The Impact Of Taxation On Investment Decision Of Limited Liability Companies

Project and Seminar Material for Accountancy / Accounting

The Impact Of Taxation On Investment Decision Of Limited Liability Companies


Abstract


This study focused on the impact of taxation on investment decision of limited liability companies using Nigeria bottling PLC uyo as case study. The study is was specifically focused on examining the impact of taxation on investment decision on limited liability company, determine the variables that impact on the burden of effective tax investment decisions of Limited Liability Company in Nigeria; examine the effects which tax influences investment decision in Nigerian Bottling Plc, Uyo; find out the problems associated with tax on investment decision of Limited Liability Company and make useful recommendations and suggestions based on research findings. The study adopted the survey research design and randomly enrolled participants in the study. A total of 100 responses were validated from the enrolled participants where all respondent are staff of Nigeria bottling PLC uyo.


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

1.1 Background of the Study

Every government and most especially those in the developing economies are concerned about the economic growth of their nation. As a result, they put in much effort to achieve higher rate of economic growth and raise the standard of living of its citizens.
The critical issue has been how to attract investors and generate the needed resources domestically using tax instruments that are least harmful to both the government and the investors. This will obviously involve reforming the tax system to ensure efficiency by widening the tax net without necessarily increasing the tax rate.

Governments continue to encourage foreign investment as an integral part of its economic policy. Ghana embarked on a privatization program in the early 1990s. The government at one point controlled more than 350 state-owned enterprises but nearly 300 were privatized by the end of 2000 and as at December 31st 2005, 351 had been privatized leaving just a handful of state-owned enterprises. For example, the governments, stated priority privatization in the 2007 budget included Ghana Telecom, Western Wireless (Westel), Tema Oil Refinery, Ghana Oil Company and State Insurance Company. They also pursued privatization through selling of State-owned shares on the Ghana Stock Exchange (GSE).

The government recognizes attracting foreign direct investment requires an enabling legal environment and has passed laws that encourage foreign investment and repeated some that has previously stifled it. In the United States for example, there was a decline in investment some years ago. In order to stimulate investment, a new tax Act was introduced in 2002 and 2003. This helped the economy to regain its stand by the late 2003, investment returned to its pre-recession trend and the economy expanded at a healthy rate of 3.9% and despite the dislocations that was as a result of the hurricanes and steep rise in energy prices, registered 3.2%. A research conducted in United States by a Joint Economic Committee presented a case that, lowering the cost of capital through tax legislation can be both timely and effective in stimulating economic growth.

Governments need to put in more effort in attracting investors into their country through tax reforms if it wants to achieve economic growth and enhance standards of living.

The Institute of Chartered Accountants of Nigeria (2006) and the Chartered Institute of Taxation of Nigeria (2002) defined tax as an enforced contribution of money to government pursuant to a defined authorized legislation. In other words, every tax must be based on a valid statute tax can be imposed

To a great extent, taxes influence investment decision in the economy. Decision makers must cope with the complexity of existing tax system. They might be inclined to ignore complicated tax features and rely on statutory tax rates, Azubike (2009). Hence, they may make wrong decision with respect to taxes.

According to Devos (2010), a promising way to deal with the complexity of taxes that does not ignore the most important features of tax system beyond statutory tax rates is to use effective tax rates. Effective tax rates comprise the most important elements of a tax system. Such rates are useful for policy makers as well as for business managers, who demand condensed but sophisticated information on investment tax burdens, Devos (2010). However, investment decision often concern inframarginal, profitable investments. For instance, a multinational corporation would expect to earn an economic rent when deciding the location of a new plant, Abiola & Moses (2012).
Therefore, the research focuses on technical and practical issues inherent in the measurement of effective tax burdens in Nigeria


1.2 Statement of the Problem

Verdugo (2005) defined investment as the purchase of an asset or item with the hope that it will generate income or appreciate in the future and be sold at a higher price. The term investment is usually used when referring to a long-term outlook. Investment decisions are therefore what assets the company decides to invest on that will have optimal return to the shareholders capital. Alworth and Arachi (2001) defined corporate taxes as tax levied on corporations’ profits, this is because corporations are treated as legal entities separate from their owners, and they are taxed as if they were persons.

Measuring the effective tax burden for the effective of taxation on investment decision required a standard measure in order to separate the effects that stem from the statutory tax rate (and the interplay of personal and corporate taxes) and the effects that are attributable to the legal tax definition of the tax. In the case of a uniform proportional income tax, this standard measure is well known. The effective tax burden on a marginal investment is equal to the statutory tax rate on interest payment once the allowance for each period follow the change in the earnings capacity value. This result is valid only under several restrictive assumptions, the most important of which is the existence of a perfect capital market under certainty.

