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THE IMPACT
OF MULTIPLE TAXATION ON BUSINESS SURVIVAL IN NIGERIA
Abstract
Taxation is
one of the major fiscal policies the government of any nation such as Nigeria
can use to achieve economic stability and in the financing of capital
expenditure. Various taxes are levied upon the income, wealth or gain of an
individual, family and business firm by the government for the purpose or
benefits of the general public. Tax by a simple definition is a financial
charge or other levy imposed upon a tax payer which could be an individual or a
legal entity from the point of view of the student researcher by a state such
that failure to pay is punishable by law. Thus, taxation cannot be regarded as
a voluntary payment or donation but an enforced contribution exacted pursuant
to legislative authority. In modern taxation system such as Nigeria, taxes are
levied, in money which could be use for myriads of functions or purpose such ay
a expenditure on public order, protection of lives and property, economic
infrastructure cures such as roads, public works, social engineering and the
operation of government itself (Carrol, et al 2000). Against this back drop,
this project examines the effects of multiple taxation on business survival in
Nigeria.
CHAPTER ONE
INTRODUCTION
1.1
Background of the study
Taxation is
one of the major fiscal policies the government of any nation can use to
achieve economic stability and in the financing of capital expenditure. Various
taxes are levied upon the income, wealth or gain of an individual, family and
business firm by the government for the purpose or benefits of the general
public. Tax by a simple definition is a financial charge or other levy imposed
upon a tax payer which could be an individual or a legal entity from the point
of view of the student researcher by a state such that failure to pay is
punishable by law. Thus, taxation cannot be regarded as a voluntary payment or
donation but an enforced contribution exacted pursuant to legislative
authority. In modern taxation system such as Nigeria, taxes are levied, in
money which could be used for myriads of functions or purpose such an
expenditure on public order, protection of lives and property, economic
infrastructure cures such as roads, public works, social engineering and the
operation of government itself (Carrol, et al 2000).
The taxes
collected by the government no doubt emanate from varying sources ranging from
personal income tax, company income tax, capital gain tax, property tax,
education, tax, task but to list a few.
The Nigerian
government in attempt to raise revenue and enhance the economic development of
Nigeria has subjected many firms to multiple taxations which they are mandated
or made compulsory to pay irrespective of the sector the business firms operate
or else take the wrath of the law A survey carried out by the Manufacturers
Association of Nigerian (MAN1) and (Centre for International Private Enterprise
ICIPE) identified multiple taxation as the bane of private sector business
growth in Nigeria (Anyamvu, 2012). The survey established the relationship
between multiple taxations in the pilot state across the three tiers of
government and re-affirmed its negative effects to private sector growth and
businesses in Nigeria. According to the survey, it was established that
multiple taxation could lead to divestment as well as jeopardize foreign direct
investment coming into Nigeria, while adversely affecting the Competitions of
existing businesses and their survival, Moreover it was also established that
currently most businesses in Nigeria consider the tax environment as unfriendly
and disincentive to business, stressing that it engenders loss of man hour to
both the government and private businesses.
According to
Osagie (2012) tax environment inNigeria especially the policy on multiple
taxation increases the cost of doing business in the country. As a matter of
fact, some business including manufacturing companies have shut down production
while in some cases, have relocated their factories to other West African
countries which are considered to be more investment friendly. Against this
back drop, this project examines the effects of multiple taxation on business
survival in Nigeria. In recent time the world economy has developed
tremendously and this has been linked with activities of Small and Medium Scale
Enterprises (SMEs), especially in developing countries. A Study carried out by
the Federal Office of Statistics shows that in Nigeria, Small and Medium Scale
Enterprises make up 97% of the economy (Ariyo, 2005). Although smaller in size,
they are the most important enterprises in the economy due to the fact that
when all the individual effects are aggregated, they surpass that of the larger
companies. The social and economic advantages of small and medium scale
enterprises cannot be overstated. Panitchpakdi (2006) sees SMEs as a source of
employment, competition, economic dynamism, and innovation which stimulates the
entrepreneurial spirit and the diffusion of skills. Because they enjoy a wider
geographical presence than big companies, SMEs also contribute to better income
distribution. Over the years, small and medium scale enterprises have been an
avenue for job creation and the empowerment of Nigeria’s citizens providing
about 50% of all jobs in Nigeria and also for local capital formation. Being
highly innovative, they lead to the utilization of our natural resources which
in turn translates to increasing the country’s wealth through higher
productivity. Small and medium scale enterprises have undoubtedly improved the
standard of living of so many people especially those in the rural areas
(Ariyo, 2005). However, the mortality rate of these small firms is very high.
