THE IMPACT OF TAXATION ON SMALL AND MEDIUM SCALE BUSINESS IN NIGERIA

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Author

Presented To

Department of Entrepreneur

Abstract

The study was carried out to find out the impact of taxes on small and medium scale business enterprises in Nigeria.The study aimed at assessing the performance of business enterprises in Nigeria, finding out if tax payers are aware of all their tax obligations, policies and problems affecting them as well as their businesses. The study applied both qualitative and quantitative research designs where interviews and questionnaires were used. Data was collected from both primary and secondary sources. Data was processed and analysed using formal tables, pie charts, narrative text, and correlation to find out the relationship between the impact of taxes and performance of small scale businesses. A total of 50 respondents were considered out of the entire population of small scale and medium enterprises. The findings indicated that the performance of small scale business is affected by stock levels, capital employed, daily expenses, daily sales and the average amount of taxes paid annually.Most business owners are aware of taxes paid, uncertain of the mode of assessment and little assistance is given as regards tax awareness. The findings revealed the problems faced by the small and medium business men as regards mode of assessment, collection and tax collectors, inefficiency by tax collectors, loss of equipment, loss of sales and loss of stock as a result of taxes.Recommendations on impact of taxes included; improvement on the method of collecting taxes, educating the business community about its different tax rates and introducing a scheme that allows tax payers to pay the tax obligation.

TABLE OF CONTENTS

Certification - - - … - - - - …I

Dedication - - - … - - - - …ii

Acknowledgement - - - - - - - ii

Outline page - - …… - - - - - iv

Abstract - - - - - - - - ……1

Chapter one

INTRODUCTION

11 Background of the study - - - - - - …2

12 Statement of the problem - - - - - - …3

13 Purpose of the study/Objective of the Study - - - …… - 4

14 Research questions - - - - - - - …4

15 Scope of the study - - - - - - - …4

151 Subject scope - - - - - - - - 5

152 Geographical scope - - - - - …… - …5

153 Time scope - - - - - - - ………5

16 Significance of the study…… - - - - - ……5

Chapter two

LITERATURE REVIEW

21 Introduction - - …… - 7

22 Theoretical Review - - - - - …… - ……9

23 Theory of Planned Behaviour - - - - - ………12

24 Theory of Taxation - - - …… - - - - 12

25 Ability-to-Pay Principle - - … - - - - - ……13

26 Concept of Small Scale Enterprises - - - - - ……14

27 The concept of tax compliance - - …… - - - ……16

28 problem of tax compliance - - - - - - ……19

29 Contribution of Tax Policy on the Growth of SMEs - - - ……21

210 Factors that Favour the Growth in SMEs - - - - - 22

211 Policy Measures that will Encourage SMEs Growth… - - - 24

Chapter Three

METHODOLOGY

31 Research Design - - - - … - - - - - 28

32 Population of the study - - - - - - - ……28

33 Sample design - - - - - - - - ……28

34 Method Of Data Collections - - - - - - - 29

35 Methods of Data Analysis - - - - - - - …29

Chapter Four

DATA ANALYSIS AND RESULTS - - - - - - 30

41 Introduction - - - - - - - - - …30

42 Results of correlation and multiple linear regressions…… - - - …30

Chapter Five

SUMMARY,CONCLUSION AND RECOMMENDATION

51 Summary - - - ……35

52 Conclusion…… - - - - - - - - - 35

53 Recommendation - - - - - - - - - …37

Bibliography - - - - - - - - - ……38

Appendix A - - - - - - - - - - - - - - - - - - - - 39

Appendix B - - - 40

CHAPTER ONE

INTRODUCTION

11 Background of the study

Taxation increases incentives for public participation in the political process and creates pressure for more accountability, better governance, and improved efficiency of government spending Taxation also creates incentives for governments to upgrade their institutions for tax collection and administration and to provide more public services (Moore, 2007)

