DETERMINANTS OF PERSONAL INCOME TAX COMPLIANCE IN NIGERIA
This study examined the determinants of personal income tax compliance in Nigeria. Questionnaires were administered to generate the necessary primary data, which were analysed descriptively. A total of eight-four questionnaires were administered to tax payers in Benin City. The chi-square method was used in test the various hypotheses. Review of relevant literatures were carried out in order to get a deeper in sigh and proper understanding of the project. The result shows that there is a significant relationship between demographic variables and personal income tax compliance in Nigeria and that there is relationship between economic variables, behavioural variables, non-compliance opportunity, tax system/structure and personal income tax compliance.
It was further recommended that the tax rate should be minimal and realistic for people to be able to comply and that the tax authorities should properly review and evaluate the assessment and collection procedures so as to encourage compliance by taxpayers.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study
1.2 Statement of the Problem
1.3 Objective of the Study
1.4 Hypothesis of the Study
1.5 Significance of the Study
1.6 Scope of the Study
CHAPTER TWO: LITERATURE REVIEW
2.2 Review of Previous Studies
2.2.1 Meaning of Taxation
2.2.2 Meaning of Personal Income Tax
2.2.3 Forms of Personal Income Tax
2.3 Determinants of Tax Compliance
2.3.1 Demographic Variables
220.127.116.11 Income Level
2.3.2 Economic Variables
18.104.22.168 Probability of detection and penalties
22.214.171.124 Tax rates
2.3.3 Behavioral Variables
126.96.36.199 Fairness of tax system
188.8.131.52 Peer Influence
184.108.40.206 Distributive Role of A Tax System
2.3.4 Non-Compliance Opportunity
220.127.116.11 Income Source
18.104.22.168 Complexity of Tax System
22.214.171.124 The Structure of the Nigerian Tax System
2.4 The Concept of Tax Compliance Behavior and
2.5 Determinants of Individual Income Compliance
2.6 Current Taxation Reforms
2.7 The Process of Tax Administration
2.7.1 Problems of Tax Assessment and Collection
2.7.2 Political Culture
2.8 Sustaining Growth in Developing Economies
Through Improved Taxpayer Compliance:
Challenges For Policy Makers And Revenue
2.8.1 Tax Evasion by Small Business
2.8.2 Strategies to Improve Taxpayers' Compliance
2.8.3 Voluntary Compliance in Personal
Income Tax Administration
2.9 The Tax Compliance Decision
2.9.1 Factors Affecting Compliance
CHAPTER THREE: RESEARCH METHODOLOGY
3.2 The Research Design
3.4 Sample Size
3.5 Sources of Data
3.5.1 Primary Sources of Data
3.6 Research Instrument
3.7 Method of Data Analysis
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS
4.2 Data Analysis and Its Interpretation
4.3. Hypothesis Testing
4.3.1 Hypothesis One
4.3.2 Hypothesis Two
4.3.3 Hypothesis Three
4.4 Discussion of Findings
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary of Findings
1.1 BACKGROUND OF THE STUDY
Taxpayer’s behaviors towards tax have evoked great attention among many Revenue Authorities. Hostilities towards tax compliance data back to the history of taxation. “Taxes are considered a problem by everyone. Hostile taxpayers behaviours implies that given a chance taxpayers would not comply with tax laws.
Perhaps understanding the taxpayers’ behavior in terms of factors which influence their attitude towards tax compliance and how to influence the very factors would be a solution to this puzzle. Magutu and Mokoro (2010). The payment of tax is a civic duty and an imposed contribution by government of her subjects and companies to enable her finance or run public utilities and perform other social responsibilities. However, one of the greatest problems facing the Nigerian Tax System is the problem of tax evasion. Tax evasion has been an important subject of inquiry in a large number of developed countries over a long period of time.
Tax non compliance is described as intentional illegal behavior, or as behavior involving direct violation of tax law to escape the payment of tax. The deliberate under-reporting of income and over claiming of tax deductions are examples of tax evasion (International Bureau and Fiscal Documentation (IBFD, 2001). In contrast, tax avoidance is a term used to describe taxpayer infringing the tax laws. Although tax avoidance can be used to refer to acceptable forms of behavior, such as tax planning, it is more often used to refer to something unacceptable or illegitimate, but generally illegal.
