The Effect of Taxation in Business Development and Decision Making
Chapter One
OBJECTIVES OF THE STUDY
- To examine effect of taxation on business decision for Economic growth.
- To assess the benefit of business decision and development in for effective tax compliance
- To identify the strategies for efficient business decision to enhance adequate tax payment.
- To examine the ways to minimize the high rate of taxation business development and decision.
CHAPTER TWO
RELATED LITERATURE REVIEWED
INTRODUCTION
Here in this research work, effort shall be made here by the researcher to review other related literature put together by other renounced researchers and authors on the subject under study out taxation and its effect on the Nigerian Economy.
CONCEPT OF TAXATION ON BUSINESS DECISION AND DEVELOPMENT
Taxation is a compulsory levy by the government through its agent on the profits, income, or consumption of its subjects or citizens. It is also viewed as a compulsory contribution made by individuals and organization towards defraying the expenditure of government Dandago (2001:17). Taxes that apply to business income fall under direct taxes and under Nigerian Law; it is administer in two forms. One is assessing business income to tax only in the hand of the owners of the businesses, which is the case when business is a sole proprietorship or partnership. The other, taxes business income first, taken the business as a person, and later assess the dividend received by owners from the same business’s profit to tax. If tax is properly administered generally, the revenue through it can improve greatly and government expenditure needs could be better met. The place of business taxation is particularly important in Nigeria because out of the over twenty million population only a small fragment takes up salaried employment and more are in one trade, business or other crafts. Kotler (2005:82) feels is a charge levied by the government on the income or wealth of a person or corporate organization for the common benefit of all. The term does not include specific charges made against a particular person or properties for current or permanent benefits and privileges accruing only to those paving such charges. Similarly, Ogundele (2009:53) defines taxation as the transfer of real economic resources from private sector to the public sector to finance public sector activities. It can therefore be concluded that the essence of all taxes is the removal of resources from private hands of the individual, families, corporate bodies, communities and trusts to the public sector to finance the development of the society. The need for government in the affairs of man is therefore the basis for taxation in societies. According to Jorgenson (1967:114), business decisions undertaken by economic agents are very important for the economy as a whole because investments are one of the engines of long-term economic growth. When an economic agent has to make an investment decision, there are a variety of variables that are taken into account, among which taxation play a significant role King and Fullerton (1984:76). The economic theory suggests that taxation generally distorts the decisions of economic agents and individuals. If one refers only to business decisions, having in mind that corporate profits are the source of funds used to finance an investment, corporate income taxation seems to be one of its main determinants. Slemrod (1990:321), opined that the transmission channels of corporate income taxation on investment process and the specific determinant fiscal variables are various: the level and dynamic of marginal tax rate, the level and evolution of average tax rate, the existence of an investment tax credit or the existence of tax-deductible depreciation allowances. It is expected that marginal and average tax rates to have a negative effect on business development and decisions. Empirical studies realized so far confirm this assumption and found a stronger effect for marginal corporate income tax rates than for average rates Hines and Rice (1994:54). Closely related with corporate income taxation, the fiscal treatment of dividends also has an impact on business decisions. A higher tax rate on dividends constitutes an additional incentive to undertake investments. Another way in which taxation affects investment decisions is related to capital taxation. Tax on the stock of capital of an economic agent is a strong disincentive to invest. As such, Alabede (2001:43) view the following as Business decisions, such as the investment decision, and the decision making process is influenced by a number of internal and external factors, among which we mention.
- Internal factors:the enterprise interests and objectives; the involvement of the managers and employees in the submission of a maximum effort in order to achieve the objectives; the nature of the products or services offered by the enterprise; the technical characteristics of the enterprise units; the units interdependence in achieving objectives.
- External factors:the distributors of products or services; the suppliers of materials, equipment and labour; the competitors to customers and suppliers; the tax legislation; the improvement or creation of new products through the introduction of new technology
TYPES OF TAXATION
According to Agye: (1983-73) tax can be basically divided into direct and indirect taxes.
