ABSTRACT
The study
examined the impact of corporate income tax on the profitability of firms in
hospitality industry in Lagos State. The study succinctly explored the effect
of corporate income tax on the net profit margin, profit after tax and cost of
operations of Eko Hotel and Suites, which was used as the sample for the study
between 2009 and 2016. Data were sourced from the financial statements of the
sampled firm within the period and analyzed via the regression analysis.
Results of the study revealed that corporate income tax has significant impact
on profit after tax (p<.05); net profit margin (p<.05) and cost of
operations (p<.05). Based on this, the study suggests that government should
device means of eliminating the incidence of double taxation, which tends to
weigh down the profitability of private firms in the industry.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Taxes are
considered a problem by everyone. Not surprisingly, taxation problems date back
to earliest recorded history. The basic principles of taxation are nearly as
old as human society—the history of taxes stretches thousands of years into the
past. The earliest trace of taxation in Nigeria was believed to have started
from Northern part of Nigeria and this was before the advent of British
administration. The emirs had organized forms of administration and their
Islamic relation made it possible for people to contribute towards charity
which laid a solid foundation for direct taxation in Northern Nigeria. Prior in
1900, some of the levies were “Zakkat (a tax on moral property meant for
charity),Jangali (tax on livestock),Gado (death tax),Jizjah (tax on slaves) etc
these were recognized in the Northern Nigeria, (Onwubiko,1998).
There
were also some form of taxes in Southern Nigeria (Yoruba parts) by way of
tributes (isakole), totls, levies, fees and presents given to Obas (Kings),
Chief in Benin, Oyo and some other Yoruba Kingdom of Western Nigeria. However
in the east this type of tax paying tradition was virtually non-existing but
except fine called “Iri-iwu”due, mainly to lack of organised central authority.In
which the eastern Nigerians are known for their Egalitarian society. These forms
of taxation come to a halt with the advent of colonial master’s. The Oba’s and
emirs where now used in imposing taxation on their subjects and anyone found
guilty was punished,(Onwubiko,1998).
Taxation in modern
times is said to be an economic development tool that provides the financial
base for providing public goods. It is a double-edged sword depending on what
is the interest of the government in power. Also it is a compulsory payment by
individuals and organizations to the relevant inland or internal revenue
authorities at Federal, State, or Local Government levels. Taxes perform fiscal
or budgetary functions, economic function and social or redistribute functions.
The
hospitality industry which is a broad
industry covering various hosting services including restaurants, hotels, bars,
cruise lines and many other related businesses. Globally it is a multi-billion
dollar industry with broad offerings, in Nigeria the best of hospitality
development is found in accommodations and restaurants. The hospitality market
is booming in Nigeria and with that boom comes new found diversification in a
new range of quality and classifications yet there is much more room for
growth, diversification and standardization,(Oruruo,2014).
In
Nigeria, the Corporate Income tax rate is a tax collected from companies. This
amount is based on the net income companies obtain while exercising their
business activity, normally during one business year. Revenues from the Corporate Tax Rate are an
important source of income for the government of Nigeria It is also an
assessment levied by a government on the profits of a company. Hereby causing extra reduction in the
possible net profit of the company after normal company expenses have being
deducted before attaining the net profit it is the further reduction in the net
profit which is usually 30% of the net profit assessed on a preceding year
basis.
1.2 STATEMENT OF PROBLEM
However, Players in the hospitality
business in the country have said multiple taxation is stifling the development
in the sector. The operators insisted that the current burden of taxes and
levies are heavy on them, especially when situated within the context of the
high operating cost for business, maintaining that these charges have pushed
the sector to the brink.Some of the taxes and levies identified by the
operators included Registration of Hospitality Premises, Stamp Duty, Nigerian
Social Insurance Trust Fund(NSIT), Industrial Training Fund(ITF), National
Pension Commission(PENCOM), Nigerian Tourism Development Corporation(NTDC).
Others are Company Income Tax, Withholding Tax, Liquor License, Food Handlers
and Health Certificate, Visual Advert, Waste Disposal, Bill Board, Sign Post,
Operation Permit, Vehicle Emission Fee, Contravention Charges, Business
Premises, Administrative Charges for Environmental, Audit, Copyright Society of
Nigeria(COSON), water supply, electricity supply, copious levies by the Local
Government Councils as well as other fees charged by regulatory agencies across
the sectors at the state and federal levels (http://nationalmirroronline.net/new/multiple-taxation-bane-of-hospitality-industry-in-nigeria/).
Taking a look at all the fees, levies and forms of taxes the companies in the
hospitality industry have to pay, not to mention of the corporate income tax
they have to pay after ascertaining their net profit, all pose a threat to
companies in this sector which is a viable and very profitable industry to
venture into. All these pose a threat to these companies because looking at the
actual profit and the later deductions there is a wide gap between what they
pay as taxes on their profit and the profit they take home.
1.3 OBJECTIVES OF STUDY
The aim of this study is to determine
the relationship between corporate income tax and the profitability of the
hospitality industry in Nigeria . However, the key objectives include;
•
to examine the relationship
between company income tax and cost of operation
•
to ascertain corperate
income tax influence on PAT
•
to compare the corporate
income tax influence on NPM of accommodation and restaurants