A widely views has it that taxable adults in Enugu state evade tax payment, thereby depriving government of revenue.  For this reason, this study focused on tax evasion: causes and implication on Enugu state government revenue so as to understand the importance of taxation towards improving internally generated revenue in Enugu state to enable government of the state provide her citizens with adequate amenities without hoping on statutory allocation.  In the light of this study, two specific objectives, two research questions and two hypotheses were listed, asked and tested. The study adopted survey research design with a population of 3070 and a sample size of 354. The sample size was derived statistically by using Taro Yamane statistical technique. Simple random sampling technique was adopted and questionnaire was used for data collection. The questionnaire was administered by the researcher coupled by her sister’s assistance to the respondents which the questionnaire were not collected immediately so as to elicit clear response. Hypotheses were tested using Chi-Square with the aid of statistical package for social sciences (SPSS). One of the findings shows that tax evasion has implication on Enugu state government revenue. Since tax evasion has implication on Enugu state government revenue this clearly implies that tax evasion reduces revenue generated by government of the state. The researcher concludes that tax evasion reduces revenue generated by state government which leads to debt accumulation as well as budget deficit. Hence the researcher recommended that government and other relevant agencies should promote the effort made towards preventing tax evasion in the state so as to enhance increase in government generated revenue.


Title page:                                i

Declaration:                                ii

Certification:                                iii

Dedication:                                iv

Acknowledgements:                                v

List of Tables:                                ix

Abstract:                                x


   1.1    Background to the study:                                1

   1.2    Statement of the problem:                                4

   1.3    Objectives of the study:                                5

   1.4    Research Questions:                                    5

   1.5    Research Hypotheses:                                    5

   1.6    Significance of the study:                                5

   1.7    Scope of the study:                                    6

   1.8    Limitations of the study:                                6

   1.9    Definition of terms:                                    7


   2.1    Introduction:                                        8

   2.1.2     Definition of Taxation:                                9

   2.1.3    Purpose of Taxation:                                    10

   2.1.4    Kinds of Taxes:                                    10

   2.1.5    Types of Direct Taxes:                                10

   2.1.6    Advantages of Direct Taxation:                            11

   2.1.7    Disadvantages of Direct Taxation:                            12

   2.1.8    Types of Indirect Tax:                                    12

   2.1.9    Advantages of Indirect Taxation:                            13

   2.1.10 Disadvantages of Indirect Taxation:                            13

   2.1.11 Attributes of a Good Tax System:                                    13

   2.1.12 Types of Tax System:                                14                  

   2.2    Tax Evasion:                                        15

   2.2.1    Causes of Tax Evasion:                                17

   2.2.2    Implication of Tax Evasion:                                19

   2.3    Government Revenue:                                20

   2.4    Empirical Review:                                    20

   2.5    Theory of Taxation:                                    23


   3.1    Introduction:                                        24

  3.2    Design of the Study:                                    24

  3.3    Source of Data:                                    24

  3.4    Area of the study:                                    24

  3.5    Population of the study:                                24

  3.6    Sample and Sampling Technique:                            25

  3.7    Instrument for Data Collection:                            26

  3.8    Validity and Reliability of Instrument:                        26

  3.9    Method of Data Collection:                                26

  3.10    Method of Data Analysis:                                26


   4.1    Introduction:                                    28

   4.2    Analysis of Data:                                28

   4.3    Test of Hypotheses:                                28


   5.1    Introduction:                                    39

   5.2    Summary of Findings:                            39

   5.3    Conclusion:                                    39

   5.4    Recommendations:                                39

   5.5    Area for further Research:                            40

References:                                        41

Appendix:                                        55


Table 1: Questionnaire distributed and returns:                    28

Table 2: Distribution of respondents according to gender:                29

Table 3: Distribution of respondents according to age:                29

Table 4: Distribution of respondents according to academic qualification:        30

Table 5: Distributions on the category of respondents:                30

Table 6: Distribution of respondents according to marital status:            31

Table 7: Is tax evasion caused by high tax rate:                    31

Table 8: Does absence of sprit of civic responsibility cause tax evasion:        32

Table 9: Does inequitable distribution of amenities cause tax evasion:        32

Table 10: Does lack of strict penalty cause tax evasion:                33

Table 11: Does tax evasion reduce revenue generated by state government:    33

Table 12: Does tax evasion lead to debt accumulation:                33

Table 13: Does tax evasion bring about budget deficit:                34

Table 14: Does tax evasion lead to poor infrastructural development:        34



1.1 Background to the study

It is a universal truth that taxes contribute to the development of every nation. Nigeria being a developing nation in West Africa, with respect to Enugu state, is not left out from the benefits derived from taxes. The revenue derived from taxes helps government of Enugu state to finance its expenses such as: provision of infrastructure, protection of lives and properties through the security agencies against foreign or local aggression, provision of health care facilities, funding the education sector and many others. It is an imperative factor in economic planning and development of the state, and it is a crucial agent of social change.

