CHAPTER ONE  

INTRODUCTION   

BACKGROUND TO THE STUDY   

Taxation is not a new word in Nigeria or the world as a whole. In Nigeria, taxation has been in existence even before the coming of the colonial men or the British. Taxation can be defined as the system of imposing a compulsory levy on all income, goods, services and properties of individuals, partnership, trustees, executorships and companies by the government (Samuel and Simon, 2011;Yunusa, 2003). Income tax is one of the major sources of revenue to all government. In Nigeria, it is a factor to be reckoned with in Federal Government’s budget the taxes so collected come back to the taxpayer in form of services. This has over the years encouraged or discouraged some activities in the private sector; though, this depends on whether the policy of the government is towards discouraging or encouraging such companies (Ola, 1999). Taxation is recognized as a very important tool for national development and growth in most societies. It has viewed as a major vehicle for long term development of infrastructures of the state.    With the growth and increasing globalisation of businesses (including the increased mobility of capital and rise of e-commerce), the opportunities for taxpayers to violate tax laws are expanding, prompting the need for the tax administration to continually update and broaden the strategies it uses to deal with this problem.   Tax fraud occurs when an individual or business entity willfully and intentionally falsifies information on a tax return in order to limit the amount of tax liability . Tax fraud essentially entails cheating on a tax return in an attempt to avoid paying the entire tax obligation. Examples of tax fraud include claiming false deductions; claiming personal expenses as business expenses; and not reporting income.   Most developed countries are characterized by a broad base for direct and indirect taxes with tax liability covering the vast majority of citizens and firms. Developing countries, in contrast, are confronted with social, political and administrative difficulties in establishing a sound public finance system. As a consequence, developing and emerging countries are particularly vulnerable to tax fraud activities of individual taxpayers and corporations. This can be considered one of the primary reasons for large differences in the ability to mobilize own resources between developed and developing countries. Detecting and preventing tax fraud and making sure that it cannot be repeated is not solely the responsibility of tax authority and tax officials. Without the cooperation of general public working in high risk areas, it is very difficult to detect illegal tax malpractice and illegitimate personal gain. Therefore, it is up to all levels of hierarchy in public institutions to create an environment of transparency, ethical conduct and accountability in order to ensure proper handling of the very important issues of prevention, detection and handling of tax fraud cases in among the general taxpayer.   The doctrine describes tax fraud as a form of deliberate evasion of tax which is generally punishable by law. The term ‘tax fraud’ includes situations in which deliberately false statements are submitted, fake documents are produced, etc. Sanctions may include civil or criminal penalties. Finally, the revenue generated by the government from taxation forms a major source of finance to the federal government capital expenditure which is crucial to sustainable economic development. A major challenge to the government in generating this revenue has been the increasing rate of tax fraud offences committed by both tax payers and tax officials. Therefore tax fraud and other related tax offences are important factors to be considered as they affect both the volume and nature of government finances which is the key to economic development.