Tax Morale and Its Effect on Taxpayers’ Compliance to Tax Policies of the Nigerian Government

Tax morale and its effect on taxpayers’ compliance to the tax policies of the Nigerian government was investigated. The aim of this research is to bring to bare the reason for low tax compliance in Nigeria. Primary data via structured questionnaire was used. The data were regressed using statistical package for social sciences (SPSS16). The result showed that social norms, attitude towards government, tax evasion and tax avoidance have significant effect on tax morale. On the other hand, there is no significant effect of attitude towards legal system and traditional institutions on tax morale. We also established a significant positive effect of tax morale on tax compliance. The researcher therefore recommended that, tax payers should be educated to know their obligation as far as tax is concerned. The younger generation should also be educated on the need to pay tax correctly if the future of tax obedience is anything to go by. The Monarchs should also help in ensuring that their subjects obey the law of the land viz a viz tax compliance. Finally, tax payer’s monies should be used for the right purpose. Nigeria is governed by a Federal system and the government’s fiscal power is based on a three-tier tax structure divided among the Federal, State, and Local governments, each of which has different tax jurisdictions. The Nigerian tax system is lopsided. The federal government controls all the major sources of revenue like import and excise duties, mining rents and royalties, petroleum profit tax and company income tax, value added tax among other revenue sources. State and local government taxes are minimal, hence, this limits their ability to raise independent revenue and so they depend solely on allocation from Federation Account. The role of taxation in economic development is controversial. Plausibly, the concept of taxation has been a concern of global significance as it affects every economy irrespective of national differences Oboh et al (2012). Within the context of Africa, tax, a concept as old as mankind can be described as an amount, effort, contribution or service rendered either in kind (i.e. goat, cow, farm produce, clearing of grass etc.) or monetary value (i.e. cash) contributed into a common purse for the running of the society. According to Omotoso (2001), in his definition of the modern taxes, defined tax as a compulsory charge imposed by a public authority on the income of individuals and companies as stipulated by the government decrees, acts or cases laws irrespective of the exact amount of services rendered to the payer in return. Thus, taxes constitute the principal source of government revenue and the beauty of any government is for its citizen to voluntarily execute their tax obligations without much coercion and harassment. I. Statement Of Research Problem Low tax compliance is a matter of serious concern in many developing countries. This is because it limits the capacity of government to raise revenue for developmental purposes (Torgler, 2003). This implies that the higher the revenue, the more likely government will put in place developmental plans for the enhancement of the living standard of the people. This is because when people pay taxes more revenue accrues to the government. The major problem of this research therefore, is to determine the effect of tax morale on the taxpayer in compliance with tax policies of government as a useful avenue for revenue generation. There are limits for a government to increase compliance using traditional policies such as audits and fines. Therefore, if the government can influence a norm, tax evasion can be reduced by policy activities. Most researchers on tax compliance such as (Torgler, 2003), (McBarnet, 2003) and (Murphy and Harris, 2007). focused their attention on the Western World and some Asian countries. Socio-cultural factors are important components in the lives of a people and given the deep-rooted and pervasiveness of these in the Nigerian societies, there is a clear need for more empirical research on the factors involved. It is therefore, the focus of this study to subject tax compliance to empirical analysis in the Nigerian context. Tax Morale And Its Effect On Taxpayers’ Compliance To Tax Policies Of The Nigerian Government www.iosrjournals.org 36 | Page II. Objectives Of The Study The general objective of this study is to determine the effect of Tax Morale on the taxpayer in compliance with tax policies of government in Nigeria. In doing so, it seeks to: i Determine the extent of tax morale on the tax payer and its effect on tax compliance. ii Ascertain the effect of trust in government on tax compliance. iii Examine the effect of Nigerian Traditional Institution on tax morale of tax payers. iv Determine the effect of cultural norms on the tax payers‟ morale. v Ascertain the tax payer‟s confidence in the legal system on tax morale. Research Questions This study is an effort