Effect Of Tax Audit And Investigations Strategies On Tax Revenue Collection Methods In Nigeria. (A Study Of South East Geographical Zone)

ABSTRACT

The study examines the effect of tax audit and investigations strategies on tax revenue collection methods in Nigeria, which is the main objective of the study. The specific objectives are: the effect of tax audit and investigation (TAI) components and tax deducted at source/advance tax payment; effect of TAI components on direct tax payments and TAI components on self assessment tax policy. Descriptive survey research design was adopted in obtaining data based on the opinion of respondents from the Federal Inland Revenue service (FIRS) in Nigeria. The population of the study is 350 staff of FIRS selected from five states in south eastern Nigeria (70 per state), who were administered with a questionnaire. The study made use of convenience sampling technique out of which 250 questionnaire filled by the staff was adopted as the study sample size. The study employed descriptive statistics such as percentages and frequencies and the use of linear regression method. The study findings reveal that tax audit and investigations elements have a significant effect on tax deductible at source/ advance tax payment except access to information from other countries revenue authorities which has no significant effect on tax deductible at source/ advance tax payment. Further findings revealed that taxpayers record keeping obligation, access to taxpayers books and records, and access to information from other countries revenue authorities has significant effect on direct tax payment in Nigeria, while access to third party information source, powers to amend returns from tax payers claim and sanctions for non compliance has no significant effect on direct tax payment in Nigeria. Finally it was discovered that taxpayers record keeping obligation, access to taxpayers books and records, access to third party information source, and access to information from other countries revenue authorities has no significant effect on tax as a result of self assessment in Nigeria while, powers to amend returns from tax payers claim and sanctions for non compliance has a significant effect on tax as a result of self assessment. Base on the findings of the research, it is recommended that Tax administrative authorities should harmonize data with other government agencies like the National Identity Management Commission and Nigerian Communication Commission to enhance capturing of more citizens into the tax net. If that is done, it can improve tax records as well as sort out issues of investigating the activities of tax payers in view of tax audits. This will go a long way in improving tax deductions at source/advance tax payment as transactions of tax payers captured digitally can be monitored, audited and investigated for tax purposes.

TABLE OF CONTENTS

Cover page                                                                                                                              i

Title Page                                                                                                                                ii         

Declaration                                                                                                                              iii

Dedication                                                                                                                              iv        

Certification                                                                                                                            v

Acknowledgement                                                                                                                  vi

Table of contents                                                                                                                    vii

List of tables

Abstract                                                                                                                                  vii

Chapter 1:      INTRODUCTION1                                                                                    

1.1       Background to the Study                                                                                           1

1.2       Statement of the Problem                                                                                           4

1.3       Objective of the Study                                                                                               6

1.4       Research Question                                                                                                      7

1.5       Hypothesis                                                                                                                  7

1.6       Significance of the Study                                                                                           8

1.7       Scope of the Study                                                                                                     9

1.8       Definition of Operational Terms                                                                                 9

1.9       Limitation of Study                                                                                                    11

Chapter 2: REVIEW OF RELATED LITERATURE                                                               

2.1       Conceptual Framework                                                                                               12

2.1.1    Concept of tax audit and investigation                                                                      12

2.1.2    Factors affecting tax compliance                                                                                21

2.1.3    Tax policy reforms and tax administration                                                                 25

2.1.4    Previous tax reforms                                                                                                   27

2.1.5    Overview of tax administration reform actions in Nigeria                                         31

2.1.6    Organisational restructuring                                                                                        32

2.1.7    The Nigeria National tax policy                                                                                  34

2.1.8    Tax legislation: FIRS autonomy                                                                                 35

2.1.9    Tax appeal tribunal                                                                                                      35

2.1.10  Compliance and Enforcement                                                                                                38

2.1.11  Taxpayers services                                                                                                      38

2.1.12  Entrenching a strong ethical code                                                                               39

2.1.13  Capacity building                                                                                                        40

2.1.14  Domestic and international corporation and collaboration                                         41

2.1.15  Strategic performance management                                                                            42

2.1.16  Joint tax board                                                                                                                        43

