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 institutions by 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.

1.6 Scope 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.

1.8 limitation 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.