Taxes help to improve efficiency, reduce waste and loss of human life. This is usually associated when negative externality is perceived in the state. The intake of cigarette causes harm both to the cigarette taker and the people around him. In other to curb this unhealthy behavior, taxation plays a vital role when more of such harmful goods are taxed. In a country like Nigeria and Enugu state in particular where we face problems of chronic unemployment and regional disparities, tax policy should be adopted to alleviate the issue. This is done with the view that poverty should be eliminated from the state and government needs to play active role in fulfilling this task. It is noted that the problem of growth, by itself, covers numerous aspects and tax system may be designed to help in more than one ways. Taxation can help to reduce the problem of insufficient savings and accumulated capital arising from borrowing. Tax holiday can be given to companies to boost production and fill both supply and demand gap.

According to Chaudhry and Munir (2010), Tax as a source of government revenue consists of direct and indirect tax.  Direct tax is a form of tax that is levied on the income of individuals both civil servants and self-employed persons. The burden of direct tax is borne by the person on whom it is imposed. The concept of direct tax is not restricted to individuals’ income alone. It extends to profits of corporate bodies whose burden cannot be shifted. On the other hand, indirect tax is a type of tax that is levied on goods and services. Unlike direct tax, the burden of indirect tax can be shifted e.g. value added tax, import duties e.t.c.

According to Onyema (2000), tax is a compulsory payment which government levies on individuals and on the incomes of corporate bodies, to defray the cost of public expenditure. From the definition above, two imperative features differentiate it from other form of payment. One important feature is being recognized as a compulsory payment which nonpayment on demand is punishable by law. Secondly, it is not a quid pro quo exchange. This implies that government need not provide services or give explanation to the taxpayer.

Tax is an instrument of fiscal policy, which plays an important role in every organized nation irrespective of the political structure.  This is buttressed by the undeniable role of taxation in reducing inflation in the country. When inflation is noticed in the nation, income of individuals is greatly tax in other to reduce their purchasing power.

Tax is considered the most important source of government revenue since the level of government expenditure is to a large extent dependent on the ability of the tax system to generate the required revenue needed for economic development.

The undue reliance on the federal government for allocation of fund from federation account for carrying out needed activities in Enugu state has become a setback for carrying out needed activities required in the state. As a result of this quagmire, Enugu state is required to intensify their internally generated revenue to boost up allocation from the federation account.

Considering the vital role of tax in Enugu state, taxation becomes an important area of study. But because of the inefficiency of the tax system in ensuring equitable distribution of income, proper regulation of the state, and gathering of resources to government for carrying out needed duty in the state, it is strongly believed that the rate of tax evasion in Enugu state is very high.

As observed from tax administration in Enugu state, the tax system is considered questionable because of its inefficiency. A good tax system should be able to recognize that the taxpayer has some basic rights. He is expected to pay his taxes but not undergo harassment. With this view, tax laws should be simple in language and the tax liability should be determined with certainty. The mode and timings of payment should suit the convenience of the tax payer to the extent possible. A good tax system should be equitable between different tax payers. It should be progressive so as to levy an equitable burden on all.

On several occasions, government aim of financing its expenditure often becomes a dilemma as a result of insufficient fund to carry out the task.  This has resulted to people going for self help projects in the state. From discoveries made, the number of self help projects in Enugu state has outnumbered those provided by the government. One would ask, what is the cause of this insufficiency? Does government keep the money for themselves? Was the revenue stolen by criminals? Are individuals not been patriotic by not paying their tax when they are meant to? From all the possible causes of reduction in government revenue, emphasis has been laid on tax evasion.

 Lekan and Kajola (2006), said that tax evasion is a deliberate practice of not disclosing full taxable income so as to pay less tax. This behavior is seen as a criminal act of disobeying the provision of tax laws. They also pointed out methods by which people evade tax:

By failing to furnish correct return, statement or information or keep records required.

Making false return by a way of omitting or understating income liable to tax.

Presenting large amount of expenses in other to reduce taxable income.

Hiding away totally without making any tax payment.

 Salawu (2005) opined that tax evasion is a crime that impedes government fiscal policy. This means that tax evasion makes government aim of regulating the economy to be effete. Hitherto, overall increase of tax evasion in Enugu state has disclosed that taxpayers do not make a fair presentation of their tax base to foster revenue.   Since no man is above the law, obedience to set laws of a country is one of the obligations of every citizen of the country. Moreover, government has much obligation in ensuring that the set rules are obeyed. In line with tax collection and administration, tax authorities in Enugu state are to ensure that income tax is properly paid and evaders are seriously punished.  Tax evasion became rampant in the state because there is little or no legal enforcement in the state to deal with growing issues of tax evasion. Sani (2005) described a tax evader as one who for a number of reasons refuses to fulfill his civic responsibilities under the law. He is for all intents and purposes a criminal. Adegbie and Fakile, (2011) opined that tax evasion can be partial or total and its degree varies from place to place and between occupational groups. There is partial evasion when a taxpayer under declares his income for tax purposes and total evasion of income tax  occurs when a taxpayer who is already qualified to pay tax refuses to get the name registered in the tax roll. (Sani, 2005) gave many ways in which the act of tax evasion is encouraged which are :unbearable high tax rates which make evasion more attractive and economical, lack of faith in the ability of the government to use the money judiciously, total ignorance of the law, absence of any visible benefit accruing to the taxpayer, inefficiency of tax administration which gives room for tax evasion, ridiculously low penalties prescribed in the tax laws for late payment or non- payment, outright unwillingness to contribute towards the upkeep of one’s society.