Therefore, the problem of improper measurement of effective tax burden on profitable investment, which is effective average tax burden needs to be addressed.


1.3 Objectives of the Study

The Main Objective of the study is to examine the impact of taxation on investment decision of limited liability companies; The specific objectives of the study are to find out the following:

  1. To examine the impact of taxation on investment decision on limited liability company.
  2. To determine the variables that impact on the burden of effective tax investment decisions of Limited Liability Company in Nigeria.
  3. To examine the effects which tax influences investment decision in Nigerian Bottling Plc, Uyo.
  4. To find out the problems associated with tax on investment decision of Limited Liability Company.
  5. To make useful recommendations and suggestions based on research findings.

1.4 Research Questions

  1. Does the effects of taxation influences investment decision in Nigerian Bottling Plc, Uyo?
  2. Does the variables used in taxation impact on the burden of effective tax investment decision of Limited Liability Company?
  3. Is there any problems associated with taxation on investment decision of Limited Liability Company?
  4. Does taxation have any impact on investment decision in Nigerian Bottling Plc?

1.5 Research Hypotheses

Hypothesis 1
  • H0: The taxation do not influence investment decision in Nigerian Bottling Plc, Uyo.
  • H1: The taxation do influence investment decision in Nigerian Bottling Plc, Uyo.

1.6 Significance of the Study

This study is significance in the following ways:

  1. It would provide the necessary information about taxation on investment decision to the staff and employees of Nigerian Bottling Plc, Uyo.
  2. It would also help potential investors to remedy the problems associated with taxation of corporate income.
  3. It will provide the management of Nigerian Bottling Plc on how to use it as a guide for effective implementation of investment decision policy.
  4. Finally, it would serve as a resource to students and other researchers who might want to carry out their research on similar topic.

1.7 Scope of the Study

The study centers on the impact of taxation on investment decision of Nigerian Bottling Plc, Uyo as a Limited Liability Company.


1.8 Limitation of the Study

The limitation to this study was inability of management to divulge certain information which they consider sensitive and fear of publication which might be detrimental to their operation.

Another limitation to the study is time constraint. The period within which the study is conducted is short for a thorough research work, hence gathering adequate information becomes very difficult.

Also, finance is one of the limitations to the study. They researcher facing financial constraints to meet all the needed educational requirements including this research work. This caused the researcher to restrict his research work to one company for possible completion of the study.

Finally, lack of materials on the topic, therefore the researcher resolved to seek friendly approach in order to obtain the needed materials or information from the establishment or organization under study through the administration of questionnaire.


1.9 Definition of Terms

a) Taxation:

This is the process of levying and collection of tax from taxable persons (Soyode & Kayola, 2006).

b) Investment:

These involve the sacrifice of current consumption opportunity in order to obtain the benefits of future consumptions possibilities (Kane, 2004).

c) Impact of Tax:

This means the initial resting place of the tax (Ojo, 2003).

d) Tax:

This is defined as an enforced contribution of money to government pursuant to defend authorized.


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, Conclusions and Recommendations:

5.1 Introduction

This chapter summarizes the findings on the impact of taxation on investment decision of limited liability companies using Nigeria bottling PLC uyo as case study. The chapter consists of summary of the study, conclusions, and recommendations.


5.2 Summary of the Study

In this study, our focus was on the impact of taxation on investment decision of limited liability companies using Nigeria bottling PLC uyo as case study. The study is was specifically focused on examining the impact of taxation on investment decision on limited liability company, determine the variables that impact on the burden of effective tax investment decisions of Limited Liability Company in Nigeria; examine the effects which tax influences investment decision in Nigerian Bottling Plc, Uyo; find out the problems associated with tax on investment decision of Limited Liability Company and make useful recommendations and suggestions based on research findings.

The study adopted the survey research design and randomly enrolled participants in the study. A total of 100 responses were validated from the enrolled participants where all respondent are staff of Nigeria bottling PLC uyo.


5.3 Conclusions

Based on the findings of this study, the researcher made the following conclusion.

  1. There are numerous rationales behind tax reforms among them are; to improve the efficiency of tax administration, to maximize the economic and social benefits of tax collection, to enhance the efficiency of the overall tax system, to reduce tax evasion and avoidance, to allow more efficient and fair tax collection, and to widens out the tax base.
  2. The complex tax structure, high rate of tax evasion, inadequate logistics, tax adjudication imbalances, low skill levels of staff, and slow take-off of the automation and computerisation of the customs management system are all different problems compounding the act of tax reform in nigeria.
  3. Tax reliefs, Investment tax credits incentives, Tax exemptions, Tax holidays and Tax Rate Reductions are among few others the forms of tax incentives that are used in attracting foreign direct investment.
  4. Tax rate concepts should be used to examine the effect of tax reform on investment.

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