Effects Of Multiple Taxation On The Performance Of Small And Medium Scale Business Enterprise

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Effects Of Multiple Taxation On The Performance Of Small And Medium Scale Business Enterprise


Abstract


This study is on the effects of multiple taxation on the performance of small and medium scale enterprises (SMEs). Over the years, small and medium scale enterprises (SMEs) have been an avenue of job creation and the empowerment of Nigerian citizens, providing about 50% of all jobs in Nigeria and also for local capital formation. However, the mortality rate of these small firms is very high. Among the factors responsible for these untimely close-ups are tax related issues, ranging from multiple taxation to enormous tax burdens. The study therefore examines the effect of multiple taxation on SMEs survival. The study involves a survey research design with a population of 91. The researchers derived their sample size to arrive at 74 and a selfadministered questionnaire was used to collect data. This data was quantitatively analyzed with simple percentages and the research hypotheses were tested with ANOVA. Findings revealed that multiple taxation has negative effect on SMEs’ survival and the relationship between SMEs’ size and its ability to pay taxes is significant. The research therefore, recommends that government should come up with uniform tax policies that will favour the development of SMEs in Nigeria and government should put into consideration the size of SMEs when formulating tax policies.


Chapter One


1.0 Introduction

The history of taxation in Nigerian dates back to the pre-colonial era. Before the colonization of the different entities which were later amalgamated under the name Nigeria. There were different systems of taxation, existing in the forms of compulsory services, contribution of goods, money, labour etc. amongst the various kingdoms, ethnic groups and tribes, controlled by the Obas, Emirs, Ezes, Attahs, Ohinoyis and Amanyanabos, in order to sustain the monarchs. The deportation of king Jaja of Opobo in 1893, due to his opposition to the imperialist taxation, is illustrative of this point. The traditional rulers imposed taxes, in one form or the other, on their subjects.

These taxes took the form of “Zakkat”, levied on Moslems for educational, charitable and religious purpose; Kudin-Kasa” a form of agricultural tax on the utilization of land (equivalent to present day land ground rent). Shuka-Shuka levied on the ownership of cattle based on the number of cattle; “Ishakole”- contribution of farm products, as a form of land tax, in exchange for the use of land for agricultural products, as a form of land tax, in exchange for the use of land for agricultural purposes, payable to Obas, Chiefs, family/community heads “Owo-Ori”, that is individual taxes payable in cash or kind in return for services; war-tax, payable by a vanquished community to the victorious one after a war; community tax payable by all adults within a community to execute projects beneficial to the community “Osusu Imachi Nkwu” (levies for palm fruits) taxes are payable by those who harvest palm fruits and who are expected to contribute.

Taxation can simply be seen as a compulsory transfer or payment of money from private individuals, institutions or groups to the government. It may be levied upon wealth or income in the form of sure-charge on prices. Taxes therefore are a proportion of the produce of land and labour of a country placed at the disposal of the government.

Multiple taxation on the other hand, is the imposition of different types of taxes that could have come under one major tax form on the people by the government. At times some of the taxes are christened levies. However, within the context of this work, all compulsory payment made by individuals and institutions to the government are regarded as tax. Taxes generally provide basis for government revenue, which help them in carrying out their functions. This is why Ojo (2010) defined tax as a means by which government appropriate part of private sector’s income and expenditure as its revenue for the purpose of meeting recurrent expenditure and creating public capital formation towards the development and growth of goods and services of the economy.

A good tax possesses the following qualities: fairness, convenience, simplicity, and minimum cost of collection and minimum distortions. Musgrave (2013) noted that taxes should be chosen so as to minimize interference with economic decisions in otherwise efficient markets. Imposition of excess burden should be minimized. Again, a good tax system should permit efficient and non-arbitrary administration and it should be understandable to the taxpayer.


1.1 Background of the Study

In recent times the world economy has developed tremendously and this has been linked to activities of small and medium scale enterprises (SMEs), especially in developing countries. A study carried out by the federal office of statistics shows that in Nigeria, small and medium scale enterprises make up 97% of productive units of the economy (Ariyo, 2005). Although smaller in size, they are the most important enterprises in the economy due to the fact that when all the individual effects are aggregated, they surpass that of the larger companies because in Nigeria the importance of small business is as a creator of jobs, particularly for those with low skills levels, is widely recognized. Small, medium or micro enterprises (SMME’s) contribute 36.1% of the country’s gross domestic product (GDP) and employ 68.2% of the workforce in the private sector. For instance in the agriculture, construction and retail sections, (SMMEs) employ more than 80% of the total workforce over the last few years, the growth in their contribution to GDP highlighting the job creation potential of this sector of the economy.

The social and economic advantages of small and medium scale enterprises cannot be overstated. Panitchparkdi (2006) sees SMEs as a source of employment, competition, economic dynamism, and innovation which stimulates the entrepreneurial spirit and the diffusion of skills. Because they enjoy a smaller geographical presence than big companies example in terms of the location or site of the business and the cost of establishing the business; the small and medium enterprises can manage a piece of land space, and can established the business with a little capital compared to the big companies. Being highly innovative, they lead to the utilization of our natural resources which in turn translates to increasing the country’s wealth through higher productivity. Small and medium scale enterprises have undoubtedly improved the standard of living of so many people especially those in the rural areas (Ariyo, 2005).

