The Impact of PIT Evasion on Government Revenue: A Study of Anambra State
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Background of the Study
Personal Income Tax (PIT) is a primary source of internally generated revenue (IGR) for state governments in Nigeria. However, tax evasion remains a critical challenge, undermining revenue mobilization and fiscal sustainability. Anambra State, a hub of commercial activities in southeastern Nigeria, experiences significant PIT evasion, particularly among small businesses and informal sector operators. This evasion limits the state's ability to fund public services and infrastructure development effectively.
The informal nature of many businesses in Anambra State, coupled with limited enforcement mechanisms, has exacerbated the issue of PIT evasion. Recent studies, including Nwosu et al. (2024), highlight that tax evasion not only reduces government revenue but also distorts economic equity, as compliant taxpayers bear a disproportionate burden. Efforts by the Anambra State Internal Revenue Service (AIRS) to address these challenges, such as the adoption of digital tax platforms and public sensitization campaigns, have yielded mixed results.
The Finance Acts of 2021 and 2022 introduced measures to improve tax compliance across Nigeria, yet their effectiveness in curbing PIT evasion in Anambra State remains debatable. This study aims to examine the causes and consequences of PIT evasion in the state, providing insights into policy measures that can enhance compliance and revenue generation.
Statement of the Problem
PIT evasion poses a significant threat to the fiscal stability of Anambra State. Despite being one of the leading commercial hubs in Nigeria, the state struggles to achieve its revenue targets due to widespread noncompliance among taxpayers. Factors such as inadequate enforcement, corruption within tax authorities, and the complexity of the tax system have contributed to this problem.
According to Okeke and Nwachukwu (2023), PIT evasion in Anambra State results in an estimated 40% revenue loss annually. This shortfall undermines the government’s ability to provide essential services and invest in infrastructure. While the AIRS has made efforts to improve compliance through policy reforms and taxpayer education, the persistence of evasion highlights deeper structural and administrative issues that need to be addressed.
Objectives of the Study
- To analyze the causes of PIT evasion in Anambra State.
- To assess the impact of PIT evasion on government revenue in the state.
- To propose strategies for reducing PIT evasion and improving revenue generation.
Research Questions
- What are the causes of PIT evasion in Anambra State?
- How does PIT evasion impact government revenue in the state?
- What strategies can effectively reduce PIT evasion in Anambra State?
Research Hypotheses
- H0: PIT evasion is not significantly influenced by administrative and systemic challenges in Anambra State.
- H0: PIT evasion does not significantly impact government revenue in Anambra State.
- H0: Proposed strategies will not significantly reduce PIT evasion in Anambra State.
Scope and Limitations of the Study
This study focuses on PIT evasion in Anambra State, analyzing its causes, consequences, and potential solutions. The scope includes examining data from 2020 to 2025. Limitations include challenges in accessing accurate records from noncompliant taxpayers and the potential bias of survey respondents.
Definitions of Terms
- Personal Income Tax (PIT): A tax levied on the income of individuals and unregistered businesses.
- Tax Evasion: The illegal practice of avoiding tax payments through fraudulent means.
- Government Revenue: Income generated by the government through taxation and other sources.
- Anambra State: A southeastern state in Nigeria known for its commercial activities.
- Taxpayer Compliance: Adherence to tax laws, including accurate reporting and timely payment.
