The Impact Of Multiple Taxation On Business Survival In Nigeria
Taxation is one of the major fiscal policies the government of any nation such as Nigeria can use to achieve economic stability and in the financing of capital expenditure. Various taxes are levied upon the income, wealth or gain of an individual, family and business firm by the government for the purpose or benefits of the general public. Tax by a simple definition is a financial charge or other levy imposed upon a tax payer which could be an individual or a legal entity from the point of view of the student researcher by a state such that failure to pay is punishable by law. Thus, taxation cannot be regarded as a voluntary payment or donation but an enforced contribution exacted pursuant to legislative authority. In modern taxation system such as Nigeria, taxes are levied, in money which could be use for myriads of functions or purpose such ay a expenditure on public order, protection of lives and property, economic infrastructure cures such as roads, public works, social engineering and the operation of government itself (Carrol, et al 2000). Against this back drop, this project examines the effects of multiple taxation on business survival in Nigeria.
1.1 Background of the Study
Taxation is one of the major fiscal policies the government of any nation can use to achieve economic stability and in the financing of capital expenditure. Various taxes are levied upon the income, wealth or gain of an individual, family and business firm by the government for the purpose or benefits of the general public. Tax by a simple definition is a financial charge or other levy imposed upon a tax payer which could be an individual or a legal entity from the point of view of the student researcher by a state such that failure to pay is punishable by law. Thus, taxation cannot be regarded as a voluntary payment or donation but an enforced contribution exacted pursuant to legislative authority. In modern taxation system such as Nigeria, taxes are levied, in money which could be used for myriads of functions or purpose such an expenditure on public order, protection of lives and property, economic infrastructure cures such as roads, public works, social engineering and the operation of government itself (Carrol, et al 2000).
The taxes collected by the government no doubt emanate from varying sources ranging from personal income tax, company income tax, capital gain tax, property tax, education, tax, task but to list a few. The Nigerian government in attempt to raise revenue and enhance the economic development of Nigeria has subjected many firms to multiple taxations which they are mandated or made compulsory to pay irrespective of the sector the business firms operate or else take the wrath of the law A survey carried out by the Manufacturers Association of Nigerian (MAN1) and (Centre for International Private Enterprise ICIPE) identified multiple taxation as the bane of private sector business growth in Nigeria (Anyamvu, 2012). The survey established the relationship between multiple taxations in the pilot state across the three tiers of government and re-affirmed its negative effects to private sector growth and businesses in Nigeria. According to the survey, it was established that multiple taxation could lead to divestment as well as jeopardize foreign direct investment coming into Nigeria, while adversely affecting the Competitions of existing businesses and their survival, Moreover it was also established that currently most businesses in Nigeria consider the tax environment as unfriendly and disincentive to business, stressing that it engenders loss of man hour to both the government and private businesses.
According to Osagie (2012) tax environment inNigeria especially the policy on multiple taxation increases the cost of doing business in the country. As a matter of fact, some business including manufacturing companies have shut down production while in some cases, have relocated their factories to other West African countries which are considered to be more investment friendly. Against this back drop, this project examines the effects of multiple taxation on business survival in Nigeria. In recent time the world economy has developed tremendously and this has been linked with 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 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. The social and economic advantages of small and medium scale enterprises cannot be overstated. Panitchpakdi (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 wider geographical presence than big companies, SMEs also contribute to better income distribution. Over the years, small and medium scale enterprises have been an avenue for job creation and the empowerment of Nigeria’s citizens providing about 50% of all jobs in Nigeria and also for local capital formation. 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. According to the Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN) Nigeria, 80% of SMEs 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 scale 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 scale 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 SMEs and the most effective ways to administer them. The importance of SMEs as a mechanism of economic growth arid development is often ignored. They are perceived as minute establishments that have minimal effect on the state of the economy.
