IMPROVING VOLUNTARY TAX COMPLIANCE WITHIN THE INFORMAL SECTOR
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Chapter 1-5
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IMPROVING VOLUNTARY TAX COMPLIANCE WITHIN THE INFORMAL SECTOR
ABSTRACT
Taxation is not new in the scene of human existence as it has been part of it all along. However, despite its age long history, its importance and necessity, it has not received the required level of acceptance and compliance. Instead, people tend to avoid the payment of tax if they are not compelled to do so. The trend is worse among operators in the informal sector due to the nature of the sector. This study therefore, considered the ways the government can improve voluntary compliance within the informal sector which has not been properly harnessed or brought under the tax net. Both primary and secondary sources of data were used. The survey method which involves the use of questionnaire was employed to administer questionnaires on owners/entrepreneurs of small and medium scale enterprises in Enugu North Local Government of Enugu State and employees of Federal Inland Revenue Service (FIRS) and State Board of Internal Revenue (SBIR) in the State. Also, the simple percentage and the chi-square qualitative statistical methods were used to analyse the data collected and test the hypotheses formulated. The study found out that the perception of tax payers is that the government is not accountable to them. Moreover, tax payers are not aware of current development in the tax system. To achieve voluntary compliance, the study recommends that there is need to employ tools such as tax payers’ education, increased interaction with tax payers, and collaboration with civil society, academia and other stakeholders in the tax system as well as the use of the mass media to promote a deeper tax culture amongst operations in the informal sector. On the whole, accountability on the part of government to the citizenry as well as cultivating a culture of harmony among tax payers and tax collectors by establishing tax payers’ friendly environment and policies and appreciating their contributions to national development and progress is pivotal to achieving voluntary compliance in the sector.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Tax compliance encompasses all activities necessary to be carried out by the taxpaying public in order to meet the statutory requirement of tax law. This includes preparation of tax returns that must be filed by individuals and/or organisations. Voluntary tax compliance is a tax system based on tax payers complying with the tax laws without being compelled by the tax authority to do so. Under this system, tax payers are expected to report their income, calculate their tax liabilities and file returns. This is known as self-assessment. Self-assessment is one of the most prominent measures by the tax authority to secure voluntary compliance. It encourages voluntary compliance because of the liberty granted the tax payer which requires him to complete his tax himself, make payments and file return. But, its administration seems to be much easier in the organised (formal) sector. The government should endeavour to extend such taxation in general to the informal sector because it has the potential to contribute significantly to the growth of the economy taking into cognisance the fact that to achieve voluntary compliance, there must be mutual trust between tax payers and tax authority.
1.2 STATEMENT OF THE PROBLEM
The problem of non-compliance is as old as tax itself because it is a known fact that citizens hardly come out to pay their taxes without being compelled to do so.