Tax evasion is an illegal evasion of taxes by individuals, corporations and trusts. It often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax li ability and includes dishonest tax reporting, such as declaring less income, profit or gains than the amounts actually earned, or overstating deductions. Tax evasion is an activity commonly associated with the informal economy. One measure of the extent of tax evasion is the amount of unreported income, which is the difference between the amount of income that should be reported to the tax authorities and the actual amount reported. Both tax evasion can be viewed as forms of tax noncompliance, as they describe e a range of activities that intend to subvert a state’s tax system, although such classification of tax evasion is not indisputable, given that avoidance is lawful, within self-creating systems. (Michael & Wenzel.,2002). Globally, government is saddled with the responsibility of providing some basic infrastructures for her citizens. Among these are the provisions of Schools, Hospital s. construction Roads, Bridges, Railway lines, Airports and seaports. More is the security of the life and properties of the citizens in the country against foreign or local aggression. According to Abdulfattah, et al (2010) “Most south east governors are spending fortune to keep the Police and other security agencies and the same time to provide social amenities for it citizen s”. The stabilization of the economy, the redistribution of income and the provision of services in the form of public goods are among other functions and obligations that government owe her citizens. Miller and Oats (200 9) noted that due to the inefficiency of the private market, the provision of public goods such as security of life and property which the public might not be prepared to pay for directly, are left in the hands of the government rather than the private market. James and Nobes (2008) also observed that even without payment, the consumption of pure public goods cannot be to the total exclusion or in isolation certain in individual. Government therefore, makes it free for all and sundry.  Avery good example is in the area of security e.g. Police, Arm Force etc.

Their services cover all the citizens without specific charges to the people. Besides, public goods do not diminish as consumption increases. Simply put, the consumption of public goods by one person does not stop or pre vent another from consuming it neither does it reduce the satisfaction the later consumer will derive from its consumption. It is on the strength of the above reasons that it becomes practically impossible for the private market or firm to produce public goods as the resultant effort could be underproduction of such goods and services.

According to Public Finance general Directorate (2009) the purpose of taxation as enshrined in the French laws is “for the maintenance of public force and administrative expenses”. Miller and Oats(2006) maintained that, Taxation is required to finance public expenditure. It is worthy of note however, that there are other sources of revenue generation by the government e.g. borrowing, grant etc. The epileptic services of some of the social amenities financed with tax revenue in developing and underdeveloped countries left much to be deserved. Popoola (2009) asserts that electric supply and social infrastructure need to be financed with taxpayer’s money. Ordinarily, nobody would want to make “compulsory payment” for substandard goods or bad services. Gordon (2010) argued that corporate and personal income taxes create d istol1 ion. High tax rate distort the demand and supply of labour hence productivity is impaired. Some countries, tax system is structured purely towards revenue generation and that has negative effect on the economy. Very low tax may impact on education as a larger population will prefer to work than school but a very high tax might reduce productivity as people would prefer longer leisure hours. This does not enhance economic development. Laffer (2009) cautioned that “A government simply cannot tax a country into prosperity”. As important as tax revenue is to a nation, many people still find it difficult to comply with their tax obligation. According to Nightingale (2002), “No one really likes paying taxes yet they are inevitable le for the provision of social welfare”. A closer examination of some of the factors or reasons for the uncooperative attitude of people towards taxation and as result leading to tax evasion reveals that the onus is on the complications and complexity of tax policies and administration in the country. Most times, the resistance to taxation is so fierce that it could lead to social unrest. In Nigeria, for instance the “Aba Women riot of 1929” – the historic first British challenge during the colonial era was prompted by the introduction of taxation by Lord Lugard, who was then then governor (Evans 2009). The women who felt oppressed by the introduction of tax took to arms forcing the colonial master to withdraw the policy. Also in 2013, the introduction of high levy of tax payment on women traders in Eke Awka market led to revocation among the women and a temporal closed down of the market · for two weeks. However, apart from the south-eastern Nigeria, where this happened, the introduction of taxation in other part of the country marks the beginning of a formal tax system in Nigeria. In the UK, the peasant’s revolt in the fourteenth century, the 1990 unrest cause by the introduction of community charge are other examples of provocations caused by the introduction of taxation (Nightingale 2002).

However, the ability to achieve all in a single tax policy is practically impossible; hence Nightingale (2002) stated that there is no 6 good tax. This is because an efficient tax might be inequitable. Lamb et al (2005) argued that an efficient tax may not necessarily be considered fair and one that is considered equitable may not be efficient. Ordinarily, people abhor tax payment due to its effect on their income. Owens (2006) noted that only a few people are enthusiastic about paying tax. Tax policy must be generally accepted by the people if it must gain compliance (Nightingale., 2002). It therefore means that a good tax system must be in consonance with (Adam Smith 1776) cannon of taxation cited in Nightingale (2002):

Equitability, Neutrality, efficiency, flexibility and simplicity. The earliest trace of any form of taxation in Nigeria even before the British Administration was in Northern Nigeria. The North was favoured for this because it had a form of organized central administration under the Emirs unlike the south which except in few places in the west was not as organized.

