Benjamin Franklin was apt when he said “In this world nothing can be said to be certain, except death and taxes”. Some may consider this comparison to be exaggerated. However, tax is an important element of the social structure that is difficult to escape. Usually, those who seek to escape taxes have two alternatives – to avoid tax or to evade it.
Taxpayers who avoid tax do so by taking advantage of legally available tax planning opportunities to ensure that the minimum but correct amount of taxes are paid. It is within the right of taxpayers to plan their financial and accounting affairs in such a manner as to optimize their tax positions or manage their tax exposures, as long as the provisions of the tax laws are not infringed on. Activities by taxpayers which are within the ambit of the laws and geared towards optimizing tax costs fall within the umbrella of tax avoidance.
On the other hand, some taxpayers manage their tax liabilities by infringing on the provisions of the laws. These taxpayers deliberately and illegally pay less taxes than the law permits. They do this by willful non-disclosure or falsification of records. In some other instances, taxpayers do not register with the tax authorities at all or change business addresses without notifying the tax authorities – all with a view to avoid their tax obligations. Such activities by taxpayers, which lead to breach or infraction of tax legislation fall under tax evasion.
It is not out of place to say tax evasion is a fairly common practice among many taxpayers and is a major problem of tax administration in Nigeria. Tax evasion could be attributable to a number of factors ranging from burden of tax compliance, wrong interpretation of tax laws, wrong application of identified loopholes etc. For Micro Small and medium enterprises (MSMEs) in Nigeria, one of the reasons for tax evasion may be the excess burden of tax compliance. Small businesses, especially fairly new ones spend the first few years trying to survive and usually do not have the capacity to attend to imminent tax obligations.
However, this issue can be tackled by reducing the burden of tax compliance for small businesses. This may be achieved by establishing specific thresholds before certain tax obligations would become compulsory for taxpayers. Also, tax authorities may provide support such as assistance with calculating taxes due from MSMEs and provision of accounting software packages. Similar measures are being employed in the UK to encourage tax compliance and reduce the burden of tax obligations for small businesses.
Additionally, simplification of tax laws through revisions and deletion of ambiguous provisions will go a long way in reducing the incidence of tax evasion in Nigeria. For instance, provision of adequate clarifications on requirements for benefiting from tax incentives will enable taxpayers avoid pitfalls that are concomitant with wrong application of the laws.
Lastly and most importantly, accountability by government has a lot of influence on the attitude of citizenry towards taxation. Research has shown that taxpayers would be willing to pay more taxes if confident that the taxes would be used judiciously and responsibly by government. Therefore, in order to improve attitude towards taxation, government must also be seen to be improving the lives of taxpayers through the taxes collected.
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