But, reducing tax evasion is not only a matter of applying higher penalties and/or increasing the frequency of audits. Indeed, extreme penalties may backfire by creating a setting in which bribery and corruption are more prevalent. The result may be lower tax compliance and a general loss of trust in the public institutions. To develop policies for the reduction of tax evasion, it is essential to understand the behavioural aspects of tax compliance decision. This is true whether one is designing a tax enforcement regime anew or simply devising policies to encourage tax compliance within the existing tax enforcement system. If individual attitudes towards compliance are a function of social and cultural norms, then enhancing these norms may be a desirable policy options.
Tax compliance is a complex behavioural issue and its investigation requires the use of a variety of methods and data sources as each instrument has advantages and short-comings. There is a considerable literature suggesting that compliance with rules is affected by social norms. Some sources of such overall level of social capital. For example, interactions that demonstrate government responsiveness and fairness have a positive effect on tax reporting behavior as will be perception that the government is using tax revenue for socially desirable purposes.
1.2 STATEMENT OF THE PROBLEM
In Nigeria taxpayers exhibit varying levels of tax compliance. Tax administration is generally weak with widespread evasion, corruption and coercion. Taxpayers tend to have low levels of literacy, low tax morale and negative attitudes towards government.
The extent of the impact of attitude and attitudinal change on tax compliance behavior is not well understood. Therefore, addressing this knowledge gap was the primary purpose of this study. It is for this reason that this study attempt to find out how taxpayers’ attitudes influence tax compliance behavior in Nigeria.
The study tried to answer the following questions:
What is the relationship between demographic determinants and personal income tax compliance?
What is the relationship between economic determinants and personal income tax compliance?
What are the behavioural factors that can affect personal income tax compliance?
What is the relationship between non compliance opportunity and personal income tax compliance?
How does the tax system/structure affect personal income tax compliance?
What is the relationship between tax compliance and tax enforcement?
1.3 OBJECTIVE OF THE STUDY
To determine whether there is a relationship between demographic variables and personal income tax compliance.
To establish that some economic variables can affect personal income tax compliance.
To determine whether behvioural variables can affect personal income tax compliance.
To establish that there is a relationship between non compliance opportunity and personal income tax compliance.
To determine whether the tax system/structure plays any role in personal income tax behavior.
To examine the relationship between tax compliance and tax enforcement.
1.4 HYPOTHESIS OF THE STUDY
Hypothesis is a tentative answer to a research questions. It can be stated in a null form (Ho) or alternative form (Hi).
The following hypothesis will be formulated and tested in this study:
Hi: There is a significant relationship between demographic variables and personal income tax compliance.
Ho: There is no relationship between demographic variables and personal income tax compliance.
Hi: There is a significant relationship between economic variable and personal income tax compliance.
Ho: There is no relationship between economic variable and personal income tax compliance.
Hi: There is a significant relationship between behavioural variable and personal income tax compliance.
Ho: There is a negligible relationship between behavioural variable and personal income tax compliance.
Hi: There is a significant relationship between non compliance opportunity and personal income tax compliance.
Ho: There is no relationship between non compliance opportunity and personal income tax compliance.
Hi: There is a positive relationship between personal income tax compliance and the tax system/structure.
Ho: There is no relationship between personal income tax compliance and the tax system/structure.
Hi: There is a positive relationship between personal income tax compliance and tax enforcement.
Ho: There is no relationship between personal income tax compliance and tax enforcement.
1.5 SIGNIFICANCE OF THE STUDY
The benefits of this study can be seen from the recommendation it provides. If implemented, it will enhance and improve factors that can be most effective in improving both personal and corporate taxpayer compliance and the necessary steps to implement them in other to achieve sustainable economic growth in Nigeria. This study will afford the general public an insight into the importance of effective tax payment in Nigeria, thereby increasing and improving the awareness and knowledge of students.
1.6 SCOPE OF THE STUDY
The scope refers to the boundary of the study, the scope of this study is narrowed down to personal income tax payers in Edo State. The study shows variables that can determine personal income tax compliance in Nigeria.
Magutu, O. and Mokoro, L.O. (2010), “Taxpayers Attitudes and Tax
compliance behavior in Kenya”. African Journal of Business Management (AJBUMA) vol.
International Bureau of Fiscal Documental (IBFD), 2001.
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