNHSPHABITAT, 2006). In either setting, they produce and distribute basic goods and services in unregulated competitive market that lie outside the regulatory framework of the national or county governments. This sector is a permanent fixture of the country‟s development and although it continues to face all sot of challenges due to lack of proper definition and effective policy formulation, there is need for policy makers to appreciate the role that the sector is playing in job creation, poverty alleviation and economic growth.

1.2 Problem Statement
Tax evasion prevalence is vast and greatly impairs taxation‟s macro- economic objectives thus creating a gulf between actual and potential government tax revenue raising many issues which need urgent attention and solutions. However much the government endeavors to exercise its sovereign right to collect taxes, nobody likes paying taxes although there is great appreciation that taxes need to be paid and this drives some people into tax evasion making the government constantly fail to raise targeted tax revenue. For instance the way the Nigeria‟s tax system is designed, it is difficult to collect actual taxes from self-employed such as accountants, doctors, businessmen, consultants to mention just but a few as they blatantly refuse to pay by reporting losses or low profits than actual every year. Charles, K., Agnes, M and Dorothy, N. (2012) highlighted the influence of tax avoidance and tax evasion on creative accounting although the study did not clearly bring out the various methodologies used by tax payers on creative accounting. Oyugi (2001) identified two types of informal sector activities in Nigeria as coping strategies (survival activities) and unofficial earning strategies (illegality in business) but focused on the coping strategies only. This study detailed the methodologies used to evade tax particularly among traders in Nigeria as well as evaluate the effectiveness of the measures put in place to curb the menace and recommend what more need to be done to provide a solution to the problem and increase Government tax revenue without increasing tax rates.

Tax evasion has since many years ago been very difficult to observe, Fisman and Wei (2001). This is evident in the fact that during the third century, many wealthy Romans buried their jewelry or stocks of gold coin to evade the luxury tax and homeowners in eighteenth-century in England temporarily bricked up their fireplaces to escape notice of the tax collector, Slemrod, (2007). The present generation is not left out in the tax evasion prevalence and in Nigeria tax evasion by some has led to tax evasion by others thus largely impacting on the distribution of tax burden as well as public resources leading to increase in taxes and revenue loss which may in the long run grid the functioning of the public sector to a halt. Gemmell and Morrissey (2003) observed that, in seeking to identify how much tax each person pays, it is important to distinguish between the „statutory incidence‟ (the legal liability to pay the tax) and the economic incidence which in practice is often the belief regarding who ultimately bears the burden of the tax. Tax evasion affects the ability of those legally liable for various taxes to shift these as traditionally assumed but does affect incidence but is difficult to incorporate.

Nigeria is considered to be one of the most heavily taxed countries (Transparency International Report, 2005) and this perception amongst international investors has denied this country some very lucrative investment opportunities. The slow rate at which entrepreneurs are taking up the investment challenges and opportunities created by our government warrants urgent attention to the reasons behind the high rates of tax in this country. It may very well be true that the country has failed to attract the investments due to high rates of taxation, in which case, it will be important to establish whether tax evasion causes the rise in tax rates and vice versa and what need to be done to provide a solution.

Some individuals and corporations‟ form non-profit making organizations inform of religious institutions or foundations that they make donations to report less profits in an attempt to evade tax. The informal sector is also prone to a lot of tax malpractices where individuals and corporations deliberately under cast figures, insist on cash payments and don‟t issue receipts or only issue cash sale receipts giving them the advantage of choosing where to bank the money and in most occasions in individual bank accounts thereby reporting low sales and eventually lowering the amount of tax they are eligible to pay. This makes it interesting and prompted the researcher to investigate the effect of tax evasion on tax revenue in Nigeria without increasing revenue or reducing expenditure.

1.3 Research Objectives
The primary goals that the study sought to achieve are;

1. To investigate how taxes are evaded in Nigeria.

2. To examine the effects of tax evasion on economic development of Nigeria.

3. To identify measures to control tax evasion.

4. To ascertain whether there is a relationship between tax evasion and rates of tax.

1.4 Research Questions
Below are some of the key questions that guided the researcher in the course of the study.

1. Why do traders and businesses evade tax in Nigeria?

2. How do traders and businesses evade tax in Nigeria?

3. What measures need to be put in place to curb tax evasion in Nigeria?

4. What is the effect of tax evasion on economic development in Nigeria?

1.5 Significance of the Study
Revenues from Income Tax and VAT form an important part of the total income collected by the government of Nigeria to finance public services to its citizens. Any form of tax evasion reduces this revenue and impacts largely on the government‟s ability to provide services to the citizens. In its endeavor to raise sufficient funds, the government increases the rates of tax and widens the tax bracket, thereby increasing the tax burden to the compliant taxpayers and this even causes further tax evasion. This study is reasonable on the basis that it is expected to be of great benefit to various stakeholders in varying ways as discussed below.

Tax officers: As charged with the responsibility of ensuring that tax payers are not negligent in paying their taxes, the study will help them identify with ease the methods that individuals and businesses use to evade tax and how they attempt to conceal the vice from the authorities as well understanding what motivates them and how they can intervene to mitigate the practice.

Researchers: For those in the area of tax evasion, related areas and academia at large, the study having spelt out in an elaborate way tax evasion and its impact on the government revenue in Nigeria will serve as a good ground for theory development as no exhaustive study can be carried in this wide area and will also help in expanding knowledge on how taxes are evaded by traders and further their understanding on how tax payers evade tax and what related areas need further research.

Government: Through its revenue collection authority, Federal Inland Revenue Service, adequate upraising of the reasons and methods will help ascertain the level of tax evasion in the various sectors, its impact on tax revenue and inform the necessary interventions to streamline tax administration, eliminate evasion and increase revenue in the public coffers without necessarily increasing taxes or reducing spending.

Students: the study will act as a valuable reference point to students of accounting, finance and other areas as well as serve as a guide to policy makers and act as an informative tool to any other party interested in expanding knowledge in the area of tax evasion.

1.6 Limitations of the Study
In attaining its objective the study was limited to tax evasion cases investigated by FIRS in Nigeria. The study relied on secondary data informed by FIRS investigated cases. The study was also limited to the degree of precision of the data obtained from the secondary source. While the data was verifiable since it came from FIRS investigated cases it nonetheless could still be prone to these shortcomings.

The study was limited to establishing the effect of tax evasion on economic development of Nigeria. The cases looked at were those which had been investigated by FIRS hence the other cases that were not under investigation by FIRS were left out. The study was based on a five year study period from the year 2009 to 2013. A longer duration of the study will have captured periods of various economic significances such as booms and recessions. This may have probably given a longer time focus hence given a broader dimension to the problem.

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