Tax Audit Frequency and Its Effect on Evasion in Gumel LGA
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Background of the Study
Tax revenue plays a pivotal role in financing public services, fostering economic development, and reducing income inequalities. Effective tax administration is crucial for achieving these goals. One critical aspect of tax administration is tax auditing, which ensures compliance and curtails tax evasion. In Nigeria, tax evasion remains a persistent challenge, depriving local governments of much-needed revenue. Gumel Local Government Area (LGA), like many other regions, struggles with significant levels of tax non-compliance, which hampers its ability to fund developmental projects.
Tax audits serve as a deterrent by increasing the perceived risk of non-compliance among taxpayers. However, the frequency of tax audits varies across jurisdictions and industries, raising questions about its effectiveness in curbing evasion. In Gumel LGA, limited data exists on the impact of audit frequency on tax compliance rates. Understanding this relationship is essential for formulating targeted policies to address tax evasion.
Theoretical perspectives, such as the Allingham and Sandmo model, suggest that the probability of detection and the severity of penalties influence taxpayer behavior. However, the practical implications of these theories remain underexplored in the Nigerian context, especially at the local government level. This study seeks to bridge this gap by investigating the effect of tax audit frequency on evasion in Gumel LGA.
Statement of the Problem
Tax evasion in Gumel LGA has resulted in substantial revenue shortfalls, limiting the capacity to finance essential public services. While tax audits are implemented to reduce evasion, their infrequency and inconsistent application may undermine their effectiveness. Existing research focuses on tax compliance at national or state levels, leaving local government dynamics underexplored. This study addresses the gap by examining whether the frequency of tax audits significantly affects tax evasion in Gumel LGA.
Aim and Objectives of the Study
Aim: To assess the effect of tax audit frequency on tax evasion in Gumel LGA.
Objectives:
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To examine the current tax audit practices in Gumel LGA.
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To analyze the relationship between audit frequency and tax evasion rates.
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To recommend strategies for enhancing tax compliance through effective auditing.
Research Questions
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What are the current tax audit practices in Gumel LGA?
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How does the frequency of tax audits influence tax evasion rates?
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What strategies can improve compliance through effective audits?
Research Hypothesis
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H₀: There is no significant relationship between tax audit frequency and tax evasion in Gumel LGA.
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H₀: Tax audit frequency does not significantly impact taxpayer compliance.
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H₀: Improved tax auditing does not lead to reduced evasion in Gumel LGA.
Significance of the Study
This study provides valuable insights for tax administrators in Gumel LGA, aiding in policy formulation to enhance compliance. It contributes to academic discourse by exploring the localized effects of audit frequency on evasion, thus filling a critical research gap.
Scope and Limitation of the Study
The study focuses on the relationship between tax audit frequency and evasion within Gumel LGA. Data collection is limited to registered taxpayers and tax officials in the area. Limitations include access to accurate tax records and respondents’ willingness to provide information.
Definition of Terms
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Tax Audit: The examination of a taxpayer’s financial records to ensure compliance with tax laws.
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Tax Evasion: The illegal act of not paying taxes owed.
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Audit Frequency: The regularity with which tax audits are conducted.
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