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THE IMPACT OF TAXATION ON
SMALL AND MEDIUM SCALE BUISINESS IN NIGERIA
CHAPTER
ONE
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.
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.
1.3 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.
1.4 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?
3.What are the problems faced by tax payers?
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.
1.5.2 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.
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.
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.
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