However, the mortality rate of these small firms is very high due to financial constraint example the sources of fund is mostly from one source (the sole proprietor) also poor management skills, lack of staffs training, lack of incentives, lack of workers motivation. According to the Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN), 80% of SMEs die before their 5th anniversary.


1.2 Statement of the Problem

The multiplicity of taxes, including levies rates, imposed by the various tiers of government unit, village, local government area and states etc. impact on their operation. Tax burden is a major problem in Nigeria as many business organizations are not favoured by the tax systems and policies in some place.

Although there is a general perception that tax is an important source of fund for development of the economy and provision of social services, the problems faced are in the area of negative relationship between taxes and the business’ ability to sustain itself and to expand. SMES are faced with the problem of high tax rates, multiple taxation, complex tax regulations and lack of proper enlightenment or education about tax related issues. Not minding other challenges that SMEs are facing in other developing countries like Nigeria; inadequate capital, poor technical and managerial skills, environmental effects and government regulations which is a worm eating deeply and large chuck of revenues generated by these SMEs for their growth and survival. These have led to increase in record of dearth of Small and Medium Scale Enterprise.


1.3 Objectives of the Study

The general objective of this study is to examine the effect of multiple taxations on small and medium enterprises performance in Benue State. Specifically, we aim

  1. To examine the relationship between multiple taxation and SMEs survival.
  2. To ascertain whether the size and ability of SMEs to pay taxes affect their survival.

1.4 Research Questions

To achieve the objectives of the study, the researcher was guided by the following set of questions;

  1. What is the relationship between multiple taxation and SMEs survival in Benue State?
  2. Does the size and ability of SMEs to pay tax affect their survival?

1.5 Statement of Hypotheses

The following research hypotheses were developed in order to properly address the problems of the study. These hypotheses were stated in Null form as follows:

Ho1: There is no significant relationship between multiple taxation and SMEs’ survival.

Ho2: The relationship between SMEs’ size and its ability to pay taxes does not significantly affect their survival.


1.6 Significance 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.


1.7 Scope / Limitation of the Study

This research focuses mainly on the impact of multiple taxation 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 proprietorship businesses. Its focused on how multiple tax policy affects the performance of SMEs in Benue state Nigeria.

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.


Chapter Five


Summary of Findings, Conclusions and Recommendations

5.1 Summary of Findings

Summary of findings for this research is based on the analysis of data collected through questionnaire and testing of hypotheses. These findings are:

  1. That almost all the SMEs in Nigeria pay taxes to government all the time.
  2. That multiple taxation affects SMEs growth and survival negatively.
  3. That tax collectors do not consider the size of a particular business in tax collection.
  4. That the relationship between the size of SMEs and ability to pay taxes does not significantly affect their survival. This means that despite the continuous taxing of SMEs by tax agencies, SMEs continue to survive.

5.2 Conclusions

The study appraises the effect of multiple taxation on the performance of SMEs in Benue State. From all literatures reviewed, the researchers deduced that the development and operation of SMEs has economic impact on the nation.

The researchers established relationships between SMEs’ sizes and their ability to pay taxes; multiple taxations and SMEs survival. The researchers therefore conclude that multiple taxations affect the survival and growth of SMEs in Benue State.


5.3 Recommendations

The research recommends as follows:

  1. All SMEs should endeavor to pay their taxes as at when due. This should be done by Government providing enabling environment for them to operate and see it as one of the benefit accrued to such payment of taxes to the Government. Also Government should adequately create awareness on the need for SMEs to pay their taxes appropriately. Government should consider increasing tax incentives and exemptions as this will not only attract investors who are potential tax payers, it will encourage voluntary compliance and ultimately leads to expansion of existing business interests of the SMEs in Benue state as well as Nigeria as a whole. If these are done all SMEs will willingly pay their taxes as at when due.
  2. Tax collection should be defined with respect to which government should collect certain taxes from SMEs. This will avoid the three tiers of government collecting taxes of the same type from the same particular organization. Government should also put a policy in place to avoid illegal taxes, such as community levy, boys or youth levy and as well as association or union levy. These levies exist among all the local governments in the state where most of these SMEs operate including the state capital. Government should ensure that SMEs are giving tax holidays as a way of encouragement for their smooth take off. Hence, government should discontinue the excessive taxes they collect from the SMEs so that they can continue to exist as an entity
  3. Taxes should he collected in relation to the sizes and profit of SMEs considering all other factors that can constrain the progress of such SMEs as there is a relationship between SMEs sizes and their ability to pay taxes.
    Despite the continued survival of SMEs irrespective of the numerous taxing by tax agencies, there is need for SMEs to be levied lower amount of taxes so that they will have enough funds for other activities that will lead to business growth. Furthermore it will help SMEs to get better equipped to survive in a competitive market. More also, policy incentives such as tax rebate for SMEs that put efforts on local sourcing of raw materials, serious adding value to commodities for exports and other business ethics, should be employed by Government. Similarly, Government could increase funding for the development of the sub-sector through direct budgetary allocations and enhance SMEs investment opportunities that will focus on specific areas of capacity enhancement.

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