EFFECTS OF PERSONAL INCOME TAX ON REVENUE GENERATION IN ONDO STATE, NIGERIA

Abstract

This study examined the effects of personal income tax on revenue generation in Ondo State with the view to determining whether personal income tax can be focused on as a means of sourcing for revenue internally in the state. It also examined the effect of tax evasion and avoidance of tax by taxpayers on personal income tax. Both secondary and primary data were used. The secondary data on personal income tax and internally generated revenue from 2006 to 2015 were collected from the statement of account of Ondo State Board of Internal Revenue, while questionnaire was used to gather primary data. Chargeable persons were selected using multistage sampling from each stratum: employments (salaries workers); trade/ vocation; businesses; and profession as covered by the personal income tax act 2011. The data analysis was done using descriptive and inferential statistics which include: Mean; Standard deviation; Trend analysis; Spear man’s rank order correlation matrix and Panel regression; Chi-square test for goodness of fit and One-Sample t-test. The trend analysis shows the movement of personal income tax over the years 2006 to 2015. The result of the Spearman’s rank order correlation matrix and regression showed that personal income tax significantly and positively correlated with internal revenue at 98% while PAYE and direct assessment also positively correlated with internal revenue at 98% and 93% respectively. The result of the regression showed the strength of predictability of internal revenue by personal income tax as represented by R value is 0.993 which indicates a high level of dependency relationship. R2 has a value of 0.987. This value shows that 98.7% variation in internal revenue can be explained by personal income tax. This indicates that internal revenue is influenced by personal income tax. The study equally found that the most efficient year was 2010; recording efficiency ratio of 1.19, followed by 2011; 1.07, 2013; 1.04 and 2012; 1.01 respecively. Years 2014, 2008, 2006, 2007 and 2009 in order of efficiency ratio recorded 0.98, 0.90, 0.86, 0.82 and 0.79 singly. The least efficient year was 2015 with efficiency ratio of 0.36, this was probably due to the unstable economic condition that started in 2015. Chi-square test was used to test the hypthesis on effect of tax evasion and avoidance of personal income tax on internal revenue which was confirmed by the result of one-sample t-test at 95% confidence level that tax evasion and avoidance of Personal Income Tax have effect on Ondo State Internally Generated Revenue. Based on the findings of the study, it was concluded that personal income tax should be focused on as a means of generating revenue internally to finance governmental obligations to the citizens of the state.