However, if favorable environment is created for these SMEs to grow through proper regulation, the SMEs 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. However, Holban (2007) posited that taxation can contribute to development and to welfare through three sources; It must be able to generate sufficient funds for financing public services and social transfers at a high level of quality, it should offer incentive for more employment and for an efficient and lasting use of natural resources, finally it should be able to reallocate income. But in the case of SMEs, tax must be done in such a way that puts their income and need for survival into consideration. it is expedient that enough profit is allowed them for the purpose of expanding their businesses. The tax policy must be one that will not encourage SMEs to remain in the informal sector or to evade or avoid tax payments. More so, many small firms in Africa, including Nigeria, choose to remain in the informal sector because the perceived benefits outweigh the perceived costs. Firms rarely see their tax contributions at work and the compliance costs are high, thus discouraging compliance. The government is also discouraged from collecting taxes from small firms, because the cost of monitoring and collecting tax from small businesses by revenue authorities, whose resources are usually scarce, sometime outweighs the revenues generated by small businesses (Stem and Barbour 2005).
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 surcharge 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 (1996) 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 (1980) 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.
1.2 Statement of the Problem
Government in order to meet up with its responsibilities of providing social infrastructures and other development projects for her citizens imposes taxes on her citizens. This is done by the different tiers of Government-Federal, States and Local Governments with respect to their fiscal powers (Tax Powers). However, the rate at which the governments concerned increase the existing taxes should be a thing of concern to economic agents. While the Federal Government is clamoring for a stable general price level, increased rate of growth in Gross Domestic Product (GDP), increased employment opportunities, through the establishment of small-scale enterprises; the state and local governments are busy introducing new taxes and increasing the rate of the existing taxes. It is in view of this that the researcher intend to investigate the effect of multiple taxation on growth and development of small scale enterprise in Nigeria.
1.3 Objective of the Study
The main objective of this study is to ascertain the effect of multiple taxation on growth and development of small-scale enterprise in Nigeria. But to aid the successful completion of the study, the researcher intends to achieve the following sub-objectives;
- To ascertain the impact of multiple taxation on business survival in Nigeria.
- To ascertain the relationship between multiple taxation and the growth of businesses.
- To investigate the consequences of multiple taxation on the profitability of small-scale enterprise
- To ascertain the impact of multiple taxation on the non- survival of small-scale enterprise.
1.4 Research Hypotheses
To aid the completion of this study, the following research hypotheses are formulated by the researcher
- H0: Multiple taxation has no significant impact on business survival in Nigeria.
H1: Multiple taxation has a significant impact on business survival in Nigeria.
- H02: There is no significant relationship between multiple taxation and the growth of small-scale enterprise in Nigeria
H2: There is a significant relationship between multiple taxation and the growth of small-scale enterprise
1.5 Significance of the Study
It is believed that at the completion of the study, the findings will be of great importance to the joint tax board and the federal inland revenue service in assessing and collection of taxes from small scale enterprise so as to minimize double or multiple taxation. The study will also be useful to state board of internal revenue and local government revenue collectors, as the study seek to remind them of the nemesis of multiple taxation on small scale enterprise. The study will also be beneficial to researchers who intend to embark on study in similar topic as the study will serve as a guide to their study. Finally the study will be beneficial to academia’s students and the general public.
1.6 Scope and Limitation of the Study
The scope of the study covers the effect of multiple taxation on the growth and development of small scale enterprise in Nigeria. But in the cause of the study; the researcher encounter some constrain which limited the scope of the study;
(a) Availability of Research Material:
The research material available to the researcher is insufficient, thereby limiting the study.
The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.
1.7 Definition of Terms
A tax is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state to fund various public expenditures. A failure to pay, or evasion of or resistance to taxation, is usually punishable by law.
Taxation refers to compulsory or coercive money collection by a levying authority, usually a government. The term “taxation” applies to all types of involuntary levies, from income to capital gains to estate taxes.
Small Scale Enterprise:
Sometimes called a small business, a small-scale enterprise is a business that employs a small number of workers and does not have a high volume of sales. Such enterprises are generally privately owned and operated sole proprietorships, corporations or partnerships.
1.8 Organization of the Study
This research work is organized in five chapters, for easy understanding, as follows
- Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study.
- Chapter two highlight the theoretical framework on which the study its based, thus the review of related literature.
- Chapter three deals on the research design and methodology adopted in the study.
- Chapter four concentrate on the data collection and analysis and presentation of finding.
- Chapter five gives summary, conclusion and also recommendations made of the study.
Summary, 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:
- That almost all the SMEs in Nigeria pay taxes to government all the time.
- That multiple taxation affects SMEs growth and survival negatively.
- That tax collectors do not consider the size of a particular business in tax collection.
- 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.
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.
The research recommends as follows:
- 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.
- 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
- 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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