Economy

7 effects of tax evasion on the Nigerian economy

The impacts of tax evasion and avoidance to the economy of Nigeria cannot be overemphasized. This effects of tax aversion and avoidance has been so severe in Nigeria, given the fact that, Nigerians are reluctant in carrying out their civic responsibilities of paying their taxes.

Nevertheless, problem has in essence, do have historical antecedents. Taking a look at what happened during the Bible days for instance, the Jews were treated tax collectors with contempt and disdain, and this behaviour has continued in the modern society, like Nigeria, as taxpayers invented several ways to frustrate tax administrators.

Truth be told, this negative behaviour to taxation is unpatriotic, even after knowing the role that taxation is  playing in the Nigerian economy.

Be that as it may, we will be looking at in this article, the impact of this negative attitudes to the Nigerian economy by Nigerian citizens. But before then, let us look at the meaning of tax evasion and avoidance.

Definition of Tax Evasion and Avoidance

Tax evasion is the purposeful and conscious violation of  tax legislation with a view to avoid the payment of tax, as it is imposed on the citizens by law made from the tax jurisdiction.

Whereas, tax avoidance is the fraudulent means, whereby the taxpayers seek to subtract or make less every of his liability to tax in such a way that will look as if he is not breaking the tax law. Nevertheless, tax avoidance is a game, considered to be legitimate, while tax evasion is considered illegal and immoral.

Read Also: Solutions to Tax Evasion and Avoidance in Nigeria

Impact of Tax Evasion and Avoidance to Nigerian Economy

To carry out social services, government need huge resources, as it cannot on its own generate all the funds it needs to meet its obligations hence, the idea of taxation.

Unfortunately, tax evasion and avoidance has indeed posted a serious challenge to the Nigerian economy, and in this article we will be looking together the impact of this unpatriotic attitudes to the Nigerian economy.

1. Tax Evasion And Avoidance Reduces Tax Revenue

The major impact of tax evasion and avoidance to the Nigerian economy is that it will reduced the tax money collected from Nigerian citizens thus, hampered the government from generating enough money from taxation to meet its statutory obligations.

Therefore, the funds collected the board of internal revenue from organizations and individuals cannot be enough to meet the government demands.

2. The Tax Evasion And Avoidance Eliminates Incentives For Industry Investment

This is another problem of tax evasion and avoidance to the Nigerian economy, and the impact is so severe. Imagine when there in no enough funds in the government treasury, the idea of providing incentives for industry investment by the government will not be there.

The impact would be that, the economy will not thrive viably because incentives for industry investment, such as grant allowance that is normally granted by the government for the purpose of research work, as well as, for capital investment would be withdrawn, and then, the Nigerian economy would suffer.

Read Also: Problems and Prospects of Taxation in Nigeria

3. The Tax Evasion And Avoidance Reduces Government Savings

Tax evasion and avoidance has indeed reduced government savings, making government funds quite limited to be saved.

As a result of tax evasion and avoidance, the Nigerian government has had it so hard to make savings, because there is quite limited resources, and as a result, there would be less money in the circulation hence, the government would be discouraged to make savings, even the members of the public too, would be withdrawn from serving, and this practices are likely to impact negatively the Nigerian economy.

4. The Tax Evasion And Avoidance May Direct Economy Negatively

Yes, tax evasion and avoidance can indeed and has directed the Nigerian economy negatively. For instance, when there is tax evasion and avoidance, economic resource may be directed, and in this case, it may depend on the elasticity of demand for goods and services.

Take for example, there may be a purchase tax on a product, and the price of this product may be on the high side, say Pick Milk product, for instance, there is possibility for people to prefer buying Three Crown Milk thus, the money would be diverted to a product other than Pick Milk, in this case, Three Crown Milk.

Therefore, tax evasion and avoidance do direct resources with respect to elasticity products demand.

5. The Tax Evasion And Avoidance May Cause Industry Dead

Another impact of the tax evasion and avoidance to the Nigerian economy is the issue of dead industries, occasioned by this unpatriotic attitudes on the part of Nigerians.

There are cases, where government will financed industry, and this industry is funded by the government for the purpose of making sure that, the industry is rendering services to the members of the public.

And to finance this industry, and make it viable to meet its statutory responsibility, the government has to generate money through taxation, but because of tax evasion and avoidance, the government may not generate enough revenue to meet the need of this industry, and that may lead to the collapse or dead of that industry.

Read Also: The role of Taxation in the Nigerian economy

6. The Tax Evasion And Avoidance Deprives Society Of Basic Social Amenities

Once the tax evasion and avoidance in the country is in the increase, the resultant effect would be the shortage of revenue in the treasury of government, and if this happened, it therefore, means that, the government would be stucked in providing basic social amenities to the general public.

Interestingly, the government do provides social amenities to the general public through taxation, once the people is showing unpatriotic attitudes in paying their taxes, the government is handicapped in providing basic social amenities in the society.

7. The Tax Evasion And Avoidance Determines Extent Of Businesses And Population Drifts

The tax evasion and avoidance has impacted the Nigerian economy in such a way that, it has encouraged population drifts from one state to the other, and from Nigeria to other nations of the world, all in the search a better and viable economy.

And, much of this drifts is caused by the extent of businesses and socioeconomic activities in a particular state or an area. When the tax evasion and avoidance is in the increase, it will affect the economy of that place negatively thus, will encouraged drifts to places, where there is viability of economy for survival.

And more commonly, is the case of low income tax rate and high income tax rate, and people will always love to drift from places, where there is high income tax rate to places, where there is low income tax rate.

Conclusion

Conclusively, that is the extent I can go about explaining the impact of tax evasion and avoidance to the economy of Nigeria.

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Joseph Athanasius

Joseph Athanasius is a Content Developer at InfoGuideNIgeria.com. InfoGuide Nigeria is a team of Resource Persons and Consultants led by Ifiokobong Ibanga. Page maintained by Ifiokobong Ibanga. If you need a personal assistance on this topic, kindly contact us.

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