Effect Of Tax Morale On Tax Compliance In Nigeria

This study is on effect of tax morale on tax compliance. The total population for the study is 200 staff of Ikorodu local government of Lagos state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up directors, counselors, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

Introduction

1.1 Background of Study

The concept of Quid Pro Quo applies to every facet of life-taxation inclusive. An average tax payer expects something of value in return from the government for taxes paid (Adebisi and Gbegi, 2013). When this value is not returned to the taxpayers, tax morale may drop gradually, leading to tax evasion. In Nigeria today, tax is regarded as one of the major sources of government funds. Taxation is one of the most discuss issue in government in both developed and developing countries. James and Noble 1992 in their research defined tax as a compulsory levy by a public authority for which nothing is received directly in return. Nightingale in the year 2001 defined tax as compulsory contribution, imposed by government, and while taxpayers may receive nothing identifiable in return for their contribution, they nevertheless have the benefit of living in a relatively educated, healthy and safe society. She went on to on to explain more about taxation as part of the price to be paid for an organized society and identified six reasons for taxation; below are some of the six reasons for taxation:

Provision of public goods

Redistribution of income and wealth

Promotion of social and economic welfare

Economic stability and harmonization and

Regulation.

In other words tax can also be defined as a particular amount levied on the citizens by the government against the income, profits, property, wealth and consumption of individuals and corporate organizations to enable government obtain the required revenue to provide basic amenities, security and well-being of the citizens. The term taxation has long being known since the time of the Egyptians under the rulership of Pharaoh according to (Webber and Wildavsky, 1986).

Pharaoh did great by placing his tax collectors on high salaries so as to remove their eyes from fraud. In Nigeria today the issue of corruption is a major clog of the efficiency of tax collection in most part of the country especially in the Ikorodu part of Lagos State in Nigeria.

The issue of tax according to Allingham and Sandmo (1972), in his research stated that corruption of the tax agency is still an issue, especially in developing countries according to the traditional model of tax compliance. The level of corruption in the administration of tax tends to be on the increase; imagine a situation where a taxpayer will manipulate his or her own figure with claim on a poor income on their tax return by solving an expected utility-maximization problem that trade off the tax savings from a poor reporting of true income against the risk of audit and penalties for detected noncompliance.

1.2 Statement of Problem

The standard of living in Nigeria is on the decline and the unwillingness of taxpayers to comply with the payment of tax today tends to become an issue. The average human being abhors the payment of tax. He sees taxation as a discredited imposition and evidently obnoxious. This stems mainly from the absence of a "quid pro quo" i.e. something of value given in return (by the government) for taxes paid. Taxes, it is commonly argued, should not be paid as the authority does not provide amenities which are in any way commensurate with the taxes paid. There is no guaranteed compensation benefit (Adebisi and Gbegi, 2013). The federal government of Nigeria has put in so much effort to administer tax in the development of the Nigeria economy but most of the effort seems abortive as the level of corruption is on the increase. Take Ikorodu local government area of Lagos for instance; most of the inhabitants of this area are petty trader and peasant farmers; compliance to payment of tax tend to become a problem; their reason being that they operate on a small scale and yet the level of tax levied on them is much. There moral for compliance to the payment of tax tends to be on the decrease.

1.3 Objective of the Study

The major aim of this study is to examine the effect of tax morale on tax compliance in Nigeria. Other specific objectives of the study includes

To examine the causes of tax evasion in Nigeria.

To examine the level of tax compliance in Ikorodu local government area.

To determine the relationship between tax morale and tax compliance in Ikorodu local government area, Lagos state.

To recommend ways improving tax morale in Ikorodu l0ocal government area, Lagos state.

1.4. Research Hypotheses

H0: tax morale does not affect tax compliance in Nigeria
H1: tax morale affects tax compliance in Nigeria

H0: there is no significant relationship between tax morale and tax compliance in Nigeria
H1: there is a significant relationship between tax morale and tax compliance in Nigeria

1.5. Significance of the Study

This study would be of immense important to government at all level especially the government of Lagos state in formulating efficient tax policies that would improve tax compliance. This study would also benefit students, researchers and scholars who are interested in tax morale and compliance.

