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CHAPTER ONE  
INTRODUCTION  
1.1   BACKGROUND TO THE STUDY  
Taxation is not a new word in Nigeria or the world as a whole. In Nigeria, taxation has been in existence even before the coming of the colonial men or the British. Taxation can be defined as the system of imposing a compulsory levy on all income, goods, services and properties of individuals, partnership, trustees, executorships and companies by the government (Samuel and Simon, 2011;Yunusa, 2003). Income tax is one of the major sources of revenue to all government. In Nigeria, it is a factor to be reckoned with in Federal Government’s budget the taxes so collected come back to the taxpayer in form of services. This has over the years encouraged or discouraged some activities in the private sector; though, this depends on whether the policy of the government is towards discouraging or encouraging such companies (Ola, 1999). Taxation is recognized as a very important tool for national development and growth in most societies. It has viewed as a major vehicle for long term development of infrastructures of the state.   
With the growth and increasing globalisation of businesses (including the increased mobility of capital and rise of e-commerce), the opportunities for taxpayers to violate tax laws are expanding, prompting the need for the tax administration to continually update and broaden the strategies it uses to deal with this problem.   Tax fraud occurs when an individual or business entity willfully and intentionally falsifies information on a tax return in order to limit the amount of tax liability . Tax fraud essentially entails cheating on a tax return in an attempt to avoid paying the entire tax obligation. Examples of tax fraud include claiming false deductions; claiming personal expenses as business expenses; and not reporting income.  
Most developed countries are characterized by a broad base for direct and indirect taxes with tax liability covering the vast majority of citizens and firms. Developing countries, in contrast, are confronted with social, political and administrative difficulties in establishing a sound public finance system. As a consequence, developing and emerging countries are particularly vulnerable to tax fraud activities of individual taxpayers and corporations. This can be considered one of the primary reasons for large differences in the ability to mobilize own resources between developed and developing countries. Detecting and preventing tax fraud and making sure that it cannot be repeated is not solely the responsibility of tax authority and tax officials. Without the cooperation of general public working in high risk areas, it is very difficult to detect illegal tax malpractice and illegitimate personal gain. Therefore, it is up to all levels of hierarchy in public institutions to create an environment of transparency, ethical conduct and accountability in order to ensure proper handling of the very important issues of prevention, detection and handling of tax fraud cases in among the general taxpayer.  
The doctrine describes tax fraud as a form of deliberate evasion of tax which is generally punishable by law. The term ‘tax fraud’ includes situations in which deliberately false statements are submitted, fake documents are produced, etc. Sanctions may include civil or criminal penalties. Finally, the revenue generated by the government from taxation forms a major source of finance to the federal government capital expenditure which is crucial to sustainable economic development. A major challenge to the government in generating this revenue has been the increasing rate of tax fraud offences committed by both tax payers and tax officials. Therefore tax fraud and other related tax offences are important factors to be considered as they affect both the volume and nature of government finances which is the key to economic development.  
1.2. STATEMENT OF PROBLEM  
Tax Fraud and other tax offences perpetrated by tax payer heavily harm the economy, lower investment levels and reduce government revenue generation. Anti-tax fraud and tax authority strategies are often not effective enough. Damages done to economy and their budgets as a result of tax fraud can be enormous ranging from financial loss to reduction of economy performance, reputation, credibility and public confidence. Tax systems in many developing countries are characterized by tax structures being not in line with international standards, by lack of tax policy management, low compliance levels and inappropriate capacities in tax administration. The difference in revenue mobilization also stems from economic conditions (size of the informal sector).   In fact, most developing countries show a trend towards the prevalence of indirect taxation. Many of them rely to a great extent on indirect taxes such as value-added taxes (VAT) with indirect taxes amounting for up to two-thirds of total tax revenues, yet it is not new that, the negative menace of tax fraud deprives governments of revenues needed for public spending Forces honest taxpayers to pick up the tab Erodes community confidence in the equity of the revenue system.  
Finally, the current method of collecting taxes/levies from tax payers lack proper organization and prone to obvious fraudulent activities, thereby resulting to loss of funds by the State Government. This however, leads to the inability of the Government meeting the basic projects requirements like rehabilitation of roads, building/ renovation of hospitals, schools and so on.   The tax administration system does not clearly states the strategy that is being used to apportion taxes or levies or charges to some key business enterprise like electronic shops, saloon, hawkers, petty shops, barbing saloon, recharge card resellers, cosmetics shops, super markets etc. Random amount is being collected as taxes/levies from these business enterprises, which might be below or over charged taxes; and most times the levies/taxes might not be remitted to the state Government or if remitted, a reasonable amount would have been diverted by the officers in charge of the collection. This situation occurs because there is no proper structure on ground to determine the exact monies and the number of petty shops or saloons in a given location, to enable the State Government to ascertain the actual figures, in terms of Naira and Kobo that is generated from most small scale businesses majority of who are individual taxpayers.  
