Fiscal policy measures in Africa have been largely driven by the need to promote suchmacroeconomic objectives as raising revenue to finance rapid economic growth of theireconomies, generating employment, maintaining price level and exchange rates stabilityand balance of payments equilibrium. To achieve these objectives one of the ways ofdealing with taxation problems is to deal with harmful taxes practices. The two harmfulpractices that readily come to mind istax evasion and avoidance.

A decline in price of oil in recent years has led to a decrease in the funds available for distribution to the Federal Government and to the State Governments. The need for state and local governments to generate adequate revenue from internal sources has therefore become a matter of extreme urgency and importance. This need underscores the eagerness on the part of state and local governments and even the federal government to look for new sources of revenue or to become aggressive and innovative in the mode of collecting revenue from existing sources (Aimurie, 2012).  Aguolu (2004) states that though taxation may not be the most important source of revenue to the government in terms of the magnitude of revenue derivable from taxation, however, taxation is the most important source of revenue to the government, from the point of view of certainty, and consistency of taxation. Aguolu (2004) further mentioned that taxation is hence the most important source of revenue to the government. Owing to the inherent power of the government to impose taxes, the government is assured at all times of its tax revenue no matter the circumstances.

Tax evasion in general refers to illegal practices to escape from taxation. To this end, taxable income, profits liable to tax or other taxable activities are concealed, the amount and/or the source of income are misrepresented, or tax reducing factors such as deductions, exemptions or credits are deliberately overstated (see Alm and Vazquez, 2001 and Chiumya, 2006). Tax evasion can occur as an isolated incident within activities that are – in other aspects – legal. Or tax evasion occurs in the informal economy where the whole activity takes place in an informal manner – this means the business is not only evading tax payments but is also not registered as formal enterprise at all.

Tax avoidance, in contrast, takes place within the legal context of the tax system that is individuals or firms take advantage of the tax code and exploit “loopholes”, i.e. engage in activities that are legal but run counter to the purpose of the tax law. Usually, tax avoidance encompasses special activities with the sole purpose to reduce tax liabilities. An example for tax avoidance is strategic tax planning where financial affairs are arranged such in order to minimize tax liabilities by e.g. using tax deductions and taking advantage of tax credits.

Tax evasion and its sister tax avoidance are key fundamental problems of tax administration in a developing country like Nigeria. All forms oftaxes in Nigeria are to some extent avoided or evaded because the administrative machinery to ensure effectiveness is weak. As a result of thediversities and complexity in human nature and activities, no tax, law can capture everything hence; loophole will exist and can only be reducedor eliminated through policy reforms. project topics   final year project topics and research materials 

Thus, besides generating public revenues, strengthening tax systems in developing countries is equally important from a governance or state-building perspective. Thirdly, revenue raising systems typically include the entire population, thereby exhibiting a direct effect on the poor and their household income. Designing a tax system in a pro-poor way can e.g. be achieved by including a redistributive component. All in all, collecting a sufficient amount of revenues is essential for a country to fund pro-poor programs, built effective government institutions and strengthen democratic structures, stimulate sustainable economic growth and reach national and international development goals. To reach these goals it is, however, essential that the tax system is implemented the way it was designed. Thus, counterproductive activities like tax evasion and avoidance practices, that undermine the intentions of the system, need to be reduced.

Despite the emphasis on the importance of taxation and the efforts made at improving its efficiency, citizens’ aversion to taxes have remained a problem that most tax authorities have to grapple with. This is because individuals will always look for a means –legal or otherwise–to reduce or even completely avoid paying taxes. This result in heavy revenue losses to governments and ultimately affects their ability to meet their obligations.


Over the years, revenue derived from taxes has been very low and no physical development actually took place, hence the impact on the poor is not being felt.  It is the view of many people that the loss of revenue caused by widespread tax evasion and tax avoidance in Nigeria is due to inefficient and inept tax administration. Omorogiuwa (1981) has opined that ineffective tax administration is the main factor responsible for large scale tax evasion in Nigeria. Philips (1973) corroborates this view when he states that tax evasion is due principally to administrative ineffectiveness

Nigeria is losing billions of Naira every year to illicit financial tax fraud as individuals and corporate firms engage in fraudulent tax schemes aimed at avoiding tax payments to some of the developing countries, impeding development projects and denying poor people access to crucial services.