1.6. Scope of the Study

This study is restricted to the effect of tax morale on tax compliance in Nigeria with a case study of Ikorodu local government area of Lagos state

1.6 Scope and Limitation of the Study

This study is restricted to the effect of tax morale on tax compliance in Nigeria with a case study of Ikorodu local government area of Lagos state. The researcher encounters some constrain which limited the scope of the study;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities

1.7. Definition of Terms

Tax Morale:

Tax in accordance to the study is simply the willingness to pay tax

Evasion:

Tax evasion in accordance to the study may be define as the deliberate negative attitude of tax payer towards payment of tax

Corruption:

This is simply the fraudulent attitudes of taxpayer in the payment of tax

Compliance:

Compliance according to the study is simply the willingness of a taxpayer to pay tax with ease without complain.

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.

Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.

Chapter three deals on the research design and methodology adopted in the study.

Chapter four concentrate on the data collection and analysis and presentation of finding.

Chapter five gives summary, conclusion, and recommendations made of the study

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain effect of tax morale on tax compliance in Nigeria

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of tax morale on tax compliance in Nigeria

5.2 Summary

This study was on effect of tax morale on tax compliance in Nigeria. Four objectives were raised which included: to examine the causes of tax evasion in Nigeria, to examine the level of tax compliance in Ikorodu local government area, to determine the relationship between tax morale and tax compliance in Ikorodu local government area, Lagos state, to recommend ways improving tax morale in Ikorodu local government area, Lagos state. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of Ikorodu local government of Lagos state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up directors, counselors, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

5.3 Conclusion

Tax compliance (evasion) is a complex decision that is motivated by a variety of factors. The threat of detection and punishment is clearly a factor and evidence from a variety of sources support the proposition that increased enforcement leads to increased compliance. However, observed compliance levels are typically higher than warranted by the level of enforcement. This has led to the formation of theories based on exceptional risk aversion (such as prospect theory and rank dependent expected utility). A promising line of inquiry has been the effect of social norms on compliance behavior. There is evidence that these norms are influenced by the tax regime and by the responsiveness of government to the wishes of the citizens. Thus, some cultural differences in compliance behavior are expected and these differences should be related to tax regimes and government behavior. The results reported in this paper generally support these arguments. We predicted that compliance would be higher in Botswana and this is confirmed by the results from the survey data and the experimental investigations. An alternative explanation of differences in risk attitudes or a reluctance to engage in gambles is rejected by the data. The two subject pools exhibit the same attitudes toward risk in a simple context free gamble experiment. This is a useful result; policy makers are able to influence the perception of the public sector much more readily than they can alter the underlying risk behavior of constituents.

5.4 Recommendation

This study has brought to the fore the imperative of tax morale in the achievement of high tax compliance. Based on the findings in this study, we hereby make recommendations that may guide programmes, policy formulation and implementation of government that seek to increase tax payer"s level of tax compliance. If taxpayers do not understand what their obligations are, any intervention to enforce compliance will be perceived as unfair. Thus, there is a need to provide strong taxpayer"s services particularly during the tax filing stage. This will include dissemination of information in order to enhance taxpayer compliance and also introduce taxpayer education programs. Taxpayer"s service can also be improved by: providing proper guidance on how the tax return forms are to be completed correctly, introducing automated systems to record and answer tax payers" queries and wider use of the mass media to publicize important tax deadlines and so on. The capability to detect fraud or evasion is crucial to tax compliance. As it would not be practical to audit all cases, the fear of being caught would be sufficient to act as a deterrent. Ideally, when a case is selected for audit a tax official will be required to visit the premises of the taxpayer. The tax returns will have to be scrutinized under the supervision, or be jointly examined with a senior tax official so that the discretionary powers being exercised by tax officials are not abused. The tax authorities should undertake criminal prosecution in respect of cases involving fraud or evasion, and where appropriate publish the names of tax evaders which will act as a deterrent.

• Accounting Project Topics and Materials