CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY Taxation is the system of raising money in form of taxes paid by the citizens of the country in return for the services rendered by the government. It could be recalled that taxation is instituted by God, this is traced back to “Mattew chapter 22 vs. 17-21”, when the Pharisees asked Jesus whether it is lawful to pay taxes or not. The Pharisees were later told render therefore to Caesars the things that are Caesar’s and to God the things that are to God. According to  Lekan .S. etal (2006), tax was described and not defined in the statues, but according to Cambridge international dictionary of English, it is “an amount of money paid to the government usually a percentage (%) of personal income or company profits”. According to Okpe I.I (2000) tax is the transfer of resources and income from the private sector to the public sector in order to achieve some of the nation’s economic and social goals. Taxation is universally accepted as a powerful tool in the hands of any government to raise income for its services and to ensure equitable distribution of income among its citizens. Therefore, in every modern communities, a large amount of taxation is necessary for a public expenditure increases to promote social progress, taxation which is the main sources of funds also increases. The present tax laws in Nigeria emanated from the Raismais commission in 1957. Before this time we only had what was called the income tax ordinance for the colonies and which was rather common in all the colonies and the provisions were very similar. Raim’s recommendation was the basis of provision in the Nigerian constitution order council of 1960 section 70(1) which conferred an exclusive power upon the parliament to make laws for Nigeria or any part thereof with certain uniform principles in respect of personnel income tax. During 1963 when Nigeria became a republic, the mid-western region was created out of the western region and they adopted the western region tax law accordingly with the amendments, the position under the republican constitution of 1963 and that the regions (now divided into states) assumed jurisdiction over the income tax of person other than companies. While the federal government assumed jurisdiction over the taxation of companies, the uniform principles under the income tax management act and the regional taxes in the federal territory of Lagos. Thus, after the creation of former 12 states in 27th may 1967, the state assumed the tax laws of the regions in which they were before the creation of such states. The uniform principle covered by the income tax management act of 1961 were as follows: (i) Specifies what income are exempted from tax. (ii) What constitute income for tax purposes. (iii) Upholds residence on the basis for taxation or in the alternative, the principal place of business. (iv) And recently prescribed the rates of tax and personal reliefs.       1.2: STATEMENTOF THE PROBLEM There is high incidence of tax evasion and avoidance by tax payers. This may affect the amount of revenue collectible by the government for the running of administration. Furthermore, it is hoped that people were wrongly assessed and the assessment sometimes result to regressive taxation. 1.3 PURPOSE OF THE STUDY The purpose of this study include the following: (a) To examine the causes and reasons for high tax evasion and avoidance. (b) To generate revenue to help the government to finance ever-increasing public sector expenditure. (c) To promote social, economic, and good governance through provision of merit goods. (d) To examine the effect on economy, the high incidence of tax evasion and avoidance. (e) To examine people’s perception on taxation. 1.4:  SIGNIFICANCE OF THE STUDY The topic “taxation and its effects of the Nigerian economy”, will educate the entire public on how the federation could encourage economic development and also how a reduced tax could promote the standard of living of the tax payer and increases his capital formation and investment thereby, resulting in a higher gross National Product (GNP) of the economy (country) and also promote the industrial development of the nation and Enugu state in particular. The study will be of immense benefit to the following group of persons. (a) Government of the federation of Nigeria, especially the Enugu State Government. (b) The business community for the purpose of companies income tax. (c) The tax experts especially the practicing professional accountants. (d) Enugu state university community. (e) The Nigerian Institute of Management and Nigerian Statisticians. (f) The economist and financial analysts or capitalist. (g) The students of Accountancy profession and other allied professions. (h) The tax-payers, especially the employers of labour and the employees of various organisations. (i) Tax researchers. 1.5: SCOPE AND DELIMITATION. This topic, taxation and its effect on the Nigerian economy (A case study of Enugu state tax system and economy) should have been expected to cover all the 36 states of the federation and Abuja and the entire economy but the writer intends to limit this topic to only Enugu state due to financial handicap, distance and time constraints. Therefore, since the same tax Acts are applied throughout the federation Republic of Nigeria, the study of Enugu tax system and economy shall be deemed to serve other states of the federation. Thus, the writer will rely heavily on the board of internal Revenue and state ministry of finance and Economy planning since they have adequate information and data on the government of Enugu state of Nigeria, thereby covering all the local government areas of the state. Since there are often changes in the tax laws of Acts both at the state and federal level of government, the writer may wish to visit the chief inspector of taxes of some urban and rural local government areas in the state in other to confirm the information or data so collected from the Board of Internal Revenue and the state Ministry of Finance and Economy Planning. 1.6 DEFINTION OF TERMS. I.T.M.A: Income tax management Act of 1961, which deals with chargeable income and how they are administered. C.I.T.A: Companies income tax Acts of 1979 which deals with profit chargeable in respects to companies. P.I.T.D: Personal income tax degree/Act of 1993 as amended deals with profit chargeable in respect of individuals. HYPOTHESIS: It is an idea or suggestion put forward for reasoning or explanation .subject to confirmation or rejection. LAW OF TERRITORY: This means any enforce in a particular territory example, state, or country. METHODOLOGY: It is the science or study of methods or ways to be adopted in a given direction. TAX EVASION: This means trying to escape tax liability by an individual. DIRECT TAXES: This means that taxes are levied on income and property of individuals or group of individuals who bears their full burden. INDIRECT TAXES: These are the taxes levied on goods and services and are paid by individuals by virtue of their associating with the goods and services. EARNED INCOME: It is the income which the tax payer actually earned, which may require mental and physical exercise such as salaries, wages, e t c. UNEARNED INCOME: This income accrue whether or not the tax payer is there or not, example, rent, interest, royalties, and dividends. OTHER INCOMES: It is the income which comes once in a while and they are not regular, thereby undetermined example, gift of windfall income, lottery winnings e t c.