DETERMINANTS OF PERSONAL INCOME TAX COMPLIANCE
ABSTRACT
This project work attempts to find out the determinant of personal income tax compliance in Nigeria. For decades, tax researchers have investigated why some people pay taxes and others do not. This project have identified characteristics of non compliant tax payers and factors that motivate tax compliance.
Questionnaires were administrated to generate the necessary primary data, which were analyzed descriptively. A total of fifty questionnaires were administered in Benin City. The chi-square method was used to test the various hypothesis, review of relevant literatures were carried out in order to get a deeper insight and proper understanding of the project. The result of the hypotheses tested proved that demographic factor has impact on tax compliance in Nigeria, tax payers’ complained is affected by the complexity of the tax system in Nigeria and there is relationship between income level of taxpayers and non compliance in Nigeria.
It was therefore recommended that tax authorities should stiffer penalties for non compliance and general enforcement of tax rules and regulations.
CHAPTER ONE
INTRODUCTION
1.1        Background of the study
The primary function of the personal income tax system is to raise revenue for government. As revenue-raising mechanism the personal income tax system must be seen to treat all citizens fairly (Huxham & Haupt, 1998). It is important that taxpayers perceive the tax system as fair. This is most important, since fairness has been deemed as motivator that is meant for tax compliance and the determinant of taxpayers' satisfaction with the return from the government makes most taxpayers to comply with tax (Cowel, 1990). In the earlier period United States congress agitate about the impact of taxpayers' perception on fairness and the decreased in drift toward tax compliance. Unfortunately evidence abounds that taxpayers, both in the United State and Europe, have serious reservation about the fairness of their tax system (Jackson & Milliron, 1986), Smith & Priedman (2003) identify the need to understand the taxpaying culture and taxpayers behavior the study was conducted in south Africa. Hlophe & Friedman (2002) feel that there is room for improvement in the transformation of taxpayer's attitudes toward compliance. Taxpayers with this have serious interest in aversion about the fairness of their tax system.
Kinsey, Gasmask & Smith (1991) stated in their research that a country tax policy allow people to lower taxes legally and this can be in the aggregate to increase the perceived unfairness of the tax system. Ideally, what appears to be needed is a proper balance of treatments such that all taxpayers perceive equal or proper treatment. On the aspect of the United States income tax system is that, due to its varying objectives, it appear to be discriminately in nature (Porcano, 1984). If the fairness of tax and demographic factors toward tax system are important factors they have impact on compliance, then efforts should be made to improve the level of tax compliance based on the analysis reported (National Tax Policy 2008).
Despite the Nigeria government aspiration on the way to improve compliance in 2002, the country still need to refocus its policy goal to encouraging tax compliance. In Nigeria there is the need to engage in the fairness of tax at all level of government in addition to the expressed desire to develop set of guiding principles to build the individual income tax on stability, accountability, equity and centralized authority for effective strategies to improve taxpayer's compliance. Lack of income tax compliance is resulting in low-revenues and drastically hampering economic development which resultantly contributes to a national budget deficit. Due to cultural and environmental different among African countries, there is a need to gather more relevant information about tax compliance in Africa with specific reference to Nigeria.
    A review of the academic tax compliance literature reveals a consistent concern with fairness as a factor affecting compliance (McKercher & Evans, 2009). In the comprehensive review of the factors affecting tax compliance, Jackson & Milliron (1986) speculate that one reason for this inconsistency is the lack of a good operational definition for tax fairness. The central point of the variable is that fairness is a multidimensional variable due to cultural and environmental differences. There is a need to gather more relevant information about tax compliance in Africa with specific reference to Nigeria.
1.2       Problem Statement
The Nigeria tax system is heavily relied on the petroleum industry through the Petroleum Profit Tax (PPT) for a significant proportion of its tax revenue, both in absolute and relative terms. Gallagher (2005) suggested that 80% of the Federal government revenues in Nigeria are derived directly from the oil sector.
In the analysis reported by the National Tax Policy (2008) described that the income tax of Nigeria workers and private sector employees is at zero level of compliance which shows that Nigerian workers are not compliance of tax or decline from paying their personal income tax. Based on the policy of the Federal Government of Nigeria, all salary or income earners are to pay tax and to be channel to the Federal Inland Revenue Service. The argument here is workers in Nigeria especially the Federal, State and Local Government are paying their tax which is deducted from the source. Hence, these three tiers of government are expected to forward these tax to Federal Inland Revenue Service (FIRS), the private sector are expected to pay the tax of their employees. According to Ariyo (1997), there is need to review the fairness of individual income tax on tax compliance performance in Nigeria tax system has been attributed to the negative economic impact of the presidential fiscal deficit that have occurred primarily because of the inadequacy of the revenue based to coop with the targeted level of the economy activities.