1.2 Statement of the problem

It is not a doubt that tax contributes largely to government revenue. Revenue gotten from taxation helps in carrying out state project. As a result of tax evasion, total revenue which would have been used to finance core projects in Enugu state remains on the decline. This would result in government proposed expenditure exceeding its total revenue. When such situation occurs, government sorts out ways of financing such expenditures either by borrowing externally or internally which eventually accumulates state’s debt.

    Also, collaboration of tax authorities with affluent business men in Enugu state contributes immensely to tax evasion. It therefore brings about income inequality in the state because income of business moguls are not been subjected to tax or if being subjected to tax, less amount is taxed.  Coupled by the ineffectiveness of the tax system, other taxpayers would opt to be unpatriotic towards tax payment.

Tax evasion has posed a serious problem as to understand the extent in which resources are adequate for the management of Enugu State Board of Internal Revenue. As a result of increase in tax evasion in the state, those engaged in government work will not be paid their salary as at when due. The state board on the other hand won’t be adequately furnished with needed equipments to carry out their job.

Also, if states are to be graded from federal level, there is every possibility that Enugu state will take the least score because of under development. The state government access to fund to bring about development in the state will not be achieved. ‘Keep Enugu state clean’ slogan by many will be a history because Enugu State Management Authority(ESWAMA) officials if haven’t been paid for so long, is bound to be less concerned towards their job. And the following consequences result to living in an unhealthy environment by Enugu state inhabitants.

1.3 Objectives of the study

The general objective of this study is to identify the causes and implication of tax evasion on Enugu state government revenue.

The specific objectives are as follows:

1.    To examine if high tax rate causes tax evasion.

2.    To determine the implication of tax evasion on Enugu state government revenue.

1.4 Research questions

The following research questions will guide this study.

1.    To what extent does high tax rate cause tax evasion?

2.    What implication does tax evasion have on Enugu state government revenue?

1.5 Research Hypotheses

The following hypotheses will be tested in the course of this study.

Ho: High tax rate does not significantly cause tax evasion.

H1: High tax rate significantly cause tax evasion.

Ho: Tax evasion has no significant implication on Enugu state government revenue.

H1: Tax evasion has significant implication on Enugu state government revenue.

1.6 Significance of the Study  

This study has the benefit of ensuring that tax evasion practices are avoided by individual tax payers in Enugu state. This is achieved by creating awareness on the benefits which come from tax revenue. It can also be done by educating individuals, especially those in rural areas about the concept of tax evasion and its consequences.

Furthermore, Enugu state government will benefit from this study as it will to an extent minimize acute reduction in its revenue and they will have fund for developing the state. This will be achieved because this study will reveal factors that contribute to reduction in Enugu state government revenue and find ways of limiting them.

In addition, individuals will also benefit from the study through enjoyment of infrastructures provided by government, paying little or no money in government owned hospitals and schools, living without fear in a country where their lives and properties are protected by security agencies. Civil servants which include those working in Enugu state board will also benefit from the study because government will have income at their disposal to pay for their salary.

The state as a whole will benefit from this study as it will ensure that tax defaulters and corrupt tax authorities are punished according to law as this will serve as a deterrent to others.   

1.7 Scope of the study

This study is delimited to self employed and those employed in private sectors in the state which include: traders, commercial motorists, business professionals such as accountants, and doctors. Emphasis is placed on these people listed above because civil servants are the only identified persons that actually pay tax in Enugu state with respect to Enugu state Board of internal revenue which is the relevant tax authority for income tax collection and administration in the state. The data collection was restricted to the state board, traders, and individuals within Enugu Urban. Hence, the findings of this study are limited on Enugu state government revenue.

1.8 Limitations of The study

During the course of this study the researcher faced some challenges while trying to ensure the success of this work. While carrying out this work, trying to gather materials for this study was not an easy task as emphasis was placed on where to source the right material for the work as different text books and journals were consulted. It also took the researcher time in visiting the state board for data gathering as it contributes to overall concern of the study. The limited time frame is also connected to the researcher’s need to combine this study with her other academic works.

1.9 Definition of terms

Tax payer: It is someone who is required by law to pay tax. In this study, a taxpayer refers to self-employed and people employed in private sectors.

Revenue: This is the income one receives for performing a job or carrying out sales transactions. Revenue in this study refers to income generated by government (Enugu state) from taxation.

Tax authority: it is a body authorized by law to collect and assess tax returns which in this study, is the state Board of internal revenue Enugu state.




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