AN ASSESSMENT OF THE EFFECTS OF TAX EVASION AND AVOIDANCE ON SUSTAINABLE INFRASTRUCTURAL DEVELOPMENT

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AN ASSESSMENT OF THE EFFECTS OF TAX EVASION AND AVOIDANCE ON SUSTAINABLE INFRASTRUCTURAL DEVELOPMENT

ABSTRACT

Tax evasion and avoidance are persistent challenges faced by governments worldwide, hampering their efforts to fund critical infrastructural development projects. This research project aims to analyze the implications of tax evasion and avoidance on sustainable infrastructural development, exploring the intricate relationship between fiscal misconduct and the availability of resources for building and maintaining essential public infrastructure. By examining case studies, economic models, and policy frameworks, this study sheds light on the multifaceted nature of the issue and its far-reaching consequences. The research employs a mixed-methods approach, integrating qualitative analysis to understand the motivations and methods behind tax evasion and avoidance, and quantitative analysis to assess the magnitude of revenue loss due to these practices. By leveraging existing literature, governmental reports, and expert opinions, the study presents a comprehensive overview of the current state of tax evasion and avoidance, while also delving into the mechanisms that enable these practices to persist. Furthermore, this project investigates the direct and indirect effects of reduced tax revenues on infrastructural development projects. It examines how diminished funding impacts the implementation of vital projects such as transportation networks, energy facilities, and communication systems. The study also explores the broader implications for sustainable development, social equity, and economic growth within affected regions. The findings of this research emphasize the urgent need for robust policy measures, international cooperation, and improved enforcement mechanisms to curb tax evasion and avoidance effectively. By addressing these issues, governments can enhance their revenue streams, ensuring a more stable foundation for sustainable infrastructural development. Additionally, the study underscores the significance of public awareness campaigns and educational initiatives aimed at fostering a culture of tax compliance and responsible citizenship. In conclusion, this project contributes to the existing body of knowledge by providing a comprehensive assessment of the effects of tax evasion and avoidance on sustainable infrastructural development. By uncovering the intricate interplay between fiscal misconduct and development outcomes, this research offers valuable insights for policymakers, economists, and development practitioners striving to promote equitable and sustainable growth in the face of persistent challenges related to taxation.

CHAPTER ONE: INTRODUCTION

1.       BACKGROUND OF THE STUDY

Taxation is a fundamental mechanism through which governments generate revenue to fund essential public services and infrastructure development projects. Adequate funding is crucial for the construction, maintenance, and enhancement of critical infrastructure such as transportation networks, energy facilities, water supply systems, and communication networks. These infrastructure assets are the backbone of economic growth, social well-being, and overall development within a nation.

However, the issue of tax evasion and avoidance has emerged as a significant challenge that undermines the revenue base of governments globally. Tax evasion refers to the illegal act of deliberately misrepresenting financial information to evade tax payments, often involving activities such as underreporting income, inflating deductions, or concealing assets. Tax avoidance, on the other hand, involves legally exploiting loopholes in tax laws to minimize tax liabilities without violating the law’s letter. Both practices result in reduced tax revenues, which in turn, hinder governments’ ability to finance crucial infrastructure development projects.

Sustainable development, a core principle embraced by international organizations and governments, emphasizes the need for balanced economic, social, and environmental progress that meets present needs without compromising the ability of future generations to meet their own needs. Sustainable infrastructure development is a key component of this agenda, as it contributes to economic growth, poverty reduction, and environmental preservation.

Tax evasion and avoidance defiles sustainable infrastructural development in any constituted society. One of the duties of the government at all tiers is making available infrastructures, referring to roads, utility lines, hospitals, schools, emergency services like fire fighters, ambulance and police, sidewalks, motorable and pedestrian bridges. The basic facilities that make a town or city function effectively are known as infrastructures. Tax evasion and avoidance
can be understood as an act of deliberately causing harm to oneself and fellow members of the society. According to Farayola (1987), Tax evasion is the fraudulent, dishonest, intentional distortion or concealment of facts and figures with the intention of avoiding the payment of or reducing the amount of tax otherwise payable, while Tax avoidance according to Nwakaji and Ewah (2010) refers to a taxpayer’s effort to avoid paying tax by finding a legal loophole in the tax system, it could also be said to be the arrangement of affairs in such a manner as to pay minimum amount of tax due.