at understanding the effect of tax morale on tax compliance in the Nigerian context. Therefore, the study is hinged on the following questions; i What is the effect of tax morale on taxpayer‟s compliance? ii Will trust in government affect tax compliance? iii To what extent has confidence in the legal system affect tax compliance? iv What is the relationship between Traditional Institution and tax morale? v To what extent has social norms affect tax morale? HYPOTHESES Hypotheses are assumptions on which a researcher bases his investigation and on the basis of which a confirmation of the assumed conditions are tested and validated. The hypothesis on which this research study is based are stated in null form as follows: HYPOTHESES I Hο; Tax Morale has no significant effect on tax payer compliance. HI: Tax Morale has a significant effect on tax payer‟s compliance. HYPOTHESES II Ho; There is no significant relationship between trust in government and tax compliance. HI: There is a significant relationship between trust in government and tax compliance. HYPOTHESES III Ho; There is no significant relationship between the Nigerian Traditional Institution and tax compliance. HI: There is significant relationship between the Nigerian Traditional Institution and tax compliance. HYPOTHESES IV Ho; There is no significant relationship between taxpayers cultural norms and the extent of their tax compliance HI: There is no significant relationship between taxpayers cultural norms and the extent of their tax compliance HYPOTHESES V Ho; There is no significant relationship between the tax payers‟ confidence in the legal system and tax compliance. HI: There is no significant relationship between the tax payers‟ confidence in the legal system and tax compliance. Scope And Limitation Of Study This study is limited to the study of organizations in the public, private and informal sectors of the Nigerian economy. These organizations are selected because they are duly registered with the Federal Inland Revenue Service and the Lagos State Internal Revenue Service for Pay As You Earn (PAYE). Further, the notes to their audited accounts show that, there has never been any negative report regarding tax evasion or tax avoidance. The limitation of this study, however, is in the area of methodological constraints in terms of which type of analytical technique is most appropriate for the work. In addition, because of funds and time constraint, the work is further limited to the selected organizations. III. Literature Review History of Taxation in Nigeria Recent Tax Trend in Nigeria The Nigerian tax system is lopsided, and dominated by oil revenue. The most viable taxes are under the control of the Federal government while the lower tiers are responsible for the less buoyant ones. Nigeria is governed by a federal system, hence its fiscal operations also adhere to this system. This has serious implications on how the tax system is managed in the country. In Nigeria, the government‟s fiscal power is Tax Morale And Its Effect On Taxpayers’ Compliance To Tax Policies Of The Nigerian Government www.iosrjournals.org 37 | Page based on a three-tier tax structure divided among the Federal, State, and Local governments, each of which has different tax jurisdictions. As of 2002, about 40 (forty) different taxes and levies are shared by all three levels of government (Odusola, 2006). The first notable change in this modern trend was the Income Tax Management (Uniform Taxation Provisions) Decree No 7 of 1975. This unified reliefs and rates throughout the country, thus, resolving to some extent, the proliferation of various tax laws in the different states of the Federation. The 1979 constitution vested the power to legislate on the taxation of income, profits and gains in the Federal Government with the effect that the various State tax laws were deemed to have become Federal tax laws. Subsequently, politics and sentiments dictated the action of Government. Pool tax, development rates, community tax and cattle tax were abolished even in States where it eventually became difficult, if not impossible, to pay workers‟ salaries, due to political expediency. But as a result of the oil glut and subsequent decline in Federal Revenue and Statutory Allocation, many states hurriedly passed Sales Tax Laws in order to increase internally generated revenue. The oil glut did not abate even after the civilian administration was overthrown by the Military on 31 December, 1983. The Military Government that took over on 31 December,1983 inherited substantial decline in the main revenue source of the nation, which is oil. Therefore, the various state governments were encouraged to find ways of increasing internally generated revenue. The first step was a nationwide reorganization of the Revenue Department and the declaration of an open war, unprecedented in the history of taxation in Nigeria, on the social evil known as „tax evasion‟. In 1985, the Federal Military Government promulgated the Miscellaneous Taxation Pr