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THE IMPACT OF TAXATION ON SMALL AND
MEDIUM SCALE BUSINESS IN NIGERIA
Abstract
The study was carried out
to find out the impact of taxes on small and medium scale business enterprises
in Nigeria.The study aimed at assessing the performance of business enterprises
in Nigeria, finding out if tax payers are aware of all their tax obligations,
policies and problems affecting them as well as their businesses. The study
applied both qualitative and quantitative research designs where interviews and
questionnaires were used. Data was collected from both primary and secondary
sources. Data was processed and analysed using formal tables, pie charts,
narrative text, and correlation to find out the relationship between the impact
of taxes and performance of small scale businesses. A total of 50 respondents
were considered out of the entire population of small scale and medium
enterprises. The findings indicated that the performance of small scale
business is affected by stock levels, capital employed, daily expenses, daily
sales and the average amount of taxes paid annually.Most business owners are
aware of taxes paid, uncertain of the mode of assessment and little assistance
is given as regards tax awareness. The findings revealed the problems faced by
the small and medium business men as regards mode of assessment, collection and
tax collectors, inefficiency by tax collectors, loss of equipment, loss of
sales and loss of stock as a result of taxes.Recommendations on impact of taxes
included; improvement on the method of collecting taxes, educating the business
community about its different tax rates and
introducing a scheme that allows tax payers to pay the tax obligation.
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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