IMPACT OF TAXATION ON SMALL AND MEDIUM SCALE BUSINESSES IN NIGERIA
TABLE OF CONTENTS
Abstract - - - - - - - - - -
Table of Contents - - - - - - - - vi
List of Tables
CHAPTER ONE: INTRODUTION
1.1 The Background to the Study - - - - - 1
1.2 Statement of Problem - - - - - - 8
1.3 Objectives of the Study - - - - - - - 15
1.4 Significance of the Study - - - - - - 14
1.5 Scope of the study - - - - - - - 16
1.6 Definition of Terms - - - - - - - 16
1.7 Organization of the Study - - - - - 18
CHAPTER TWO: LITERATURE REVIEW
- 2.1 Theoretical Issues
- 2.1.1 Overview of Tax
2.1.2 Tax Policy in Nigeria
2.1.3 Relevance of Small Scale Enterprises to the Development of the Economy
2.1.4 Effects of Taxes on Small Scale Enterprises
2.1.5 Challenges of Small Scale Enterprises
2.1.6 Theories of Taxation
126.96.36.199 Benefit Theory
188.8.131.52 The Cost of Service Theory
184.108.40.206 Ability To Pay Theory
220.127.116.11 Proportionate Principle
2.2 Empirical Literature
2.3 Summary Of Literature Review
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design - - - - - - - 85
3.2 sources of data collection and justification - - -
3.3 Scope and limitations of the study
- - - - - -3.4 Research hypotheses
- - - - 93
3.5 population and area of the study - - - - 97
3.6 Sampling technique and sampling size
3.7 Statistical Technique
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA
4.1 Data presentation - - - - - - 98
4.2 Test of hypotheses- - - - - - - 100
4.3 Discussion of Findings - - - - - - 108
CHAPTER FIVE: SUMMARY, RECOMMENDATIONS AND CONCLUSION
5.1 Summary - - - - - - - - - 112
5.2 Policy Recommendations - - - - - - 113
5.3 Conclusion - - - - - - - - 116
References - - - - - - - - 118
LIST OF TABLES
Table 1: distributed and returned questionnaires -- -- 55
Table 2: Distribution of Respondents by gender 60
Table 3: Distribution of Respondents by marital status-- -- -- 60
Table 4: Distribution of respondents by academic qualification -- -- 61
Table 5: Distribution of respondents by category of business 62
Table 6: Distribution of respondents by legal status 62
Table 7: Distribution of respondents by number of workers employed -- 63
Table 8:Distribution of respondents by source of capital-- 64
Table 9: Distribution of respondents by tier of government interference
Table 10: Distribution of respondents by level of government interference
Table 11: Distribution of respondents by most disruptive interference
Table 12: Do you pay tax?
Table 4.13: Is the tax rate constant?
Table 4.14: Does the tax rate affect your business expansion?
Table 4.15: Does the tax rate affect your profit level?
Table 4.16: does the tax rate affect your turnover?
work is centered on the impact of taxation on small and medium scale
enterprises in Cross River State. The study adopted the Chi-square
estimation technique to gather and analyze people’s responses on the
issue of taxation. The results obtained showed that high tax rate
affects the expansion of small scale enterprises in Cross River State.
Further investigation of the study revealed that high tax rate
significantly affects the profits and sales turnover of small scale
enterprises in Cross River State. The study therefore recommended that
there is need for government to prone its insatiable demand for revenue
by granting upcoming enterprises tax holidays or concessions in order to
help them save and plough back profits for more expansion.
1.1 Background of the Study
The development of small scale business
enterprises is greatly affected by the level of taxation, its
administration and compliance; The higher the task risk of the greater
the efforts to fulfill taxation requirement as well as to check how
those requirements are met, the lower the initiatives for small scale
businesses to work hard. Thus, maintaining the tricky balance between
tax rate, compliance cost, tax administration and economic growth should
be a major goal of every tax policy.
The relationship between taxation and
the level of growth of small scale enterprises has been a debatable
issue over the years. The perceived relationship can be either positive
or negative depending on the type of tax policy adopted by the
government. However, it is generally agreed that high task rate can lead
to decrease in business activities since it dampens the incentives to
invest while low tax rate, on the other hand, tends to increase growth
of business activities as profits are increased which lead to further
investment as well a expansion of business. A high marginal tax rate
lowers an investor’s willingness to invest by lowering the returns on
his investment (palacio and Harischandra, 2008). In the same vein, a
reduced amount of business activities has a number of negative
consequences including decreased productivity of workers and reduced
output, employment and ultimately, living standard of the people.