According to the Small and Medium Scale Enterprises Development Agency of
Nigeria (SMEDAN) Nigeria, 80% of SMEs die before their 5th anniversary. Among the
factors responsible for these untimely close-ups are tax related issues,
ranging from multiple taxations to enormous tax burdens etc. In many government
policies, small and medium scale enterprises are usually viewed and treated in
the same light as large corporations. However, their size and nature makes them
unique. Therefore, in dealing with small and medium scale enterprises, these
unique qualities need to be considered. In levying of taxes for these
enterprises in particular, issues that need to be considered are how these tax
policies can be designed to bolster the growth of SMEs and the most effective
ways to administer them. The importance of SMEs as a mechanism of economic
growth arid development is often ignored. They are perceived as minute establishments
that have minimal effect on the state of the economy. However, if favorable
environment is created for these SMEs to grow through proper regulation, the
SMEs sector has the highest propensity to transform our economy. In the same
light, taxes are important for the government as they are the major source of
funds for government expenditure. Income obtained from taxation of individuals
and businesses are used to run governments as well as provide infrastructure
such as good roads, water supply, and electricity which are essential for the
smooth running of these businesses that are mainly manufacturing companies and
as such rely on these commodities to survive. However, Holban (2007) posited
that taxation can contribute to development and to welfare through three
sources; It must be able to generate sufficient funds for financing public
services and social transfers at a high level of quality, it should offer
incentive for more employment and for an efficient and lasting use of natural
resources, finally it should be able to reallocate income. But in the case of
SMEs, tax must be done in such a way that puts their income and need for
survival into consideration. it is expedient that enough profit is allowed them
for the purpose of expanding their businesses. The tax policy must be one that
will not encourage SMEs to remain in the informal sector or to evade or avoid
tax payments. More so, many small firms in Africa, including Nigeria, choose to
remain in the informal sector because the perceived benefits outweigh the
perceived costs. Firms rarely see their tax contributions at work and the
compliance costs are high, thus discouraging compliance. The government is also
discouraged from collecting taxes from small firms, because the cost of
monitoring and collecting tax from small businesses by revenue authorities,
whose resources are usually scarce, sometime outweighs the revenues generated
by small businesses (Stem and Barbour 2005).
Taxation can
simply be seen as a compulsory transfer or payment of money from private
individuals, institutions or groups to the government. It may be levied upon
wealth or income in the form of surcharge on prices. Taxes therefore are a
proportion of the produce of land and labour of a country placed at the
disposal of the government. Multiple taxation on the other hand, is the
imposition of different types of taxes that could have come under one major tax
form on the people by the government.’ At times some of the taxes are
christened levies. However, within the context of this work, all compulsory
payment made by individuals and institutions to the government … are regarded
as tax. – Taxes generally provide basis for government revenue, which help them
in carrying out their functions. This is why Ojo (1996) defined tax as a means
by which government appropriate part of private sector’s income and expenditure
as its revenue for the purpose of meeting recurrent expenditure and creating
public capital formation towards the development and growth of goods and
services-of the economy. A good tax possesses the following qualities:
fairness, convenience, simplicity, and minimum cost of collection and minimum
distortions. Musgrave (1980) noted that taxes should be chosen so as to
minimize interference with economic decisions in otherwise efficient markets.
Imposition of excess burden _ should be minimized. Again, a good tax system-
should permit efficient and non-arbitrary administration and it should be
understandable to the taxpayer.