The primary way which money flows out of these countries is through tax offset. In its simplest form this entails three steps. Firstly, a corporation working in a developing country sets up a subsidiary in a tax haven. Secondly, they sell their product at an artificially low price to this subsidiary – enabling them to declare minimal profits and consequently pay very little tax to the government of the developing country. Thirdly, their subsidiary in the tax haven sells the product at the market price – for comparatively huge profits coupled with a low tax rate (or none at all). In other words, corporations are manipulating prices to pay minimal taxes.

Tax evasion and tax avoidancearemajor facilitator of poverty, crime, and corruption in a developing countries like Nigeria. Tax haven secrecy drains nearly $1 trillion from each year from the country. This is money that could have been spent on health care, education, and infrastructure, while banks play a critical role in the global economy and many countries’ tax systems; many have also played a significant part in facilitating tax evasion and avoidance schemes, thereby reducing revenue generated by government both at the federal, state and local government level.


The main objective of this research work is to assess the economic effect of tax evasion and avoidance on economic growth and development of the country.

Specifically, this study attempt to:

Examine the contribution of taxation on revenue generation in Nigeria Ascertain the extent to which tax evasion and tax avoidance has affected negatively on revenue generation in Nigeria.  Assess the meaning of tax evasion, avoidance and the causal reason for engaging in such tax offences. Examine the extent to which taxation has contributed to the steady growth in Gross Domestic Product in Nigeria. Identify the problems created to the economy by taxpayers and their facilitators operating in Nigeria through tax evasion and tax avoidance.


The research question provides a framework and guidelines through which substantial knowledge of the research study can be understood.

This study sets out to address the following questions.

To what extent has taxation contributed to revenue generation in Nigeria? To what extent has tax evasion and tax avoidance affected negatively on revenue generation in Nigeria? What are the causal reasons for engaging in such tax offences? To what extent has taxation contributed to the steady growth in Gross Domestic Product in Nigeria? What are the problems created to the economy by taxpayers and their facilitators operating in Nigeria through tax evasion and tax avoidance?


The following null hypotheses were formulated and tested: 

Ho1: Tax avoidance and tax evasion are not caused by weak tax policy and administration.

Ho2: Taxation has not contributed significantly to revenue generation in Nigeria. 


The greatest puzzle facing the Nigerian tax system is the threat of tax evasion and tax avoidance. It is widely believed that there is a substantial difference between estimated revenue from taxation every year and what is actually collected.

This research study shall seeks to identify the role of professionals in facilitating tax evasion and avoidances, and which has been a damaging effect on the growth and sustainability of development of Nigeria.

It shall also assess the significant detrimental effect of tax evasion/avoidance on the provision of infrastructures, public services and public utilities.

It will also be useful to the government, tax authority who are key actor in the collection of taxes/levies, tax payer such as individuals, corporate bodies, multinational companies, investors whose tax are used in the growth and development of the country and other parties involved.

The study will also be of immense benefit for future users as well as other researchers, scholars and students. The study will also provide members of the public knowledge on the importance of taxation in Nigeria and on the effective utilization of taxation to promote fiscal redistribution of income.


The scope of the study was limited to tax revenue generated by the Federal Government of Nigeria and tax revenue generated by some selected states in Nigeria from 2002-2011. It is worthy to note that in this study one state was selected from each of the six geo-political zones in the country North Central Zone, South Southern Zone, South Western Zone, North Western Zone, South Eastern Zone and Federal Capital Territory.

Furthermore, the study also distribute questionnaire to staff members of the various state board of Internal revenue of the six-geopolitical zone, in order to ascertain the devastating effect of tax evasion and avoidance scheme on revenue generation of the country




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