The Role of Tax Audits in Compliance with Nigerian Tax Laws: A Case Study of FIRS
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Background of the Study
Tax audits are essential tools for ensuring compliance with tax laws, identifying discrepancies, and fostering a culture of voluntary compliance among taxpayers. In Nigeria, the Federal Inland Revenue Service (FIRS) is responsible for enforcing tax laws and conducting audits to verify the accuracy of tax returns and deter evasion (PwC, 2023).
The complexity of Nigerian tax laws, coupled with low tax morale and widespread tax evasion, has necessitated a more proactive approach to tax audits. Through rigorous auditing practices, FIRS aims to improve compliance rates, increase revenue collection, and promote fairness in the tax system. However, challenges such as insufficient manpower, outdated technology, and taxpayer resistance often undermine the effectiveness of tax audits.
This study examines the role of tax audits in ensuring compliance with Nigerian tax laws, using FIRS as a case study, to highlight their impact on revenue generation and tax compliance behavior.
Statement of the Problem
Non-compliance with tax laws is a persistent issue in Nigeria, resulting in significant revenue losses and undermining government efforts to finance development projects. While tax audits are designed to address this issue, factors such as limited resources, inefficient processes, and taxpayer resistance have hindered their effectiveness.
Understanding the relationship between tax audits and compliance is critical for strengthening Nigeria’s tax administration system. This study investigates the challenges faced by FIRS in conducting tax audits and provides recommendations for improving their effectiveness in promoting compliance.
Objectives of the Study
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To evaluate the role of tax audits in improving compliance with Nigerian tax laws.
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To identify challenges faced by FIRS in conducting effective tax audits.
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To recommend strategies for enhancing the effectiveness of tax audits in Nigeria.
Research Questions
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How do tax audits improve compliance with Nigerian tax laws?
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What challenges affect the effectiveness of tax audits conducted by FIRS?
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What strategies can enhance the effectiveness of tax audits in Nigeria?
Research Hypotheses
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H₁: Tax audits significantly improve compliance with Nigerian tax laws.
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H₂: Challenges such as resource constraints negatively impact the effectiveness of tax audits.
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H₃: Improved tax audit practices enhance revenue generation and compliance in Nigeria.
Scope and Limitations of the Study
The study focuses on FIRS, analyzing the role of tax audits in compliance with Nigerian tax laws between 2023 and 2025. Limitations include potential bias in data collection and limited access to proprietary audit reports.
Definitions of Terms
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Tax Audits: Systematic reviews of tax returns and records to ensure compliance with tax laws.
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Federal Inland Revenue Service (FIRS): Nigeria’s tax authority responsible for tax collection and enforcement of tax laws.
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Tax Compliance: Adherence to tax laws and regulations by taxpayers, including accurate reporting and timely payment of taxes.
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