1.2
STATEMENT OF THE PROBLEM
Government
in order to meet up with its responsibilities of providing social
infrastructures and other development projects for her citizens imposes taxes
on her citizens. This is done by the different tiers of Government-Federal,
States and Local Governments with respect to their fiscal powers (Tax Powers).
However, the rate at which the governments concerned increase the existing
taxes should be a thing of concern to economic agents. While the Federal
Government is clamoring for a stable general price level, increased rate of
growth in Gross Domestic Product (GDP), increased employment opportunities,
through the establishment of small-scale enterprises; the state and local
governments are busy introducing new taxes and increasing the rate of the
existing taxes. It is in view of this that the researcher intend to investigate
the effect of multiple taxation on growth and development of small scale
enterprise in Nigeria.
1.3
OBJECTIVE OF THE STUDY
The main
objective of this study is to ascertain the effect of multiple taxation on
growth and development of small-scale enterprise in Nigeria. But to aid the
successful completion of the study, the researcher intends to achieve the
following sub-objectives;
i) To
ascertain the impact of multiple taxation on business survival in Nigeria.
ii) To
ascertain the relationship between multiple taxation and the growth of
businesses.
iii) To
investigate the consequences of multiple taxation on the profitability of
small-scale enterprise
iv) To
ascertain the impact of multiple taxation on the non- survival of small-scale
enterprise.
1.4 RESEARCH
HYPOTHESES
To aid the
completion of this study, the following research hypotheses are formulated by
the researcher
H0: Multiple
taxation has no significant impact on business survival in Nigeria.
H1: Multiple
taxation has a significant impact on business survival in Nigeria.
H02: There
is no significant relationship between multiple taxation and the growth of
small-scale enterprise in Nigeria
H2: There is
a significant relationship between multiple taxation and the growth of
small-scale enterprise
1.5
SIGNIFICANCE OF THE STUDY
It is
believed that at the completion of the study, the findings will be of great
importance to the joint tax board and the federal inland revenue service in
assessing and collection of taxes from small scale enterprise so as to minimize
double or multiple taxation. The study will also be useful to state board of
internal revenue and local government revenue collectors, as the study seek to
remind them of the nemesis of multiple taxation on small scale enterprise. The
study will also be beneficial to researchers who intend to embark on study in
similar topic as the study will serve as a guide to their study. Finally the
study will be beneficial to academia’s students and the general public.
1.6 SCOPE
AND LIMITATION OF THE STUDY
The scope of
the study covers the effect of multiple taxation on the growth and development
of small scale enterprise in Nigeria. But in the cause of the study; the
researcher encounter some constrain which limited the scope of the study;
(a)Availability
of research material: The research material available to the researcher is
insufficient, thereby limiting the study.
(b)Time: The
time frame allocated to the study does not enhance wider coverage as the
researcher has to combine other academic activities and examinations with the study.
(c)Finance:
The finance available for the research work does not allow for wider coverage
as resources are very limited as the researcher has other academic bills to
cover
1.7
DEFINITION OF TERMS
Tax: A tax
is a financial charge or other levy imposed upon a taxpayer (an individual or
legal entity) by a state or the functional equivalent of a state to fund
various public expenditures. A failure to pay, or evasion of or resistance to
taxation, is usually punishable by law.
Taxation:
Taxation refers to compulsory or coercive money collection by a levying
authority, usually a government. The term “taxation” applies to all types of
involuntary levies, from income to capital gains to estate taxes.
Small Scale
Enterprise: Sometimes called a small business, a small-scale enterprise is a
business that employs a small number of workers and does not have a high volume
of sales. Such enterprises are generally privately owned and operated sole
proprietorships, corporations or partnerships.
1.8
Organization of the study
This
research work is organized in five chapters, for easy understanding, as follows
Chapter one is concern with the introduction, which consist of the (overview,
of the study), statement of problem, objectives of the study, research
question, significance or the study, research methodology, definition of terms
and historical background of the study. Chapter two highlight the theoretical
framework on which the study its based, thus the review of related literature.
Chapter three deals on the research design and methodology adopted in the
study. Chapter four concentrate on the data collection and analysis and
presentation of finding. Chapter five gives summary, conclusion and also
recommendations made of the study.
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