2.1.17  Conditions for a good tax audit                                                                                 44

2.1.18  Issues in Tax audit and Investigation                                                                                     45

2.1.19  Main characteristics of audit                                                                                       49

2.1.20  Need for tax audit                                                                                                      49                                                                                                                                                                                                                                                                                                                                                 

2.1.21  Tax audit function and resources allocation                                                               52

2.1.22  Location of audit                                                                                                        52

2.1.22  Types of Audits                                                                                                          53       

2.1.23 Approaches and standards of tax audit                                                                      54

2.1.24  Efficiency and effective tax audit                                                                              54

2.1.25  Tax audit and tax malpractices                                                                                   57

2.1.26  Tax audit and investigation in Nigeria                                                                        58

2.1.27  Trigger points and management strategies                                                                  59

2.1.28  tax audit from an international perspective                                                                62

2.1.28  The roles of the taxpayer audit programme                                                                62

2.1.30  Annual audit plan                                                                                                       64

2.1.31  Methodology of auditing and investigation                                                               65

2.1.32  Quarterly technology report                                                                                        68

2.1.33  Reasons  or aims of instituting tax audit exercise                                                       69

2.1.34  Practical approach to field audit                                                                                 71

2.1.35  Distinction between tax and revenue                                                                         73

2.1.36  Tax revenue as a catalyst for Nigeria economy Growth                                             75

2.1.37  Types of taxes in Nigeria                                                                                            76

2.1.38  Elements of tax audit and investigation                                                                     77

2.1.39  Internally generated revenue                                                                                      82

2.1.40  Tax administration and revenue collection strategy                                                   84

2.1.41  Developing revenue strategy                                                                                      92

2.1.42  Elements of tax administration and revenue collection strategy                                96

2.2       Theoretical Review                                                                                                     109

2.2.1    Reasoned action theory                                                                                              110

2.2.2    The Planned behaviour theory                                                                                    110

2.2.3    The Police theory                                                                                                        111

2.3       Empirical Review                                                                                                        111

2.4       Research Gap                                                                                                              123

Chapter 3: RESEARCH METHODOLOGY                                                                   

3.1       Research Design                                                                                                         125

3.2       Area of Study                                                                                                             125

3.3       Population of the Study                                                                                              125

3.4       Sample and Sampling Techniques                                                                              126

3.5       Source of data                                                                                                             126

3.6       Design and Administration of Questionnaire                                                             126

3.7       Description of the Instrument                                                                                     127

3.8       Validity of the Research Instrument                                                                          127

3.9       Data Analysis Techniques                                                                                           128

3.9.1    Model specification                                                                                                    129

Chapter 4: DATA PRESENTATION AND ANAYSIS                                                  

4.1       Data Presentation                                                                                                        132

4.2       Presentation of Result                                                                                                 136

4.3       Testing of Hypotheses                                                                                                            146

4.4       Discussion Findings                                                                                                    150

Chapter 5: SUMMARY, CONCLUSION AND RECOMMENDATIONS                  

5.1       Summary of Findings                                                                                                 160

5.2       Conclusions                                                                                                                 161

5.3       Recommendations                                                                                                      162

5.4       Contribution to Knowledge                                                                                        163

5.5       Area of further research                                                                                              164

References                                                                                                                              165

Appendices                                                                                                                             182

LIST OF TABLES

Tables  1         Timeline of major tax reform in Nigeria, 1900-2014                                      29

 2         Population of the Study table                                                                         125

 3         Sample size                                                                                                     127

 4.1      Gender of the respondents                                                                             132

 4.2      Marital Status of the respondents                                                                   135

 4.3      Age of the respondents                                                                                   137

 4.4      Education qualification of the respondents                                                    137

 4.5      Group affiliation of the respondent                                                                138

 4.6      effect of tax audit and investigation on advance tax payment                      140

 4.7      evaluation of tax audit and investigation on direct payment of taxes                        141     

 4.8      Effect of tax audit and investigation on self assessment                               144

 4.9      Ascertain the determinant of tax revenue collection strategy                                    144