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Top1. Introduction
Tax is defined as ‘a compulsory levy, imposed by government or other tax raising body, on income, expenditure, or capital assets, for which the taxpayer receives nothing specific in return’ (Lymer & Oats, 2009).Taxes can be classified into two main types: direct and indirect taxes. Direct taxes mean the burden (incidence) of tax is borne entirely by the entity that pays it, and cannot be passed on to another entity; for example, corporation tax and individual income tax. Indirect taxes are typically the charges that are levied on goods and services (consumptions), for example VAT (Value Added Tax), sales tax, excise tax and stamp duties (Palil, 2010).
For development and growth of any society, the provision of basic infrastructure is quite necessary. This perhaps explains why the government shows great concern for a medium through which funds can be made available to achieve their set goals for the society. Government needs money to be able to execute its social obligations to the public and these social obligations include but not limited to the provision of infrastructure and social services. Meeting the needs of the society calls for huge funds which an individual or society cannot contribute alone and one medium through which fund is derived is through taxation. Tax is a major source of government revenue all over the world. Government use tax proceeds to render their traditional functions, such as the provision of public goods, maintenance of law and order, defense against external aggression, regulation of trade and business to ensure social and economic maintenance (Bukie & Adejumo, 2013).
Tax morale has been defined as the intrinsic motivation to pay tax and has been linked to ‘‘civic duty’’. Despite the fact that tax morale is frequently acknowledged as relevant to tax compliance, little is known about how it comes into being and how it is best nurtured. Loss of legitimacy accompanies less moral obligation to comply, in this case reduced tax morale. Individuals who feel personally disadvantaged and regard the tax system as responsible for their experiences of hardship are more likely to have depleted levels of tax morale (Braithwaite & Ahmed, 2005).
A developed economy is one with the ingredient to stimulate investment and create wealth, this by implication offers an atmosphere that is business friendly and has the potentials for the actualization of the vision 202020.The desired outcome requires a lot of money to put the economy in a position that stimulates investment, therefore, tax policies need to attract potential investors, and the revenue from tax should be sufficient enough to meet the infrastructural expenditures of the government (Ihenyen & Mieseigha, 2014).
Tax evasion is the illegal concealment of a taxable activity. Measuring how much economic activity is concealed will always be difficult since those who engage in evasion make every motivation to hide their activities (Hashimzade, Myles, Page & Rablen, 2014). Tax compliance refers to the willingness of people to agree with tax authorities by paying their taxes (Mukasa, 2008).
Tax compliance indicates the practices of reporting income and paying taxes to a tax administration. The practitioners and academics that have traditionally been most interested in tax compliance e.g. tax inspectors, accountants and legal scholars typically describe tax compliance, ‘‘as reporting all income and giving all taxes in accordance with the applicable laws, regulations, and court decisions’’ (Boll, 2013). Research shows that tax compliance is affected by (social and personal) norms such as those regarding procedural justice, trust, belief in the legitimacy of the government, reciprocity, altruism, and identification with the group (Kornhauser, 2007).Tax non-compliance or evasion on the other hand, occurs when taxpayers intentionally or unintentionally fail to comply with their tax obligations. According to Eriksen and Fallan (1996), better tax knowledge accounts, at least in part for the improved perception of fairness and attitudes to other’s tax invasion (Mukasa, 2008). Trust-building actions are the most effective economic policies not only for increasing tax compliance but also for obtaining long term positive macroeconomic effects.