and Medium Enterprises play a very important role in development of the
Nigerian Economy. Making up about 97% of the entire economy, they serve as a
source of employment generation, innovation, competition, economic dynamism
which ultimately lead to poverty alleviation and national growth. Tax policy is
one of the factors that constitute the Small businesses’ economic environment.
This research work tries to establish if any relationship exists between the
growth of Small businesses and the tax policy environment in which they operate
in Nigeria. Questionnaires were distributed to Small businesses in Calabar,
Nigeria and non probability judgmental sampling method was employed. It was
found out that from most Small businesses surveyed; they were faced with the
problem of high tax rates, multiple taxation, complex tax regulations and lack
of proper enlightenment or education about tax related issues. Although there
was a general perception that tax is an important source of fund for
development of the economy and provision of social services, the study revealed
a significant negative relationship between taxes and the business’ ability to
sustain itself and to expand. In order to obtain a vibrant and flourishing SME
sector, the tax policy needs to be appropriate such that it will neither be an
encumbrance to the Small businesses nor discourage voluntary compliance. A
suggested solution is by increasing tax incentives through reducing tax rates
and increasing tax authorities’ support services towards small and medium
The desire to build a civilized country
with a strong and sound economy is the desire of every Country, including
Nigeria. Tax payment is the demonstration of such a desire, although some
income earners see it as a means of exploitation by the government. Tax payment
is a voluntarily contribution imposed by the Government on personal income
earners, companies, investors, exporters, importers etc. revenue realized from
taxation is a major source of revenue to the Government of Nigeria, and as such
is an important tool used in the development of Nigeria and her economy. A
country’s tax policies and systems are greatly related with business ventures
in that country. An economy that enacts favorable and progressive tax laws and
policies will definitely breed successful and finance-healthy business
organizations. Once businesses flourish, the economy flourishes as well, as
there is no quicker way of stirring the affairs of an economy without the help
of organizations that move services, goods, money and investments from those
with surplus to those with deficit; those with marketable ideas/output to those
who need these ideas and products. In essence, businesses and tax policies
greatly depend on one another for survival. If one is greatly affected, the
other follows suite.
OF THE STUDY
Nigerian Tax System has undergone significant changes in recent times. With the
help of various studies and research done by tax experts, tax laws are being
reviewed with the aim of repelling obsolete provisions and simplifying the main
ones. Under current Nigerian law, taxation is enforced by the 3 tiers of
Government, i.e. Federal, State, and Local Government with each having its
sphere clearly spelt out in the Taxes and Levies (approved list for Collection)
businesses are generally recognized as important drivers of economic success.
They are a key ingredient in the “ecology of firms” in a healthy economy, as
job creators, sales generators and a source of tax/fiscal revenue. In Nigeria
the importance of small business as a creator of jobs, particularly for those
with a low skills level, is widely recognized. Small, medium and
micro-enterprises (“SMMEs”) contribute 36.1% of the country’s gross domestic
product (“GDP”) and employ 68.2% of the workforce in the private sector. In the
agriculture, construction and retail sectors, SMMEs employ more than 80% of the
total workforce. Over the last few years, the growth in employment by SMMEs has
exceeded the growth in their contribution to GDP, highlighting the job creation
potential of this sector of the economy.
and red tape are reported as one of the constraints to the expansion of
businesses both in Nigeria and internationally. International research in this
field shows that tax regulatory compliance costs are a significant portion of
the total regulatory cost. Several other patterns emerged from the various
local and international studies performed, among the most important being that
tax compliance costs comprise a much larger proportion of total compliance
costs for smaller firms.
various research has suggested that any effective approach to assist small
business requires both policy and administration model adjustments in order to
be effective. The 2005 year, therefore, saw the beginning of a process of
structural change that was intended to build a positive tax compliance climate
report is focused on the survey of the compliance experience of professional
accountants and bookkeepers (referred to as “tax practitioners” for the
purposes of this document) in respect of their small business clients in
Nigeria. It will be complemented by two related surveys, one of small
businesses that are registered with the Federal Inland Revenue Service (FIRS),
regarding their time and cost requirements for tax compliance, and one of
informal businesses, regarding their perceptions about tax compliance.
