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THE EFFECT OF TAX EVASION ON
NIGERIA’S TERTIARY EDUCATIONAL SYSTEM
ABSTRACT
This
research investigated the effect of tax evasion on Nigeria’s tertiary
educational system (a case study of University of Lagos, Akoka-Lagos). Relevant
past literatures relating to the study were reviewed. Descriptive survey
research design was used. The total sample size for this study comprised of one
hundred and eighty (180) tax payers who were selected from the nine (9)
faculties in University of Lagos, Akoka. Twenty (20) staff were selected from
each of the nine faculties. A simple random sampling technique was used to
select the sample. A questionnaire was administered to the selected respondents
by the researcher for the collection of data. The data collected was analyzed
statistically using descriptive statistics such as tables, frequency and
percentage while Chi-square (X2) statistical technique was used to test the
formulated hypotheses at 0.05 level of significance. Findings revealed that companies evade tax
due to lack of good tax enforcement agency in Nigeria and failures to ensure
appropriate penalty on companies that evade tax does encourage such acts to be
repeated. Secondly, that government policies do eliminate the problem of tax
evasion. Finally, that there is significant effect of tax evasion on the
funding of Nigeria’s higher institutions. It was therefore recommended among
others that good tax enforcement agency should be instituted or put in place in
Nigeria in order to reduce the incidence of tax evasion by companies as well as
individuals; enforcement of appropriate penalty on companies that evade tax
should be undertaken by the appropriate tax agency or authority in order to
discourage such acts from being repeated as well as serve as a warning or
lesson to others; and also there should be adequate funding of Nigeria’s higher
institutionsby the government in order to increase the provision of
infrastructures and standard of education in higher institutions.
CHAPTER ONE
INTRODUCTION
1.1
Background of the Study
In many
nations of the world, education has been universally acknowledged as an
instrument for national development. The term educational system generally
refers to public schooling, not private schooling and more commonly to
kindergarten through high school programs. Schools or school districts are
typically the smallest recognized form of “education system” while federal
level of education is the largest form of “education system”. States are also
considered to have education systems. Simply put, an educational system
comprises everything that goes into educating public school students at
federal, state or community levels.
Nigeria’s
education system operates on 9-3-4 system (primary school for 6 years, junior
secondary school for 3 years, senior secondary school for 3 years, and
university first degree for 4 years). Tertiary education as a sub-set of any
country’s educational system comprises of universities, polytechnics and
colleges of education. Universities are established to carryout tripartite
roles of teaching, researching and community services thereby contributing
meaningfully to social and economic development of the nation. They are
supposed to impact high level skills to reasonable proportion of workforce,
developing intellectual abilities of individuals and engaging in training of
competent and responsible professionals needed virtually in all aspects of
human endeavour. Polytechnics play a vital role in the educational, scientific
and technological progress of Nigeria. They are established to train and
produce the technical manpower necessary for the execution of the Nation’s
development plans, goals and strategies. The colleges of education are the
“train-the-trainers” colleges established to train and equip teachers for their
esteemed functions.
Education,
being an indispensable tool in nation building, is a process of systematic
training and instruction designed to transmit knowledge and acquisition of
skills, potentials and abilities which will enable an individual contribute
effectively to the growth and development of his society and nation. Education
involves all round development of an individual physically, socially, morally,
intellectually, and mentally (Osakwe, 2006). Education is the process of
facilitating learning or the acquisition of knowledge, skills, values, beliefs
and habits.
Tax is a
civic contribution imposed by the government on her subjects (individual and
corporate bodies) with a view to financing its responsibilities of ensuring
public welfare, socially, economically and politically (Kiable and Nwankwo,
2009).
An education
tax 2% of profit is imposed on all companies incorporated in Nigeria. This tax
is viewed as a social obligation placed on all companies in ensuring that they
contribute their own quota in developing educational facilities in the country.
When the federal government of Nigeria announced the establishment of the
Education Trust Fund (E.T.F) through the Education Tax, decree no 7 of 1993
before it later metamorphosed into Tertiary Education Trust Fund (TETFUND),
because basic education is already taken care of by Universal Basic Education
(UBE), the whole idea was to create an intermediary agency to manage the two
percent of all assessable profit of companies registered in Nigeria on its
behalf as a special intervention fund for the education sector.
Tertiary
Education Trust Fund (TETFUND), by virtue of the provisions establishing it, is
meant to complement other grants by federal and state governments, specifically
for the provision or maintenance of essential physical infrastructures for
teaching and learning, including the provision of instructional materials, and
equipment, research and publication, academic staff training and development
and any other need which, in the opinion of the Board of Trustees, is deemed
critical and essential for the improvement and maintenance of standards in the
higher educational institutions.
A number of
challenges were said to have hindered effective administration of tax in
Nigeria. A major challenge, however, is known as a tax evasion. Tax evasion is
described as an intentional illegal behavior involving a direct violation of
tax laws to avoid payment of tax. The phenomenon of tax evasion is found in all
countries. Indeed, no matter the measure put in place, some companies
incorporated in Nigeria still maneuver their way and break government’s rules
and regulations and evade tax. The practice of maneuvering educational tax law
is considered illegal and thus needs to be checked and addressed by relevant
tax authorities.
