TAX AUDIT AND INVESTIGATION ON REVENUE GENERATION IN OGUN STATE BOARD OF INTERNAL REVENUE

CHAPTER ONE

INTRODUCTION

1.1. Background to the Study

Taxation is not a new concept in Nigeria or the rest of the globe. Taxation existed in Nigeria long before the arrival of the colonial men or the British (Samuel & Simon, 2018). Taxation is the method by which the government imposes a compulsory levy on all income, products, services, and properties of people, partnerships, trustees, executorships, and corporations (Samuel & Simon, 2018). Income tax is one of the most important sources of revenue for the government as a whole. In Nigeria, it is a factor to consider in the Federal Government's budget because the taxes collected are returned to the taxpayer in the form of services (Yunusa, 2018).  This has either fostered or discouraged some private-sector enterprises over the years; however, this relies on whether the government's purpose is to discourage or support such businesses (Ola, 2020).

In most countries, taxation is regarded as a critical tool for national development and prosperity (Ola, 2020). It has been seen as a crucial vehicle for long-term development of the state's infrastructures. The recent drop in the price of oil has resulted in a reduction in the revenues available for distribution to the federal government and state governments (Aguolu, 2019). As a result, the requirement for state and municipal governments to earn appropriate revenue from domestic sources has become an acute matter of urgency and importance. This requirement highlights the eagerness of state and local governments, as well as the federal government, to seek new sources of revenue or to become more aggressive and imaginative in collecting revenue from existing ones (Aimurie, 2018).

According to Aguolu (2019), while taxation may not be the most important source of income to the government in terms of the volume of revenue derivable from taxation, it is the most important source of revenue to the government in terms of predictability and consistency of taxation. According to Aguolu (2019), taxation is thus the most important source of revenue for the government. Because of the government's intrinsic capacity to levy taxes, the government is assured of tax income at all times, regardless of the conditions. Over the years, tax revenue has been very low, and no physical development has occurred, therefore the impact on the poor has been minimal (Oyedokun, 2017). Many individuals believe that the loss of income caused by rampant tax fraud and avoidance in Nigeria is the result of inefficient and poor tax management. According to Olaoye, Ogunleye, and Solanke (2018), inefficient tax administration is the primary cause of large-scale tax evasion in Nigeria. Philips (2016) supports this viewpoint by stating that tax evasion is primarily caused by administrative inefficiency.

In order to ensure that the amount of tax reported is paid in accordance with tax laws and regulations, a taxpayer's business records and financial affairs are examined by a tax auditor. Tax amnesty is a program that gives non-compliant taxpayers a window of opportunity to pay an outstanding tax debt in exchange for the forgiveness of a liability relating to a previous period without fear of penalty or prosecution (Adesina & Uyioghosa, 2016; Bassey & Oluwafemi, 2017; Dada & Taiwo, 2020). In Oyo State, tax evasion has a negative impact on government revenue collection, leading to revenue loss, according to a study by Folayan and Adeniyi (2019). Most countries have struggled with tax evasion, and Nigeria is no exception, since real tax collection consistently falls short of the optimum expected tax revenue projected by various tax bodies. Although tax revenue has increased over the years, the reported tax gap, which shows the difference between targeted tax revenue and actual tax collected, indicates tax revenue lost due to evasion. The Federal Inland Income Service (FIRS) recorded a tax shortfall of N861.76 billion in 2017 and N1.4 trillion in 2018, representing approximately 18% and 21% of planned revenue, respectively. Implicitly, this indicates a compliance rate of around 80%. Nonetheless, Nigeria still has a low tax-to-GDP ratio of roughly 6% as of 2018, implying that a considerable proportion of tax money goes unreported (Punch, 2019).

The gross of tax evasion is not far-fetched among Nigeria's individual states. Bayelsa State, in particular, has a low tax revenue yield. The majority of the state's Internally Generated Revenue (IGR) comes from the PAY-AS-YOU-EARN (PAYE) tax system, which is controlled by government employees (Olaoye & Ogundipe, 2018). This is due to the fact that tax management under the PAYE model is usually assured and leaves little room for evasion (Amah & Nwaiwu, 2018). However, over-concentration on PAYE has not only burdened the plan's tax payers, but it has also resulted in the loss of prospective tax revenues from sources not covered by the PAYE scheme (Wuyah et al., 2018). In 2016, direct assessment accounted for N27.5 million of the N7.7 billion in tax income collected in the state, accounting for less than 1% of total tax revenue yield (National Bureau of Statistics [NBS], 2018). As a result, the government, through the Federal Board of Internal Revenue Service, has expressed concern about the level of tax evasion, particularly among corporations (The Nations, 2018).