OF THE PROBLEM
Small and medium enterprises (Small
businesses) form the core of majority of the world’s economies. A study carried
out by the Federal Office of Statistics shows that in Nigeria, small and medium
enterprises make up 97% of the economy (Ariyo, 2005). However, the mortality
rate of these small firms is very high. According to the Small and Medium
Enterprises Development Agency of Nigeria (SMEDAN) Nigeria, 80% of SMALL
BUSINESSES 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
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 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 Small businesses and the most effective ways to
administer them. The importance of Small businesses as a mechanism of economic
growth and development is often ignored. They are perceived as minute
establishments that have minimal effect on the state of the economy. However,
if conducive environment is created for these Small businesses to grow through
proper regulation, the SME 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.
burden is a major problem in Nigeria as many business organizations are not
favored by the tax systems and policies in place. Some businesses are already
collapsing; while majority are still struggling to meet up with high tax rates
to ensure their businesses still exist. According to a study conducted by
Bateman (2007), it was reported in a survey that 90% of business owners
admitted that taxes were a huge constraints to their businesses, as they claim
taxes are high and do not allow new businesses to cover up initial cost.
1.3 OBJECTIVES OF THE RESEARCH
In-order to achieve the purpose of this
research, the following are the objectives of the research:
To identify the challenges of Nigerian
To examine the influence of multiple
taxation on small businesses and the economy as a whole.
To identify ways of properly addressing
the challenges of Nigerian tax policies in order to favour small businesses as
well as encourage tax compliance.
1.4 RESEARCH QUESTIONS
In order to achieve the objectives
stated above, the following research questions were used as a guide in
achieving the objectives of this research:
What are the various challenges facing
tax policies in Nigeria?
What are the influences of the
challenges of tax policies in Nigeria on small businesses and the economy?
What must be done to address the
challenges of tax policies in Nigeria to suite small businesses?
OF THE STUDY
This study gives a clear insight into
the various ways in which tax policies in Nigeria can be executed efficiently
to still favor small businesses and how some taxation policies in Nigeria can
be properly tackled. The study also gives a clear insight into the various causes
of why small businesses fail in Nigeria as well as the challenges of the tax
policies in Nigeria. The findings and recommendations of the researcher will
help in building a strong and better tax policy system in Nigeria, if taken
seriously by government and the general public. The challenges of taxation in
Nigeria are outlined in-order for drastic measures to be taken to tackle these
challenges and meet the prospects of the general public so that revenue from
tax policy to the government can be increased.
1.6 SCOPE OF THE STUDY
This research focuses mainly on the
impact of Nigerian tax policies on the economy and small businesses in Nigeria.
The study only torches on the challenges tax policies in Nigeria and how it can
affect self employed business men and women, traders, and other forms of sole
Based on the findings of this study
other possible researchable areas may include studies on the various challenges
of other forms of tax such as the Value Added Tax (VAT), Capital gains tax,
Import and Export duties tax. Etc. Further research can also be done on curbing
tax evasion in Nigeria.
1.7 TIME FRAME
This study lasted for four months before
it was complete. The study lasted from January 2011 to April 2011.
The only limitation faced by the
researcher in the course of carrying out this study was the delay in getting
data from the various respondents. Most respondents were reluctant in filling
questionnaires administered to them due to their busy schedules and nature of
their work. The researcher found it difficult to collect responses from the
various respondents, and this almost hampered the success of this study.
1.9 CHAPTER SCHEME
Chapter one of this study includes the
general introduction, background information about the study, statement of the
problem, objectives of the study, research questions, scope of the study,
significance of the study, and the limitation of the study.
Chapter two reviews all relevant
literatures relating to the study as well as the researcher’s views concerning
previous studies on the challenges of tax policies.
Chapter three includes the methodology
applied in collecting and analyzing data, population definition, study site,
Chapter four presents the results of the
study as well as data analyzed, and the interpretation of the analyzed data.
Chapter five includes a summary of the
study, conclusion and recommendations based on the findings from the study.