Impact Of Multiple Taxation On Business Survival In Delta State, A Survey Of Business Enterprises In Ika South

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Impact Of Multiple Taxation On Business Survival In Delta State, A Survey Of Business Enterprises In Ika South


Abstract


This study was undertaken to investigate the impact of multiple taxation on business survival in delta state, a survey of business enterprise in Ika south local government area of Delta state. The objective of the study was to determine the extent to which multiple taxation affect the profitability and reinvestment rate of small scale enterprises. Data were collected from primary source using questionnaires. Survey research design was adopted. The hypotheses were tested using chi-square statistic. Result obtained show that most small scale enterprises surveyed were faced with the problem of high tax rates, complex tax regulations and lack of proper enlightenment or education about tax related issues. Although, there is a general perception that tax is an important source of fund for development of the economy and provision of social amenities, this study shows that multiple taxation affects the performance of small scale enterprises. In order to obtain a vibrant and flourishing small scale enterprises sector, the tax policy needs to be reviewed such that it will neither be an encumbrance to the small scale enterprises nor discourage voluntary compliance. A suggested solution is by increasing tax incentives through reducing tax rates and increasing tax authorities’ support services through the provision of machinery for easier assessment of profit from small scale enterprises.


Table of Content


  • Title Page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of Content
  • List of Tables
  • Abstract

Chapter One:

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the Study
  • 1.4 Research Questions
  • 1.5 Research Hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study
  • 1.9 Definition of Terms
  • 1.10 Organisations of the Study

Chapter Two:

Review of Literature

  • 2.1 Conceptual Framework
  • 2.2 Theoretical Framework
  • 2.3 Empirical Review

Chapter Three:

Research Methodology

  • 3.1 Research Design
  • 3.2 Population of the Study
  • 3.3 Sample Size Determination
  • 3.4 Sample Size Selection Technique and Procedure
  • 3.5 Research Instrument and Administration
  • 3.6 Method of Data Collection
  • 3.7 Method of Data Analysis
  • 3.8 Validity of the Study
  • 3.9 Reliability of the Study
  • 3.10 Ethical Consideration

Chapter Four:

Data Presentation and Analysis

  • 4.1 Data Presentation
  • 4.2 Analysis of Data
  • 4.3 Answering Research Questions
  • 4.4 Test of Hypotheses

Chapter Five:

Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • References
  • APPENDIX
  • QUESTIONNAIRE

Chapter One


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

There are lots of problems facing small scale enterprises world over. Although some of these problems are peculiar to many countries, the challenges faced by small scale enterprises in different countries and geopolitical divisions are basically the same. A study carried out by the Federal Office of Statistics shows that in Nigeria, small scale enterprises make up 80% of the economy (Ariyo, 2005). In spite of this importance, the mortality rate is very high as stated in Small and Medium Enterprise Development Agency of Nigeria (SMEDAN). SMEDAN has reported that about 80% of small scale enterprises in Nigeria die before their 5th anniversary. Among the factors responsible for these untimely shut-down are tax-related issues which are: (1) multiple taxations (2) high tax rates (3) low efficiency(4) high collection charges (5) low profitability etc.

Furthermore, owing to the compulsoriness of taxation as a charge against income and properties of individuals, partnerships, small scale enterprises and corporate bodies in the country, there has been an ample quest by the Nigerian government to increase the rate of some of the existing taxes as a means of generating additional revenue. This mostly affects small scale enterprises that are struggling to stay afloat in the business environment who still have to pay tax out of the little profit they make.


1.3 Objectives of the Study

The broad objective of the study is to examine the impact of multiple taxation on business survival in delta state, a survey of business enterprise in Ika south local government area of Delta State. The specific objectives include;

  1. To ascertain whether there is a significant relationship between multiple taxations on the profit of small scale enterprises
  2. To determine if there is a relationship between multiple taxations on the reinvestment rate of small scale enterprises.
  3. To ascertain whether there is a relationship between multiple taxation on the growth of small scale enterprises.
  4. To determine if there is a relationship between multiple taxations on the productivity of small scale enterprises.

1.4 Research Question

The following research questions were answered by the study;

  1. Is there significant relationship between multiple taxations on the profit of small scale enterprises ?
  2. Is there a relationship between multiple taxations on the reinvestment rate of small scale enterprises ?
  3. Is there any relationship between multiple taxation on the growth of small scale enterprises ?
  4. Is there any relationship between multiple taxations on the productivity of small scale enterprises?

1.5 Statement of Hypotheses

In order to carry out this study; the following research hypotheses were formulated. These hypotheses were structured in both null and alternative forms as follows:

  1. Ho1: There is no significant relationship between multiple taxations and the profit of small scale enterprises.
    HA1: There is a significant relationship between multiple taxations and the profit of small scale enterprises.
  2. H02: There is no significant relationship between multiple taxations and the reinvestment rate of small scale enterprises.
    HA2: There is a significant relationship between multiple taxations and the reinvestment rate of small scale enterprises
  3. H03: There is no significant relationship between multiple taxations and the growth of small scale enterprises.
    HA3: There is a significant relationship between multiple taxations and the growth of small scale enterprises.
  4. Ho4: There is no significant relationship between multiple taxations and the productivity of small scale enterprises.
    HA4: There is a significant relationship between multiple taxations and the productivity of small scale enterprises.

1.6 Significance of the Study

The finding from this study will be of good benefit to the general Nigerian populace and the business community as it will help the tax payers to have a deep understanding of their obligations and the need to meet such duties on tax liabilities. Government and its agencies on their own part will equally see the need for effective planning, administration and collection of taxes and also providing incentive for tax payers so as to limit the problem of tax avoidance and evasion hence, achieving the overall macro-economic goals of the country.

Finally, it could serve as a possible benchmark for other further advanced studies in this regard.


1.7 Scope of the Study

For the purpose of achieving acceptable and realistic results, this study is primarily focused on small scale enterprises in Ika south local government area of Delta state.


1.8 Limitation of the Study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. However, the researcher were able to manage these just to ensure the success of this study.


1.9 Definition of Terms

Business Growth:

Business growth is a stage in which a company has reached the point of expansion and is looking for new ways to produce more profit. The business lifecycle, industry growth patterns, and the owners’ ambition to create equity value are all factors that influence business growth.

Financial Distress:

Financial distress is a circumstance in which a firm or individual cannot earn sufficient sales or income, making it unable to meet or pay its financial commitments. This is often owing to high fixed expenses, a substantial degree of illiquid assets, or revenues vulnerable to economic downturns.

Financial Performance:

Financial performance is a subjective indicator of a company’s ability to earn revenue from its principal way of operation. The phrase is frequently employed as a broad indicator of a company’s overall financial health over time. Financial performance is used by analysts and investors to evaluate similar organizations in the same industry or to analyze industries or sectors as a whole.

Multiple Taxation:

It refers to the many illegal mandatory payments made without proper legal backing by local and state governments by bullying and harassing payers.

Small Scale Enterprise:

Small-scale enterprise in this study refers to a business with small teams of employees, small volume of sales and fewer areas of business coverage and are mostly sole proprietorship or partnership


1.10 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), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is 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 recommendations made of the 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 Delta 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 Delta 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 Delta 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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