The principal responsibility of the government is to employ all available resources wisely for the benefit of its citizens all over the world (Olaoye & Ekundayo, 2019). The many revenue streams show how the government improves people's living standards while simultaneously boosting the country's growth and development. The quantity of revenue generated by any government determines its ability to function (Awotomilusi, 2020). The goal of revenue generation is to improve citizen welfare by providing development activities that promote economic growth and development in the country. As a result, the government devises procedures for collecting and correctly managing predicted annual income through the right agencies in order to accomplish the government's overall agenda goal. As a result, money production is the most usual way for governments to meet their massive responsibilities (Awotomilusi, 2020).

Tax revenue, according to Afuberoh and Okoye (2019), is the money that the taxing body receives from a certain tax or combination of taxes. Tax money is an input that the government extorts from people and companies, either directly or indirectly, according to Adeogun (2017). Taxes and money derived from administrative expenditures like fines, fees, donations, and grants, in accordance with Ilyas and Siddiqi (2018), make up public revenue. Due to multiple forms of resistance, including corruption, evasion, and avoidance, among others, revenue collection as a means of funding development operations in Nigeria has proven challenging. The incapacity of the tax administration to raise money undermines the economy and is frequently mentioned as a reason for the underdevelopment of the nation (Adegbie & Fakile 2020).

Several states in Nigeria have physical development that is regressive in terms of infrastructure and social amenities, notwithstanding the advantages of revenue creation. People may often knowingly overstate their expenses, make false entries, and make up transactions in their books of accounts in an effort to decrease their tax responsibilities. Without a doubt, this provides significant insight into Nigeria's tax administration system, both in terms of the system's design and some taxpayers' attitudes about taxation (Awotomilusi, 2020). As a result, this research intends to examine tax audit and investigation on revenue generation in the Ogun State Board of Internal Revenue.

1.2. Statement of the Problem

There is a widespread belief that corruption and a lack of transparency on the part of tax administrators and taxpayers have severely harmed the ability of the relevant tax authorities to generate an adequate amount of income from taxes. Some scholars have also brought attention to a wave of noncompliance with tax regulations by both tax administrators and taxpayers (Adesina & Uyioghosa, 2016; Dada & Taiwo, 2020; Ogbonna & Appah, 2018). According to the stance, there is a perceived level of inefficiency that has made collecting the exact tax owing to the government a monumental undertaking. On the basis of these concerns, the question of how best to collect tax income efficiently and adequately is presented. Various literatures assert that many people are failing to pay their taxes and that the methods of enforcement are inadequate. Tax auditing and investigation were instituted on these hills. Thus, this is the gap statement that this study will aim to fill by conducting a tax audit and investigation on revenue generation in the Ogun State Board of Internal Revenue in order to propose remedies to the problem.

1.3. Objective of the Study

This study objective is to measure tax audit and investigation on revenue generation in Ogun State Board of Internal Revenue. However, the specific objectives are:

  1.         i.            To investigate the relationship between regular tax audit on personal revenue generation in Ogun State Board of Internal Revenue.
  2.       ii.            To investigate the relationship between tax amnesty on corporate revenue generation in Ogun State Board of Internal Revenue
  3.     iii.            To assess the relationship between tax enforcement on public revenue generation in Ogun State Board of Internal Revenue.
  4.     iv.            To suggest better way of conducting tax audit in order to improve revenue generation in Ogun State Board of Internal Revenue.

1.4. Research Questions

In the light of the objectives above, the following research questions were formulated:

  1.         i.            What significance does regular tax audit have on personal revenue generation in Ogun State Board of Internal Revenue?
  2.       ii.            How does tax amnesty impact corporate revenue generation in Ogun State Board of Internal Revenue?
  3.     iii.            What impact does tax enforcement have on public revenue generation in Ogun State Board of Internal Revenue?
  4.     iv.            What are the other ways of conducting tax audit in order to improve revenue generation in Ogun State Board of Internal Revenue?

1.5. Research Hypotheses

The following research hypotheses will be formulated in their null form, which are:

Ho1: There is no significance relationship between regular tax audit on personal revenue generation in Ogun State Board of Internal Revenue

Ho2: There is no significant relationship between tax amnesty on corporate revenue generation in Ogun State Board of Internal Revenue

Ho3: There is no significant relationship between tax enforcement on public revenue generation in Ogun State Board of Internal Revenue

Ho4: There exist no other ways of conducting tax audit in order to improve revenue generation in Ogun State Board of Internal Revenue

1.6. Justification of the Study

The discovery of Ladi and Henry (2015) that tax audit has a major impact on revenue production in the Federal Inland Revenue Service lends credence to the idea that better tax administration would change the picture of tax revenue from year to year. As a result, their recommendation that tax authorities, auditors, and the Federal Inland Revenue Service embrace modern audit techniques such as computer assisted audit tools (CAATs) is more than suitable (Ladi, 2015; Ibrahim, 2017; Adediran et al., 2013). According to Ibrahim (2017), practicing accountants should respect the core principles of professional ethics while offering advisory services because they frequently operate as a liaison between taxpayers and tax authorities.

