The Effect of Tax Reforms and Tax Compliance on the Economic Development of Developing Countries: A Case Study of Nigeria.

ABSTRACT Since 1980s’ the awareness of the effect of tax reforms and tax compliance on economic development has increased significantly. The positive and effective use of tax revenues influences how taxpayers comply with tax laws. In particular, taxpayers tend to adhere to tax laws and fulfil their obligations when it is evident that the taxes paid are put into proper use by providing the essential public goods and services needed by the citizens. Compliance increases when it is believed that the taxes are seen as been fair and when government is seen to put the taxes into proper use (Cummings et al., 2005). The costs and benefits to tax administrators are measured in terms of the tax administrators wages and salaries and the bribes gotten from their corrupt practice. In the case of tax rates and economic growth, the result shows that the reduction in tax rates will lead to economic growth, since it is believed that funds will be put into proper use in the hands of the citizens and taxpayers for profitable activities compared to when it is left in the hands of the government, that might not invest it properly into profitable activities. Researchers have noted that government legitimacy and taxpayers’ acceptance of the government influences the level of tax compliance. Adherence and compliance to tax laws are witnessed if the benefits derived from tax evasion are lower than the costs incurred if caught during evasion and corruption among tax administrators will be minimal if the benefits derived from illicit practices are inconsequential; the most important cost is the loss of the tax administrators’ job, which lays emphasises on the quality of wages and salaries paid to the administrators which will discourage corruption among tax administrators. This dissertation examines the effect of tax reforms and tax compliance on the economic development in developing countries, using Nigeria as a case study and it draws out some key findings and recommendations if adhered to will boost the Nigerian economy. It focuses on the causes of tax non-compliance and the causes of reduction in tax revenues in developing countries, identifying the roles, contributions and problems caused by governments, tax administrators and tax payers in the tax system and also, on the link between tax compliance and tax decision reforms. It recommends measures that could be taken by the government, tax authorities and tax administrators to address the various problems identified in this research. These measures include elimination of corruption in the tax system, effective use of tax revenues by the government which should be visible to the taxpayers, addressing the shortcomings in the tax administration processes in order to have an efficient and effective administration process. Also, the importance of tax education cannot be over emphasised, taxpayers need to be educated on the importance of paying taxes and its benefits to the society as a whole