The relationship between tax evasion, tax avoidance, and sustainable infrastructural development is complex and multifaceted. Reduced tax revenues limit governments’ ability to allocate resources for infrastructure projects, leading to delays, suboptimal quality, or even the abandonment of vital initiatives. This, in turn, can impede economic progress and hinder the achievement of sustainable development goals.

Despite its critical importance, the intersection of tax misconduct and infrastructural development has not been extensively studied in a holistic manner. While there is a growing body of literature addressing tax evasion and avoidance from legal, economic, and sociopolitical perspectives, there remains a gap in research that comprehensively assesses the far-reaching effects of these practices on sustainable infrastructural development.

This research project aims to bridge this gap by providing a thorough analysis of the implications of tax evasion and avoidance on sustainable infrastructural development. By exploring case studies, economic models, and policy frameworks, the study seeks to unveil the intricate dynamics at play, elucidating the magnitude of the issue and offering insights into potential mitigation strategies. Through a mixed-methods approach, the research endeavors to contribute to the broader discourse on taxation, development, and the pursuit of global sustainability.

In summary, the study addresses a critical area that has implications for economic growth, social equity, and environmental sustainability. By examining the effects of tax evasion and avoidance on sustainable infrastructural development, the research aims to inform policymakers, researchers, and practitioners about the challenges and opportunities in promoting robust revenue streams for the advancement of essential infrastructure within a sustainable development framework.

1.       STATEMENT OF PROBLEM

The quantity and condition of the infrastructures in Ado-Odo Ota local government area gets worse by the day as the population increase due to influx of residents of Lagos state who share boundary with Ogun state, caused by the over-congestion and over-crowdedness of dwellers in Lagos state of which can no longer contain its over-flowing populace. Over-utilization of infrastructures in Lagos state presently causing defects and great unbalance of resources to inhabitants. The outcome of such migration is a large increase in the demand
for sustainable infrastructural development in Ogun state, just as Ado-Odo Ota local government area serves as the choice residence to these migrants due to its proximity to Lagos state.

Over-dependence and over-reliance on the federal allocations has instigated tax payers and collectors in the local government area to relax from their civic duties towards tax. Sustainable infrastructural development can only be achieved where there is minimal or no presence of tax evasion and avoidance. Tax evasion and avoidance have rooted its presence in virtually the entire local government areas in the country but no one seems to know the extent it has gone in particular areas, why they occur there and proffer solution. This study
is therefore designed to add to existing knowledge, the effects of tax evasion and avoidance on sustainable infrastructural development in Ado-Odo Ota local Government area, Ogun state.

1.3             RESEARCH QUESTIONS

In order for this research work to be effective and efficient, it pleases the researcher to ask the following questions:

1. To what extent does tax evasion and avoidance hinder sustainable
   infrastructural development in Ado-Odo Ota local government area?
2. What are the short and long-run effects of tax evasion and avoidance on
   sustainable infrastructural development in the study area?
3. What are the possible causes of tax evasion and avoidance in the study
   area?
4. What recommendation can be given to the examined problems of these tax
   irregularities in the study area?

1.4       AIM AND OBJECTIVES OF THE STUDY

The aim of this study is to examine the effects of tax evasion and avoidance on
sustainable infrastructural development in Ado-Odo Ota Local Government
Area, Ogun state. The broad objective is broken down to the following specific
objectives:

1. To ascertain the extent tax evasion and avoidance hinder sustainable infrastructural development in Ado-Odo Ota local government area.
2. To examine the short and long-run effects of tax evasion and avoidance on sustainable infrastructural development in the study area.
3. To identify the possible causes of tax evasion and avoidance in the study area.
4. To make recommendation on the examined problems of these tax irregularities in the study area.