Tax evasion
arises in a situation where a tax payer or corporate body arranges his
financial affairs in a way that would make him pay the least possible amount of
tax by infringing the legal rules (Feld and Frey 2002). It can be accomplished
through a deliberate act of omission or commission which may include
understating income, documenting fictitious transaction, overcastting expenses,
failure to submit returns and more.
Government
however needs to address the issue of tax evasion in order to bring an
enhancement in government revenues, through Tertiary Education Trust Fund
(TETFUND) for the continuous improvement and maintenance of standards in the
higher educational institutions in Nigeria.
1.2
Statement of the Problem
Tax evasion
has resulted in the loss of revenue that is due to the government, thus,
leading to inadequate revenue being generated from Tertiary Education Trust
Fund (TETFUND). The available revenue is however inadequate for the government
to use in fulfilling its expenditure obligation which comprises the provision
of facilities and improvement of standard of education in Nigeria higher
institutions. Hence, the government depends solely on the revenue gotten from
the exportation of crude petroleum oil in order to generate revenue to enable
it fulfill its expenditure obligation on higher institutions in Nigeria.
However, university education in Nigeria now faced the challenges of inadequate
finance, brain-drain, lack of provision
and maintenance of essential physical infrastructures for teaching and
learning, etc. that will bring about quality educational output in Nigerian
higher institutions.
This public
outcry on the various challenges faced by university education in Nigeria which
has been identified above such as inadequate finance, brain-drain, lack of provision and maintenance of essential
physical infrastructures for teaching and learning, etc. could be traced to
loss of revenue due to the government through the avenues of tax evasion by
companies in Nigeria. Therefore, the researcher intends to carry out an
investigation on the effect of tax evasion on Nigeria’s tertiary educational
system (a case study of University of Lagos, Akoka-Lagos).
1.3
Objectives of the Study
The main
objective of this study is to examine the effect of tax evasion on Nigeria’s
tertiary educational system (a case study of University of Lagos, Akoka-Lagos).
In achieving
the main objective of this study, the specific objectives could be stated
specifically as follows;
1. To find out the reasons why companies
evade tax.
2. To find out if government policies can
eliminate the avenues of tax evasion.
3. To determine the effect of tax evasion on
Nigeria’s higher institutions.
1.4 Research
Questions
Based on the objectives stated earlier,
the following research questions will be asked:
1. Why do companies evade tax?
2. Can government policies eliminate the
avenues of tax evasion?
3. What is the effect of tax evasion on the
funding of Nigeria’s higher institutions?
1.5 Research
Hypotheses
1. Government policies do not eliminate the
problem of tax evasion.
2. There is no significant effect of tax
evasion on the funding of Nigeria’s higher institutions.
1.6Scope of
the Study
This study
will take a critical look into the effect of tax evasion on Nigeria’s Tertiary
educational system. The researcher shall be concentrating on tertiary
institutions in Nigeria, a case study of University of Lagos, Akoka Lagos.
Specifically it looked into the effect of tax evasion on Nigeria’s Tertiary
educational system and taking into consideration Education tax and TETFUND. The
researcher concentrated on all the faculties in University of Lagos,
Akoka-Lagos.
1.7
Significance of the Study
The research
is expected to:
v help the
government to formulate policies that will be useful in eliminating the problem
of tax evasion in our tax collection process so as to effectively fund
education in the country.
v help
government to know the reasons why many companies in Nigeria evade educational
tax.
v help the
tax authority to be able to assess, make possible decisions and to find
positive means of collecting the appropriate educational tax for the
development and adequate financing of our educational sector.
1.8limitation
of Study
Due to
limited time factor and financial constraint, the research work will be limited
to Nigeria’s Tertiary educational system, a case study of University of Lagos,
Akoka - Lagos. In view of that, all the staff in all the nine (9) faculties in
University of Lagos, Akoka – Lagos were selected randomly.
Also, the
researcher encountered a challenge when administering the questionnaire to the
staff in their various faculties. The
challenge was that some of the staff
were not willing to respond to the questionnaire because of their
limited time. To overcome this challenge, the researcher explained to them
carefully the objectives of the research as well as assuring them that their
responses shall be treated with high level of confidentiality and used solely
for academic purpose. With this, the staff were so happy to respond to the
questionnaire by supplying the appropriate data.
1.9
Definition of Terms
Education:
This is the process of acquiring general knowledge, developing the powers of
reasoning and judgement and generally of preparing oneself or others
intellectually for mature life.
Educational
system: This refers to public schooling, not private schooling and commonly to
kindergarten through high school programs. An education system comprises everything
that goes into educating public school students at federal, state or community
levels.
Tertiary
education: This is referred to as third stage, third level, and post-secondary
education, is the educational level following the completion of a school
providing a secondary education.
Tax: This
refers to charges imposed by government on individuals, companies or
transactions in order to raise money for public purpose and control the use or
production of certain items on the public interest.
Educational
tax: This can be defined as the tax which shall be at the rate of two
percentage (2%) profits, and shall be charged on the assessable profit of a
company registered in Nigeria (in the decree referred to as a “company”).
Tax evasion:
This is said to be a deliberate and willful practice of not disclosing full
taxable income in order to pay less tax. This behavior is portrayed as a
criminal act of violating the provision of tax laws which will eventually lead
to a reduction in total government revenue
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