Taxes have existed virtually as long as there have been organized governments The first tax law legislation was introduced in 1919 and ever since then taxes have evolved through a number of reforms The government in an attempt to widen the tax base and collect more revenue has had to levy several taxes especially on business enterprises in Nigeria which constitute a large part of the formal sector The taxes charged on business enterprises in Nigeria include; corporation tax, value added tax, presumption tax and exercise duty In 1997 the Income Tax Act was made This was to give guidance in assessment and computation of taxes (Campsy, 1997) The Nigerian government has made some recommendable efforts to promote development through taxation since the inception of the current taxation laws for purposes of promoting development The main objective of taxation in Nigeria has always been to mobilise resources needed to meet the aspiration of government This is because for any government to be effective, strong, competent and capable of spearheading development, resources have to be readily available in its treasury so as to be in position to provide goods and services to the people adequately The Nigerian government has always had to ensure proper resource mobilization (Musa, 1992)

According to Manasseh (2000), a tax is generally referred to as a compulsory levy imposed by government upon various categories of assets and taxation is a compulsory and non refundable contribution imposed by government for public purposes In Nigeria a considerable fraction of the businesses are sole traders operating small scale business, locally owned and managed by individuals or families and often with very few employees working at a single location (Nigeria development bank report, 1988) Taxation in Nigeria is based on system that existed in Britain as it was a British colony This also applied to other colonies elsewhere and for East Africa, one tax system operated under British administration This process began in 1900 with the hut tax regulation which imposed a standard charge for every hut/dwelling

During that period, taxation was aimed at raising revenue for the administrative structure imposed by the colonial government but also as a means of encouraging monetary/economic activities It was the Local Authority Ordinance of 1991 that governed the collection of taxes In September 1991, after a period of review the Rural Revenue Authority (URA) was established All taxes including income tax came under the umbrella of the URA From 1992, URA has been organizing and strengthening the administrative procedures and in 1993 this process assisted by a grant from the British government of approximately US$ 10million

At least 50 small scale business enterprises were selected in illorin, almost all of them employ 2-4 people These small scale businesses are locally owned and managed by private individuals who sometimes employ their family members These small and medium scale businesses bear a wide tax burden which has led to poor performance Therefore, it was against this background that the researcher undertook the study to investigate more about the problem using Nigeria as a case study to evaluate the impact of taxes on small and medium scale business enterprises

12 Statement of the problem

Taxes are raised by the government to generate revenue used to provide services to the public such as; Health centers, telecommunication, roads, schools and electricity and this have helped to improve the performance of small and medium scale business enterprises Despite the services provided, small and medium scale business enterprises performance in Nigeria is still poor This could be due to the increasing tax burden brought about by tax rates which are revised annually These rates seem to be taking an upward trend (Gordon and Dawson, 1987) which has led to winding up of some small scale business enterprises This prompted the researcher to investigate more about the impact of taxes on small scale business enterprises

13 Purpose of the study /Objective of the Study

The purpose of the study was to evaluate the impact of taxes on small scale business enterprises in Nigeria The specific objectives are:

1 To assess the impact of taxation on small and medium scale business enterprises in Nigeria

2 To find out if tax payers are aware of all their tax obligations and policies

3 To find out problems affecting tax payers and their business

14 Research questions

1 What is the effect of taxes on the performance of small scale business in Nigeria?

2 Are tax payers aware of all their obligations?

3What are the problems faced by tax payers?

15 Scope of the study

151 Subject scope

The study covered small and medium scale businesses in Nigeria Specifically, the study investigated the performance of small scale businesses, the awareness of the tax payers regarding their obligations, problems faced by the tax payers and the relationship between the taxes paid and the performance of the small scale businesses

152 Geographical scope

The study was carried out in Ilorin Kwara State, Nigeria The area was purposely selected because the researcher worked within the vicinity and therefore this eased data collection

153 Time scope

The study considered a period of four to six months This period was selected to enable the researcher come up with coherent information from the respondents as it would enable them (Respondents) to give responses that are typical of their opinion from the observations made over this period

16 Significance of the study

The findings of the study are significant on the following ways;

1 To scholars and researchers, the findings of the study are expected to contribute to the existing literature about taxation and the effect it causes to the economy as a whole

2 To the tax authority and government, the study will guide them in adjusting tax policies so that they suit requirements of small and medium scale businesses

3 To future academicians especially of Nigeria University students, the study will help in gaining insight about taxes and performance of small scale business enterprises

4 The accomplishment of the study will enable the researcher to acquire hands on skills about processing of research work and data analysis This proficiency will enable the researcher to handle such related work with a lot of precision and proficiency