The Effect of Trust in Tax Authorities on Compliance: A Case Study of Small-Scale Traders in Ibadan
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Background of the Study
Trust in tax authorities plays a critical role in influencing tax compliance behavior. When taxpayers believe that tax authorities are fair, efficient, and accountable, they are more likely to voluntarily comply with tax obligations. Conversely, when there is a lack of trust, particularly due to perceptions of corruption, inefficiency, or unfair treatment, taxpayers may be more inclined to evade taxes or underreport their income.
In Nigeria, small-scale traders in cities like Ibadan face a unique set of challenges when it comes to tax compliance. These traders, who operate in the informal sector, often face limited access to information about tax obligations and are skeptical about the fairness and transparency of tax administration. As a result, many avoid paying taxes, citing reasons such as high taxes, fear of harassment, or the perception that tax revenue is misused.
The issue of trust in tax authorities is particularly important in the context of small-scale traders, who often work in volatile economic environments and are subject to complex and unclear tax regulations. Previous studies, such as those by Nwachukwu et al. (2023), have shown that trust in tax authorities is a strong determinant of tax compliance. The study of small-scale traders in Ibadan provides an opportunity to evaluate how trust in the Nigerian tax system influences their willingness to comply with tax regulations.
Statement of the Problem
Despite the importance of small-scale traders to the Nigerian economy, tax compliance remains low among this group, especially in Ibadan. A key factor contributing to this noncompliance is the lack of trust in tax authorities. Traders often feel that they are unfairly targeted for taxation and that their tax contributions do not result in tangible benefits such as infrastructure development or public services.
This study aims to explore the relationship between trust in tax authorities and the tax compliance behavior of small-scale traders in Ibadan. It will investigate how factors such as transparency, accountability, and perceptions of fairness influence traders' willingness to pay taxes and adhere to tax regulations.
Objectives of the Study
- To examine the role of trust in tax authorities in influencing tax compliance among small-scale traders in Ibadan.
- To identify the factors that affect trust in tax authorities among small-scale traders.
- To assess the impact of trust in tax authorities on the willingness of small-scale traders to comply with tax obligations.
Research Questions
- How does trust in tax authorities affect tax compliance among small-scale traders in Ibadan?
- What factors influence the trust of small-scale traders in Nigerian tax authorities?
- How does trust in tax authorities impact the willingness of small-scale traders to pay taxes?
Research Hypotheses
- H0: Trust in tax authorities does not significantly influence tax compliance among small-scale traders in Ibadan.
- H0: Factors such as transparency, accountability, and fairness do not significantly affect trust in tax authorities among small-scale traders.
- H0: Trust in tax authorities does not significantly increase the willingness of small-scale traders to comply with tax regulations.
Scope and Limitations of the Study
The study will focus on small-scale traders in Ibadan, examining the relationship between their trust in tax authorities and their tax compliance behavior. The study will analyze data from 2020 to 2025. Limitations include potential biases in self-reported data from traders and difficulties in measuring abstract concepts such as trust.
Definitions of Terms
- Trust in Tax Authorities: The belief or confidence that taxpayers have in the fairness, efficiency, and integrity of tax administrators.
- Tax Compliance: The act of adhering to tax regulations, including timely payment and accurate reporting of income.
- Small-Scale Traders: Entrepreneurs engaged in small-scale retail or service-oriented businesses, often operating in the informal sector.
- Tax Behavior: The actions of individuals or businesses regarding the reporting and payment of taxes.
- Ibadan: A major city in southwestern Nigeria, known for its commercial and agricultural activities.
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