1.3. OBJECTIVES OF THE STUDY  
The main objective of this research work is to assess the role of tax officials in the prevention and detection of tax frauds in Nigeria.   The research study will highly focus on specific objectives particularly which will be to:  
1.   Identify the concept of taxation and tax fraud offences under Nigeria tax system;  
2.   Identify legal and administrative measures used to address tax frauds.  
3.   Evaluate the techniques/modes adopted by the taxpayers in committing tax fraud.  
4.   Identify weaknesses in addressing tax fraud by tax authority.  
5.   Examine the impact of tax fraud offence on the revenue of the Government in particular and the economy of the country, as a whole.  
6.   Recommend mechanisms that should be used to control and curb tax fraud offences.          
1.4. RESEARCH QUESTIONS  
People talk about tax matters, complain about them and try to dodge them when they can. Some always pay; some always cheat; and some cheat when they think they can get away with it. Businesses also react to taxes, both in how they organize their activities and, perhaps, in where they carry them out.   This research is intended to find the possible solutions for the following questions:   Concept of taxation and tax fraud offences under Nigeria tax system?
1.   What are the legal and administrative measures used to address tax frauds?  
2.   What are the various techniques/modes adopted by the taxpayers in committing tax fraud?  
3.   Weaknesses in addressing tax fraud by tax authority?  
4.   Are there any effect of tax fraud offence on the revenue of the Government in particular and the economy of the country, as a whole?  
5.   Recommend mechanisms that should be used to control and curb tax fraud offences.              
1.5. STATEMENT OF HYPOTHESIS  
The following null hypotheses were formulated and tested:   
Hypothesis one  
Hi: Tax officials plays a significantly role in the reduction/prevention of tax Fraud among taxpayers.  
Hypothesis two  
Hi: Tax fraud has drastically reduced revenue generation in Nigeria.      
1.6. SIGNIFICANCE OF STUDY  
Tax fraud is a general phenomenon that is probably as old as taxation itself. Wherever and whenever authorities decide to levy taxes, individuals and firms try to avoid paying them. Though this problem has always been present, it becomes more pressing in the course of globalization as this process extends the range of opportunities to circumvent taxation while simultaneously reducing the risk of being detected.   For the purpose of this study, this research study would contribute to the existing literature on tax fraud by focusing on reform of tax laws and policy in Nigeria with a view to identifying the critical problems on the collection of tax levy and causes of tax fraud among taxpayers so that appropriate measures could be taken to tackle them.  
This study shall also seeks to set out, a concrete analysis of other tax fraud offences such as tax evasion/avoidance perpetrated by individual tax payers and corporations, and it will also consider the ‘dark’ side of professional practice by examining the involvement of tax officials in facilitating tax fraud, tax avoidance, tax evasion and other related tax offences in Nigeria.   Finally this study will be of great significance to government, tax officials, tax authority, small scale entrepreneur, investors, corporate organizations, schools and students who are regular taxpayers, it will serve as a reference point for student who would like to make future research or contribute to the existing literature.      
1.7. SCOPE OF THE STUDY  
In the light of broad coverage, the researcher focuses on the role of tax authority in detection and prevention of tax fraud in Nigeria, particularly among small tax payers in Ibadan, Oyo State.   The researcher limit his research to small scale entrepreneur in Ibadan Metroplis because they constitute 50percent of taxpayers in the states, some of which are used to avoiding the payment of tax, thereby reducing internal revenue generated by the state government.      
1.8. LIMITATION OF THE STUDY  
Little time and inadequate funds: the researchers was not able to generate complete and concrete research material, this is because of time and money constraints at the disposal of the researchers, on one hand, and the unwillingness and the busy schedule of the Tax officials, in the other, in order to provide us with more appeal cases and their valued opinions.   However, we had to convince the respondents by giving gentlemen word that the names of the corporate firms would not be disclosed in our study and the materials would be used for this study purpose only.   Not enough previous research work has been carried out on this study, thus creating a lump sum of work for the researcher, and extending the duration initially budgeted for the completion of the research study.

     
1.9. DEFINITION OF TERMS  
1. Tax fraud: tax fraud occurs when an individual or business entity wilfully and intentionally falsifies information on a tax return in order to limit the amount of tax liability.  
2. State Taxes: Personal Income Tax, Road Taxes, Pools betting and lotteries, Business premises registration, Development Levy, Naming of street registration in state capitals, Right of occupancy on land owned by state, and Market taxes on state financed taxes.  
3. Tax Evasion: Tax evasion is a deliberate and wilful practice of not disclosing full taxable income so as to pay less tax.  
4. Tax Avoidance: Tax avoidance has been defined as the arrangement of tax payers’ affairs using the tax shelters in the tax law, and avoiding tax traps in the tax laws, so as to pay less tax than he or she would otherwise pay  
5. Non-Compliance: can be defined as the failure on the part of a taxpayer to correctly file returns, report actual income, claim the correct deductions, reliefs and rebates and remit the actual amount of tax payable to the authority on time.  
6. Tax: is a compulsory levy payable by individual economic units or corporate bodies to government without any direct quid pro quo from the government.  
7. FRAUD: is an act or course of deception, deliberately practiced to gain unlawful or unfair advantage; at the detriment of another.  
8. Direct and Indirect Tax: direct taxes are levied on persons or property, while indirect taxes are levied on manufacture, sale, consumption, and the like, and are indirectly paid by the consumer.

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