Deterrent Tax Measures and Tax Compliance in Nigeria

Abstract

Over the years, many developed economies have made considerable investment in legislative tax reforms, taxpayer education programs, tax enforcement strategies, and increasingly sophisticated systems of tax administration using new technologies. Undoubtedly, there are lessons to be learnt from studying best practices in developed economies. However, compared to their counterparts in developed economies, policy makers and revenue authorities in developing economies face quite different challenges and constraints that require careful consideration in designing appropriate and effective tax systems. This paper examines the effects of deterrent tax measures on tax compliance in Nigeria. Following the introduction, we reviewed the existing tax policies and reforms in Nigeria. This is followed by a discussion of the various compliance strategies prescribed in the literature from where we developed our hypotheses. The method of data analysis used in the study is the ordinary least square (OLS) regression technique. This method was adopted because of its properties of consistency, unbiasedness and efficiency. The OLS regression technique was estimated using computer software (Microfit 4.1).  It was observed that the existing deterrent tax measures in Nigeria are inadequate and have not helped to promote tax compliance in the country. It was also discovered that fostering voluntary compliance and enhancing taxpayer’s morale will enhance tax compliance. We recommend that the Nigerian revenue authorities should strive to adopt the approach that will encourage voluntary compliance and prescribe appropriate sanctions for defaulters.

Key Words: Tax, Tax system, Deterrent, Tax Measures, Tax Returns, Tax Liability