1.5       STATEMENT OF HYPOTHESES

The following hypotheses have been posited to aid the research work. The null
hypothesis is denoted as “Ho” while the alternative hypothesis is denoted as
“Hi”.
HYPOTHESIS ONE:

Ho1: There is no relationship between tax evasion and avoidance and sustainable infrastructural development in Ado-Odo Ota local government area, Ogun state.

Hi1: There is a relationship between tax evasion and avoidance and sustainable infrastructural development in Ado-Odo Ota local government area, Ogun state.
HYPOTHESIS TWO:

Ho2: There is no difference between the number of persons that are liable to pay tax and the number of persons that pay tax in Ado-Odo Ota local government area, Ogun state.
Hi2: There is a difference between the number of persons that are liable to pay tax and the number of persons that pay tax in Ado-Odo Ota local government area, Ogun state.

1.6       SIGNIFICANCE OF THE STUDY

This study would be relevant to various tax authorities; the Federal Inland
Revenue Service, State Internal Revenue Service, Local Government revenue
committee as well as their tax officials who are responsible to collect tax
liability from individuals or corporate bodies. It gives them insight on how to
improve the tax administration. The study would also help professional bodies
like the Chartered Institute of Taxation of Nigeria, the Institute of Chartered
Accountants of Nigeria and the Nigerian Institution of Estate Surveyors and
Valuers as well as their members to see the areas of deficiency in the
collections and call for improvement in tax revenue. This study would also be
relevant to the future researchers and any such individual or corporate body
that is concerned with achieving sustainable infrastructural development in a particular area as well as the legislations which will also benefit greatly from this study, because it will form basis of tax policy formation, implementation and administration.

1.7 SCOPE OF STUDY

It is focused on studying the discernible and foreseeable effects of tax evasion and avoidance on sustainable infrastructural development. The study will focus primarily and precisely on Ado-Odo Ota local government area in Ogun state, to enable the studier carryout an extensive study on this subject. The geographical scope to be covered is strictly limited to Ado-Odo Ota local government area in Ogun state.

1.9 LIMITATION OF THE STUDY

It is not strange for a research to encounter some difficulties in the course of research and these encountered in the course of this research include:

1. Inadequate time due to the combination of class schedule and project work.

2. Lack of full cooperation by some of the respondents and some who refuse to receive the researcher and some afterwards delayed in giving back the questionnaire.

3. Financial constraints though this is always a major limitation in studies of this nature, since the researcher may not have enough money to carry out all the necessary research.

4. There are areas where data is available but the researcher cannot lay hands on them because the relevant information is sometimes termed confidential and unavailable to outsiders.

Despite all this limitations and hindrances mentioned above, the research study no doubt turned out to be successful.

1.10 DEFINITION OF TERMS

There are some terms used in this study and proper understanding of the terms is important in appreciating this study:

1. TAX: Tax can be defined as a charge by government on persons, corporations, estates and trust for the purpose of raising money for government expenditure (Umezuruike, 1998). Ifediora (1998) also defined tax as the sum of money demanded by the government for its support or for specific facilities or service, levied upon incomes from property, sales and services. Eribo (2010) emphasized that taxes are normally paid by the eligible citizens of any political system as a legal obligation, regardless of the extent to which they benefit from the services the proceeds finance.

2. TAX EVASION: Tax evasion is the fraudulent, dishonest, intentional distortion or concealment of facts and figures with the intention of avoiding the payment of or reducing the amount of tax otherwise payable (Farayola, 1987).

3. TAX AVOIDANCE: Tax avoidance refers to a taxpayer’s effort to avoid  paying tax by finding a legal loophole in the tax system, it could also be said to be the arrangement of affairs in such a manner as to pay minimum amount of tax due (Nwakaji & Ewah, 2010).

4. TAX LIABILITY: This is the amount that is borne by the tax payer (Ihuoma, 2013).

5. PAYE (PAY AS YOU EARN): This type of tax is based on the earning of the tax payer (Ihuoma, 2013).

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