In 1914 when Northern and Southern Nigeria were amalgamated the govern general then, deemed it necessary to extend the system of direct taxation which had been in existence in the north to the southern part of the country. However, the system was delayed during its extension to the area due to high cost of the operation and also due to the people’s in-subordination. The British government were undaunted by the articles of the southerners and appointed warrant chiefs to help perform the management of tax in the south.

This was done with some modification to suit the peculiarities of the southern people. During 1918, the natives’ revenue ordinance of 1917 was grudgingly accepted in the western province of southern Nigeria. Around this time, there was still a lot of problem of acceptance for instances by 1920, direct taxation had almost been introduced in most parts of the west excluding Asaba and Warri provinces for fear of disturbance. The introduction of Native Revenue ordinance was most difficult in the Eastern and Delta areas of the South, due mainly to absence of recognized central authority as in the North. As regard to this, direct taxation was not introduced in Eastern part until 1927.

1.2 Statement of Problem

Tax evasion is problem that faces every tax system, Nigerian situation seems unique when viewed against the scale of corrupt practices prevalent in Nigeria. Under direct personal taxation as practiced in Nigeria, the major problem lies in the collection of the taxes especially from the self-employed such as the businessmen, contractors, professional practitioners like lawyers, doctors, accountants, architects and traders in shops among others. According to Ayua (1999) some persons do blatantly refuse to pay tax by reporting losses every year. According to him, many of these professionals live a lifestyle inconsistent with reported income, which is usually unrealistically low for the nature of their businesses. Though Civil Servants and their salaried workers are the only class of people that actually pay tax in Nigeria. However, even among the salaried workers, many have turned the statutory personal allowances and relief into a fertile ground for tax evasion. Almost all Nigerian taxpayers are married with four children, similarly, despite the tax provision meant to plug loopholes through which taxable persons can minimize tax liability the self-employed persons employ all kinds of evasion schemes to minimize or escape tax liability and makes one wonder whether there are still any tax officials working in that capacity. Such scenario, no doubt, speaks a lot about tax administration system in Nigeria both in its design and in the disposition of some taxpayers towards taxation and this has greatly affect economic growth in Ngeria. The continued existence of these ills makes one thinks that tax administration in “Nigeria, and of course, lacks the ability to convert inputs of funds into programme and projects that enhances development.  This has greatly affect the economic growth of this country Nigeria. It is against this backdrops that this study  investigates the effect of tax revenue on economic growth.

1.3 Objectives of the Study

The main objective of the study is to ascertain the effect of tax  revenue  on economic growth. Specific ‘objectives include:

  1. To ascertain the extent tax evasion have affected the economic growth.
  2. To determine the extent tax evasion has impacted revenue generation in Nigeria economy.
  3. To ascertain the rate of tax evasion in Nigeria economy.
  4. The extent tax revenue affects economic growth of Nigeria.



1.4 Research Questions

The following research questions were designed to guide the study as follows.

  1. To what extent have tax evasion affected economic growth in Nigeria?
  2. To what extent has tax evasion impacted on revenue generation in Nigeria economy?
  3. What is the rate of tax evasion in Nigeria economy?
  4. To what extent does tax revenue affect economic growth of Nigeria?

1.5 Research Hypotheses

The following four research hypotheses are used to test each of the responses of the respondent.

The hypotheses designed are as follows:-

H01: Tax evasion does not to any extent significantly affect the economic growth of


H02:  Tax evasion does not significantly impacted on revenue generation of in Nigeria Economy.

H03: There is no significant  rate to which tax is evaded in  Nigeria economy.

H04: Tax revenue do not to any extent significantly affects economic growth of Nigeria.

1.6 Significance of the Study

The research findings of this study is importance to policy makers at National and state level as they design policies aimed at eliminating reducing to barest minimum cases of tax evasion and enhancing of tax revenue for economic growth. Those who wish to undertake further research on taxation will also find the literature from this study to be of great value.

The study will help citizen of Nigeria to come to appreciate the value of paying their taxes at when due and to see reasons why they should not evade paying their tax.



1.7 Scope and Limitations of Study

This study Sought to trace the effect of tax revenue on economic growth of Nigeria. The evidence presented in this work is based on a fairly standard empirical model of economic that can be derived from the endogenous growth model. It used annual time series data from 2004 to 2013. In other to adequately investigate the effect of tax evasion on Nigeria economy, the study, is limited only to south East states of Nigeria. These states are: Anambra state, Enugu State, Ebonyi State, Imo state and Abia State. Among the constraint faced by the study are; dearth or accurate secondary data and other resources needed for the execution of a work of this nature. However, efforts were made to ensure that correct data were gathered and adequate provisions were made for errors so that the authenticity and credibility of the findings are not affected.