The existing literature appears to have devoted more focus to the role of tax audit as a strategy for increasing tax revenue collection and the issues faced tax authorities. However, based on the empirical studies analyzed, it appears that there is a limited study on tax audit and revenue generation using the Ogun State Board of Internal Revenue. Furthermore, many of the studies completed in this respect were not contemporary, prompting the researcher to conduct this study on tax audit and investigating revenue generation in the Ogun State Board of Internal Revenue.

 1.7. Significance of the Study

The study examined tax audit and investigation on revenue generation in Ogun State Revenue Board. It will be significant in a number of ways. It will contribute to the wide array of knowledge and total understanding of the economic growth in Ogun State in relation to revenue generation.

Policy makers/Auditors: The findings of this study would also help them implement new set of Tax audit and investigation policies in Ogun State to enforce continuous economic growth by increasing tax revenue through efficient auditing and investigation.

Government: The findings of this research can be adopted by the federal, state and local government and implemented in other parts of the country to increase the numbers tax payer and their compliance, through efficient tax audit and investigation.

Ogun State Board for Internal Revenue: The outcome will be useful to management of the Ogun State Board of internal revenue to be able to come up with new policies to implement in revenue generation. The staff of OSBIR will be able to place importance on the procedures in order to incorporate measures in their planning to ensure and that they contributed towards improved services.

Citizens: The study's findings will be beneficial to Ogun State residents because they will increase their understanding of the connection between revenue creation and tax audit and investigation, giving the process more context.

Academia/Researchers: Researchers and academics will benefit from the study since it will demonstrate the applicability of ideas and provide a practical perspective on them. The information will aid researchers in their research on the same subject.

1.8. Scope of the study

This study focuses on tax audit and investigation on revenue generation in Ogun State Board of Internal Revenue. It focuses on the management and staff of Ogun State Board for Internal Revenue. The study population is given as 160, while the sample size is 114, which was arrived at using the Taro Yamane sample size determination. The study will make use of the quantitative approach, using questionnaire which will be presented to the respondents for them to fill as relate to the topic understudy.

The respondents will be selected using the simple random technique. The reason for using the simple random technique is to ensure that both male and female employee of Ogun State Board of Internal Revenue has an equal chance of being represented for the study.

1.9. Operationalization of Variables

The dependent variable is revenue generation, represented by personal revenue (PR), corporate revenue (CR), and public revenue (PR). On the other hand, tax audit being the independent variable, is proxied by tax audit (TA), tax enforcement (TE), and tax amnesty (TA).

Where Y= Dependent variable

             X= Independent variable

Y= f(X)

X= Tax Audit

X = f(x1, x2, x3,)

x1= Tax Audit (TA)

x2= Tax Amnesty (TA)

x3= Tax Enforcement (TE)

Y= Revenue Generation

Y= f(y1,y2, y3)

y1 = Personal Revenue (PR)

y2 = Corporate Revenue (PR)

y3 = Public Revenue (PR)

The three specific objectives were:

To examine the relationship between regular tax audit on personal revenue generation in Ogun State Board of Internal Revenue.

Y1 = f (x1)

Y1 = b0 + b1x1 + u

To investigate the relationship between tax amnesty on corporate revenue generation in Ogun State Board of Internal Revenue.

Y2 = f (x2)

Y2 = b0 + b1x2 + u

To assess the relationship between tax enforcement on public revenue generation in Ogun State Board of Internal Revenue.

Y3 = f (x3)

Y3 = b0 + b1x3 + u

1.10. Operational Definition of Terms

Tax Audit: an examination of a taxpayer's business records and financial affairs to ensure that the amount of tax reported and paid is consistent with tax laws and regulations.

Revenue Generation: refers to the different sources of revenue generation used by the government to assist support the government's ever-increasing public sector expenditure

Tax Amnesty: refers to the limited-time chance for an individual or business to pay a specified amount of taxes.

Tax Enforcement: refers to the stringent observance of tax laws and procedures

Personal Revenue: refers to a person’s overall revenue or income

Corporate Revenue: refers to the total amount of income earned by a firm from the selling of goods or services.

Public Revenue: is the money received by a government from taxes and non-tax sources to enable it undertake government expenditures

Investigation: is the act or process of investigating or the condition of being investigated.