Tax Planning And Information Content Of Taxable Income Of Listed Companies In Nigeria

Project and Seminar Material for Accountancy / Accounting

Abstract

This study is on tax planning and information content of taxable income of listed companies in Nigeria. The total population for the study is 200 staff of federal Inland Revenue service Uyo, Akwa Ibom state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made assistants managers, officer ii, officer i and computer operators were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

Chapter One

Introduction

1.1 Background of the Study

Despite the fact that government at various level cannot survive in attending to the request of their citizens without taxation, attitude of tax payers to their civic responsibilities have been in negative. It ranges from minimising the tax payable, to deliberate decision not to pay at all. Tax planning is a veritable tool at the disposal of tax payer to reduce the burden of tax paid or payable. It is defined by Kiabel and Akenbor (2014) as any action that must be taken by a business entity to inflate taxable income or reported earnings in a given period before tax loss expires. It is perceived indeed in different ways in that it includes various aspects which include arranging accrued income, expenditureto be incurred, how various investment plans can be made, as well as retirement plan to include all statutory deductions (AbdulWahab, 2010). It is usually undertaken in order to have access to all exemptions, deductions and rebates as it is contained in the relevant legislations. Avl-yonnah, (2005) said that, tax planning arrogates more income to the relevant tax authorities and leads to tax savings for the organization. It often involves huge cost; this is the concept of under-sheltering puzzle as explained by (Weisbach, 2002). Clausing, (2003) is of the opinion that the business entity concept to some extent can create the problem of double taxation, whereby tax is payable on the dividend in the hand of the shareholders which is paid from after tax earnings. The planning strategy to be employed by various organizations according to Rohaya (2010) depends on the size, ability and the nature of the companies. Effective tax planning minimizes the tax payment and consequently increases the after tax rate of return (Alshular and Grubert, 2005) Tax evasion involves the actual intention to dodge the amount of tax payable through a dubious means to avoid the amount due to the relevant tax authority. The basic issue is who actually the beneficiary of tax evasion is? Alm (2013) states that the evaders benefit in its entirety. Tax planning exploits both opportunity and loopholes in government tax policies and often involves the use of legal and professional arrangements, wherein organizations shift the burden of tax within the statutorily required limit (Bruce, Deskin and Fox, 2005). To the relevant tax authority, tax planning will undoubtedly lead to elasticity of taxable income. The causal relationship between application of the tax planning strategies and the information content of taxable income in Nigeria need to be empirically established. The objective of this study is to determine the effect of tax planning on the information content of taxable income of companies in Nigeria.

1.2 Statement of the Problem

Tax planning exploits both opportunity and loopholes in government tax policies and often involves the use of legal and professional arrangements, wherein organizations shift the burden of tax within the statutorily required limit (Bruce, Deskin and Fox, 2005). To the relevant tax authority, tax planning will undoubtedly lead to elasticity of taxable income. On this background the researcher wants to investigate tax planning and information content of taxable income of listed companies in Nigeria.

1.3 Objective of the Study

The objectives of the study are;

To ascertain the significant effect on the information content of taxable income
To ascertain the effect of tax planning on the company
To ascertain the relationship between tax planning and taxable income of company
To find out the relationship between taxation on the profitability of companies in Nigeria

1.4 Research Hypotheses

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H0: there is no significant effect on the information content of taxable income
H1: there is significant effect on the information content of taxable income
H02: there is no effect of tax planning on the company
H2: there is effect of tax planning on the company

1.5 Significance of the Study

This study, which is primarily aimed at explaining the tax planning and information content of taxable income of listed companies in Nigeria, will provide an insight into the problems associated with tax planning and information content of taxable income of companies. This report would be of great benefit for companies, to expose them to tax planning and information content of taxable income. The findings will be useful for researchers to further generate knowledge in the field

1.6 Scope and Limitation of the Study

The scope of the study covers tax planning and information content of taxable income of listed companies in Nigeria. The researcher encounters 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

b) Time:

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.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

1.7 Definition of Terms

Tax Planning:

Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency, with the elements of the financial plan working together in the mosttax-efficient manner possible.

Information:

Information is that which informs. In other words, it is the answer to a question of some kind. It is thus related to data and knowledge, as data represents values attributed to parameters, and knowledge

Taxable Income:

Taxable income refers to the base upon which an income tax system imposes tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system.

Company:

A company, abbreviated as co., is a legal entity made up of an association of people, be they natural, legal, or a mixture of both, for carrying on a commercial or industrial enterprise

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), 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, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was tax planning and information content of taxable income of listed companies in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of tax planning and information content of taxable income of listed companies in Nigeria

5.2 Summary

This study was on tax planning and information content of taxable income of listed companies in Nigeria. Three objectives were raised which included: To ascertain the significant effect on the information content of taxable income, to ascertain the effect of tax planning on the company, to ascertain the relationship between tax planning and taxable income of company, to find out the relationship between taxation on the profitability of companies in Nigeria. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of federal Inland Revenue service Uyo, Akwa Ibom state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made assistants managers,officer ii, officer i and computer operators were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

5.3 Conclusion

The paper therefore concluded that tax planning has no significant effect on tax planning and the information content of the taxable income. The followings are however recommended, tax payers should be encouraged to reveal all available information that will assist in the determination of their tax liability as concealment of such is tantamount to tax evasion. As it is done in other parts of the world such as Australia, tax advisers responsibilities should be divided into tax planning advice; preparation of tax returns; tax advocate and dealing with tax office. Above it all, all positive effort towards encouraging tax compliance should be promoted and incentives be introduced to enhance compliance practice. The use of creative accounting in the preparation of tax returns should be discouraged.

5.4 Recommendation

The following recommendations are made based on the findings:

Nigerian firms should engage the services of tax practitioners in managing their tax computations and remittances
They should adopt a moderate debt financing for the benefit of tax shield and also to tighten their management control
The issue of thin capitalization should be critically reviewed in order to maximize its advantages
Effective management of their total assets as this positively influenced their financial performance

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