1.3    Research Questions
i.    What is the impact of demographic factor on tax compliance in Nigeria?
ii.    How has the tax payers compliance been affected by the complexity of the tax system in Nigeria?
iii.    Is there any relationship between income status and tax payer’s compliance behavior in Nigeria?
iv.    Is there any impact on tax compliance by the construct of tax fairness and demographic factors in Nigeria?
v.    What is the relationship between income level of tax payers and non-compliance in Nigeria?
vi.    Is there any probability of detecting taxpayer’s compliance behavior in Nigeria?
1.4    Research Objectives
i.    To examine the impact of demographic factor on tax compliance in Nigeria.
ii.    To determine whether the complexity of the tax system in Nigeria affects taxpayer’s compliance.
iii.    To find out if there is any relationship between income tax status and tax payers compliance behavior in Nigeria?
iv.    To determine if there is any impact on tax compliance by the construct of tax fairness and demographic factors in Nigeria?
v.    To examine the relationship between income level of tax payers and non-compliance in Nigeria.
vi.    To determine if there is any probability of detecting taxpayers compliance behavior in Nigeria.
1.5    Hypothesis of the Study
Hypothesis is a tentative answer to a research question. It can be stated in a null form (Ho) or alternative form (Hi). The following hypotheses will be formulated and tested in this study.
Hypothesis One
Ho:    Demographic factor has no impact on tax compliance in Nigeria
Hi:    Demographic factor has impact on tax compliance in Nigeria
Hypothesis Two
Ho:    Taxpayers’ compliance has not been affected by the complexity of the tax system in Nigeria.
Hi:    Taxpayers’ compliance has been affected by the complexity of the tax system in Nigeria.
Hypothesis Three
Ho:    There is no relationship between income status and taxpayers’ compliance behavior in Nigeria.
Hi:    There is relationship between income status and Taxpayers’ compliance behavior in Nigeria.
Hypothesis Four
Ho:    There is no impact on tax compliance by the construct of tax fairness and demographic factors in Nigeria.
Hi:    There is impact on tax compliance by the construct of tax fairness and demographic factors in Nigeria.
Hypothesis Five
Ho:    There is no relationship between income level of taxpayers and non-compliance in Nigeria
Hi:    There is relationship between income level of taxpayers and non-compliance in Nigeria.
Hypothesis Six
Ho:    There is no probability of detecting taxpayers’ compliance in Nigeria.
Hi:    There is probability of detecting taxpayers’ compliance in Nigeria.
1.6    Significance of the Study
This study will be immense benefits to various stakeholders precisely tax authority will find it indispensable in tax strategies and policies formulation; also tax authorities need it to effectively maximize its tax revenue. It will also be relevant to the academicians as it will enrich tax compliance literature. Tax consultants and tax analysts will find it useful in the course of this work and analysis. The researchers will find it as a basis for further research.
1.7    Scope of the Study
    The scope of this study will be centered on personal income taxpayers in Nigeria. This study shows variables that can determine personal income tax compliance in Nigeria.
1.8    Limitation of the Study
The limitations of this study include:
a.    The sample size compared to the population may not give an accurate result.
b.    The inability to obtain a complete random sample.
c.    Inadequate research materials online and even academic publications and journals were problems to this study.
d.    The high cost of sourcing for information also made it difficult to access most of the population of research institutions.
e.    Little understanding of taxation among the population made response to the questionnaire quite difficult.
1.9    Definition Of The Concepts And Key Terms
1.    Tax Audit: Is the examination of and investigation of the field company tax return to ascertain the truth in the amount asserted.
2.    Tax Avoidance: It is defined as a deliberate and legal act of the tax payer to pay less than he or she ought to pay.
3.    Tax delinquency: This refers to pay taxes on the due date.
4.    Tax evasion: This is usually a fraudulent effort by a taxpayer to escape his legal tax obligations.
5.    Tax capacity: Is the extent to which the tax basis can bear the burden of taxation without a rupture of the fiscal symbiosis.
6.    Tax compliance: is the act or process of subjecting oneself, one’s income business or expenditure to the demands of the tax law.
7.    Tax consultant: Are private agents contracted by the government to collect taxes.
8.    Tax incentive: is all the measures adapted by ably to their obligations
9.    Tax policy strategy: Is the pathway to the achievement of maximum tax compliance from taxpayer.
10.    Best of judgment (BOJ): This is the use of tax agent initiatives in determining the estimated amount of tax payable.
                                     REFERENCES
Aguolu, O. (2000), Taxation and management in Nigeria, Enugu, Meridian Associates
Anyaduba, J.O.(1999), personal income tax in Nigeria, United city press, Benin City