An Examination of Illicit Financial Flows and Their Impact on Tax Evasion: A Case Study of Nigeria
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Background of the Study
Illicit financial flows (IFFs) have emerged as a significant global issue, particularly in developing economies like Nigeria. These flows, which include tax evasion, corruption, and illegal capital flight, undermine national revenue mobilization and economic development. The Economic Commission for Africa (ECA, 2023) estimates that Africa loses billions of dollars annually due to IFFs, with Nigeria being a major contributor due to its extensive informal sector and resource-rich economy.
Tax evasion forms a critical component of IFFs, depriving the government of funds needed for public services and infrastructure development. Factors contributing to the prevalence of tax evasion in Nigeria include weak governance structures, inadequate enforcement mechanisms, and the collusion of financial institutions (Okonkwo & Adeyemi, 2024). This study investigates the relationship between IFFs and tax evasion in Nigeria, focusing on their economic consequences and potential solutions.
Statement of the Problem
Despite efforts to curb tax evasion and improve revenue collection, Nigeria continues to experience significant revenue losses due to IFFs. These flows erode the tax base, distort market competition, and exacerbate income inequality (Adebayo & Okechukwu, 2023). The persistence of IFFs not only undermines tax compliance but also diminishes public trust in governance and tax administration systems.
Current policies aimed at addressing IFFs have yielded limited success due to institutional weaknesses, lack of political will, and limited international cooperation. This study seeks to understand the impact of IFFs on tax evasion in Nigeria, providing actionable recommendations for policymakers.
Objectives of the Study
- To examine the relationship between illicit financial flows and tax evasion in Nigeria.
- To identify the key factors contributing to illicit financial flows in Nigeria.
- To propose measures for reducing tax evasion by addressing illicit financial flows.
Research Questions
- What is the relationship between illicit financial flows and tax evasion in Nigeria?
- What are the key factors contributing to illicit financial flows in Nigeria?
- What measures can be implemented to reduce tax evasion by addressing illicit financial flows?
Research Hypotheses
- H₀: There is no significant relationship between illicit financial flows and tax evasion in Nigeria.
- H₀: The factors contributing to illicit financial flows do not significantly influence tax evasion.
- H₀: Proposed measures will not significantly reduce tax evasion by addressing illicit financial flows.
Scope and Limitations of the Study
The study focuses on the impact of illicit financial flows on tax evasion in Nigeria from 2020 to 2025. Limitations include the availability of accurate data on illicit activities and the potential influence of external economic factors.
Definitions of Terms
- Illicit Financial Flows (IFFs): Illegal movements of money or capital across borders.
- Tax Evasion: The illegal act of not paying taxes owed.
- Revenue Mobilization: The process of generating government revenue through taxation and other means.
