CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Government of a state needs money to secure its territories and to provide social service such as maintenance of law and order, security of lives and properties of its citizens. Thus, it becomes compulsory that every subjects to a state must give financial support to the government as merely as possible in proportion to their income. That, it in proportion to the revenue which they respective enjoy under the protection of the results of economic activity of individuals of a State to support its government in the discharge of its constitutional responsibility of providing enabling environment for economic activity and security of lives and properties.
Taxation is of two types and they are direct and indirect taxes.
Indirect taxes are levied on goods and services and they include import duties, export duties, exercise duties etc. among all forms of direct tax, personal income tax remains the most important significant component of direct taxes. It is imposed mainly on self employed individual, tax is mainly pay- as- you earn, scheme, which involves deduction from income of the said employees or government and remittance to the appropriate tax authority.
Direct taxes are levied on income and properties of individual and companies examples include personal income tax, companies income tax,, capital gain tax, petroleum profit tax, education tax etc.
The issue of personal income tax is the inability of am taxable adult to report a sacas of taxable income been a canker worms that has eaten deep into the states major sources of revenue. These problems have started long ago, as evidence in history, tax payment has been a catalyst that sparkled off many violence in the country, for example the Owerri Women Riot of 1929 was as a result of women fear of tax imposition on them. The rate at which tax evasion on government revenue has been growing is very alarming. In an attempt to minimize tax evasion in Nigeria, many state have introduced or adopted several measure such as operation show your tax clearance policy before one could be awarded contract or register business firm. Various studies and conference have been held by tax assessors on how to improve tax administration in the country.
After careful observation of this trend of tax events, it becomes penitent to study “cause of personal income tax evasion and its effect on government revenue” in Imo State in particular and Nigeria in general with a view of finding a lasting solution to it.
1.2 STATEMENT OF THE PROBLEM
Personal income tax is levied on the income of an individual, usually in a period of one year and this forms one of the major sources of state government revenue. The problems been that taxable individuals have been paying their income tax as and when due to the tax authorities taxable individuals willfully fail to report sources of taxable income to tax authority and this has hindered the realization of the government estimated revenue from personal income tax. Eligible tax payers do not evade tax but also abuse tax collectors.
As a result of this situation, some project which could have been completed still remain uncompleted due to the fact that most of the estimate revenue for every fiscal year from personal income tax has not been fully actualized. This has hindered the progress of Imo state in particular and Nigeria in general. Personal income tax evasion takes the form of understatement of none declaration of income, fraud and other illegal means of reducing the tax liability.
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