The flow of investment expenditure at
any time depends on the comparisons operators do between the potential
benefit and the cost of making that investment (Ndebbio, 2007). Tax on
the other hand is more of less and appropriation of the realized
benefits of investors or business operators. The consequence of this
appropriation is a reduction in business profit (Bassey, 2005). Business
operators operating at any point in the time are usually guided by
their propensity to maximize the contribution to valve creation
(Ndebbio, 2007). To this effect, business are not always made where they
obtain the highest pre-tax return, rather, they are interested in
operating where they obtain the highest post-tax return which is the
income they take home or retain (Cappelea, 2001).
Small scale business or enterprise is of
crucial importance in a developing economy as it helps to bridge and
reduce unemployment gap in such economy. Small scale enterprise is vital
to the economic growth of Cross River State as it constitutes nearly
90% of the state’s economy.
The government of Cross River State in
an attempt to widen the tax base and collect more revenues has had to
levy several taxes especially on business enterprises in the state and
this has resulted to a slow pace of the growth of small scale
enterprises as high tax rate has a major adverse effect on business
decision making through covering the profit of a firm thereby reducing
the amount of after tax profit meant for re-investment and expansion.
Thus, it is a greater worthiness that the researcher is studying the
impact of taxation on small scale enterprises in Cross River State.
1.2 Statement of Problem
There is a sweeping and effective
revenue mobilization drive in Cross River State, most of which are
carried out by contracted agencies that sometimes come up with various
taxes and levies and impose them on business operators in the state.
This numerous taxes and levies have been dwindling business fortunes of
most operators with lots of consequences which include cost of
unemployment, slowing down of economic activities in the state and even
loss of revenue by the state due to the fact that the taxes are not
optimal and hence when business shot down, they will no longer be there
to pay any tax at all.
1.3 Objectives of the Study
The main objective of this research is
to ascertain the impact of taxation on small scale enterprises in Cross
River State. The specific objectives include:
(1) To ascertain the extent high
tax rate has affected the growth of small scale business enterprises in
Cross River State.
(2) To determine how tax rate has affected the profits and sales turnover of small scale enterprises in the state.
1.4 Significance of the Study
This study will benefit investors, policy makers and academicians.
For investors, the study will create
awareness on the procedure of starting business in Cross River State and
various charges and taxes levied by the state government.
For policy makers, the study will reveal
the effect of their fiscal policy specifically taxation on
macro-economic variables in the state.
For academicians, the study will add to the existing stock on study of small scale enterprise and taxation.
1.5 Scope of the Study
This research work is on the impact of
taxation on small scale business enterprises in Cross River State. The
research look at how the enormous taxes levied on small scale business
operators in the state affect the growth of the small scale industry.
1.6 Definition of Terms
Tax:This is a
compulsory financial charge or other levy upon and individual or legal
entity by a state or the functional equivalent of the state such that
failure to pay is punishable by law. It is not a voluntary contribution,
payment or donation but rather, it is imposed by government under
t6hthe name of import duty, exercise, etc.
Tax rate: Taxes are most often levied as a percentage. Thus, tax rate is the percentage of income or profit of individual paid as tax.
Tax burden or tax base:
otherwise called tax incidence is on whom a tax is collected. Depending
on the elasticity of product, a tax imposed on a seller can be
ultimately paid by the buyer simply by shifting the burden in form of a
Small scale enterprise:
This is sometime called small scale business. It is a business that
employs small number of workers and does not have a very high volume of
Cross River State: This
is a state located in the southern part of Nigeria, one of Nigeria’s 36
states. The state is bounded by Akwa Ibom, Cameroun, Benue State and
Ebonyi state with an estimated population of about2.5 million people and
over 25 ethnically diversed people.
Excess burden of a tax:
In economics, the excess burden of taxation, also known as the
deadweight cost or deadweight loss of tax is one of the economic losses
that society suffer as the result of taxes or subsidies.
1.7 Organization of Study
The study is organized into fiver (5)
chapters. Chapter one is the introduction, chapter two is literature
review, theoretical framework and some conceptual issues. Chapter three
looks at the research methodology while chapter four captures data
presentation and analysis and chapter five is summary and findings;
conclusion and policy recommendation.