Effect of Tax Evasion and Earnings Management on Tax Revenue in an Emerging Economy: The Nigerian Trajectory

Abstract

Tax evasion and earnings management have become alarming situations in most developing countries. The recent worldwide economic downturn caused by the Russian-Ukraine war, which led to instability in the price of crude oil and sales quantity in the global market, and the theft of crude oil by economic saboteurs in Nigeria, has contributed to difficulties in the implementation of the annual budget, leading to consistent borrowing by the Nigerian government. This necessitated the shift to more tax revenue collection, but the biggest problem is the high rate of tax evasion and earnings management by taxpayers. It is against this background that this study explored the effect of tax evasion and earnings management on tax revenue of developing economy: The Nigerian trajectory. The study adopted an exploratory research design using literature from the fields of accounting, taxation, and government tax revenue. Intentional tax evasion and real earnings management by taxpayers in the manipulation of accounting records during a tax assessment year, according to the study's findings, have a detrimental effect on the tax revenue of the Nigerian government. The study makes several recommendations, including that the Nigerian government should reassess some of its fiscal policies that provide citizens with opportunities for tax evasion and real earnings management.

Keywords: Tax Revenue, Tax Evasion, Earnings Management, Nigeria Taxes