Legitimate and sovereign governments globally imposed taxes on goods and services, persons and their properties, and artificial individuals such as corporate bodies. Tax serves as the vital instrument which born the social contract between government, citizens, and the economy. Tax environment is equally considered as the most dynamic factor for reflection when deciding to invest in a country or not (Fernández-Rodríguez et al., 2023). In most cases government enacted numerous tax legislations and provide incentives or enforceable mechanisms to encourage compliance, citizens, on the other hand, are expected to receive something in return, for instance, an improvement in social welfare and infrastructural development. Evidence from Sub-Saharan Africa shows that tax serves as one of the principal measurements of state power and political capacity (Di John, 2006). In India, which is one of the growing developing countries, with the second largest population in the World, had received about 36 million tax returns in 2014 a lone (Zaidi, Henderson & Gupta, 2017).
Despite the incentive offered and the enforcement types of machinery used by the government to encourage tax compliance, taxpayers are evading taxes (Chen & Chu, 2005). Tax evasion is considered as a challenge to many countries globally because it decreases tax revenue which in turn lead to distortionary income losses (Levenko & Staehr, 2022).
Several countries globally have lost a tremendous amount of money because of tax evasion, for example, in developed countries such as the United States, Charles Rettig the Internal Revenue Service (IRS) commissioner stresses that the US is losing over USD one trillion yearly because of tax evasion (Rappeport, 2021). Mr. Rittig further reiterated that on average US lost about $ 441 billion yearly between 2011 to 2013 due to big corporations and the wealthiest individuals' tax evasion behavior. Similarly, UK officials reported a tax evasion gap of £4.6 billion (1.0%) from 2005 to 2006 to £4.8 billion (0.8%) from 2020 to 2021 (Gov.UK, 2022). Likewise, in New Zealand, the government is losing US$401 million (NZ$577m) a year due to multinational corporate tax evasion (Tax Justice Network, 2022).
Nonetheless, the case of tax evasion has equally existed in developing countries for instance, the tax justice annual report shows that South Africa loses about $ 2.9 billion to corporate tax evasion, and $648 million to the rich individual (Cronje, 2022). Also, in Ghana over $367 was lost to corporate tax evasion as of 2016 (Ameyaw & Dzaka, 2016). Specifically in Nigeria, the country loses the sum of $178 billion (N5.4trn) to tax evasion by multinational companies within 10 years spanning 2007–2017, says FIRS chairman (Ujah, 2021). More recently, a report shows that tax evasion by a multinational corporation in the Nigerian oil industry is the main pillar of corruption in the sector, which is the heart of the country, because of this menace, over 50% of Nigerian lives on less than two dollars ($2) a day (Paul, 2022). Going by the evidence presented, clearly shows that tax evasion occurs simultaneously in both developed and developing countries leading to the loss of millions of dollars by many governments globally. Particularly in developing countries such as Nigeria, the adverse effect of multinational corporation tax evasion behavior is a serious one because the country largely depend on the revenue of the oil and gas sector (Asagunla & Agbede, 2018; Ogunsanwo & Ogunleye, 2018; Olayungbo, 2019).
Hence, this study investigates the determinants of corporate tax evasion from the Nigerian oil and gas industry by expanding the Allingham and Sandmo model (1972) with additional construct environmental regulation. Prior research on tax evasion mainly focused on individual tax evasion behavior (Allingham & Sandmo,1972; Yitzhaklt, 1974; Skinner & Slemrod,1985; Weigel & Hessing,1987; Sandmo, 2005; Slemrod, 2007; Alstadsæter, Johannesen & Zucman, 2019; Kemme, Parikh & Steigner, 2020; Alm, & Malézieux, 2021; Alstadsæter, Johannesen, Herry & Zucman, 2022). However, very few studies concentrate on corporate tax evasion, for example, Joulfaian (2000) examines the role of managerial choices in influencing corporate tax evasion using personal income tax non-compliance to measure evasion. Also, Crocker and Slemrod 2005 investigate corporate tax evasion from the perspectives of a contractual relationship between the tax custodian and the shareholders of the company. Similarly, DeBacker, Heim, and Tran (2015) examine the influence of enforcement mechanisms and cultural norms on corporate tax evasion using confidential data from IRS tax audits. Likewise, Lipatov (2012) investigate the impact of tax practitioners in aiding corporate tax evasion using a tax game of incomplete information obtained from the tax authority. Equally, Gokalp, Lee, and Peng (2017) examine the effects of competition and corporate tax evasion using a sample of companies from formal and informal sectors. Similarly, Alm, Liu, and Zhang (2019) investigate tax evasion at the company level focusing on credit constraints affecting certain categories of the establishment.
Notwithstanding, this study differs from the above-mentioned studies in trifold. Firstly, none of these studies specifically focus on multinational companies, these types of corporations usually are having so many subsidiaries in several other countries and they can easily evade taxes by shifting their profit to one of their many branches. Hence, determining factors affecting the tax evasion behavior for this complex category of the corporation is significant for policy reasons. Secondly, this study mainly focused on the oil and gas sector, while most of these studies concentrate on another sector of the economy, although, the oil sector is one of the largest economic sectors in more than 98 countries with abundant natural resources. Thirdly, this study obtained the evasion perception of the target respondents using refined instruments, while most of these studies obtained their data using secondary means of data collection. Consequently, this study contributes to the paucity of corporate tax evasion research in the existing literature by expanding one of the pioneering tax evasion models of Allingham and Sandmo (1972) with additional construct environmental regulation as the novel contribution to the existing literature. The new model would offer vital insight as to how environmental regulation affects corporation tax evasion behavior, this inference is larking, and the finding would be of interest to many stakeholders in the oil and gas industry and beyond.
Organization of the study
The research is organized as follows; the preceding section covers the introductory part of the research; section two discussed the conceptual literature of the study variables. Followed by the underpinning and supporting theories, as well as hypothesis development and theoretical framework of the research. Section three, focused on the methodology used in the study, section four presented the result, section five discussed the findings based on the developed hypotheses, and section six covered conclusions and policy implications of the current study.