CORPORATE INCOME TAX AND PROFITABILITY IN THE NIGERIAN HOSPITALITY INDUSTRY

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