- Direct Tax:David Begg (1984-284) defined direct tax as taxes levied on individual income on earnings from labour, rents, dividends and interest. A common feature of these types of tax is that it is levied according to the ability to pay that is pay as you earn (PAYE). Direct Taxes are made up of the following according to O. Teriba (1976: 178).
- Income tax:This is tax changed an earning from ways, salaries, rent, interest, premium etc. It in normally changed progressively. After deducting all the tax relief, the reminder becomes the taxable income.
- Poll Tax:A poll tax is imposed at a flat rate per head of population or among a group of people. This type of taxation is employed where enough data do not exist to determine the actual income of the tax payer. It is a regressive tax because no matter what the size of a persons income everyone has to pay the amount.
- Company Tax:David Begg (1984:284) assents that companies pay corporation tax calculated on their taxable profits after allowance for interest payment and depreciation. Company tax is charged progressively, that is, the higher the profits the greater the tax companies are taxed under the provision of the companies income tax act (1961) and its various amendments.
- Capital Tax:O Terisa (1976:180) states that capital taxes are imposed on property and other capital assets from instance, when a person dies his assets are subject to capital tax, in this case the term death duty or estate duty is used.
- Capital Gams Tax:This tax is charged on gains in value (profit) accruing to any company or individual on the disposal of assets e.g. land. This system of tax was introduced in Nigeria in 1967. Under the capital gains tax decree 44 of 1967 as amended. Therefore, for taxation to make the desired impact on the economic development of Nigeria given is being a major source of government revenue the following Acts were enacted to regulate its operations
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
INTRODUCTION
This chapter attempts to present the methods and procedures adopted in carrying out the study. The chapter further shows the Research design, population of the study, sample and sampling technique, Instrumentation, Plan for data analysis and problems of data collection simple percentage method and data presentation and analyses technique.
RESEARCH DESIGN
This study adopts the descriptive survey design. This method is considered most appropriate because it will enable the researcher to carry out an extensive research on the subject under study.
AREA FOR THE STUDY
The study covers the effect of taxation in business development and decision making.
SAMPLE AND SAMPLING TECHNIQUE
The simple random sampling technique was employed by the researcher in selecting a sample size of about 50 staff from some business firms which the researcher uses as respondents for the study.
CHATER FOUR
DATA ANALYSIS AND INTERPRETATION OF RESULT
INTRODUCTION
This chapter deals with the presentation of the data with special focus on responses gathered as a result of the administration of questionnaire.
CHAPTER FIVE
SUMMARY, FINDINGS, CONCLUSION AND RECOMMENDATION
INTRODUCTION
This is the final chapter of the research work. It contains the summary of this research work, including the major highlight of each of findings of this study and recommendation.
SUMMARY
In this research study, the researcher took a critical look at the effect of taxation in business development and decision making. The research work was divided into five chapters. Chapter one was the introduction or background of the study, as well as statement of the problem, objective of the study, research questions, significance of the study, the scope and limitation of the study and definition of terms. Chapter two reviewed related literature that is the contribution of different authors on the study. Chapter three cover the research design and methodology used to carry out. Chapter four takes care of the data presentations, analysis and interpretation as well as discussion of findings. Chapter five encapsulates the summary, findings, conclusion and recommendation made by the researcher.
CONCLUSION
From theoretical stand point, it has been demonstrated in this work that the current system of taxation in business development and decision failed to up-hold the equity theory of taxation. As stated by Kay (1990:67) the reason behind higher tax for company as against persons is grounded on the fact that business are able to as much as possible recoup its cost from revenue before subjecting it to tax. This is not so for employment incomes. In practice it is all forms of businesses that tax laws allows to recoup their relevant cost from revenue, consequently, equity and fairness demand that they are equitably subjected to tax. More importantly, it is worth stating that, the fact that differential taxation affects decisions is upheld by this study. Like Charney (1970:22) confined, that differentials affect firms choice of site, Joujfaian and Rider (1998) concluded that incident of high under reporting of income is higher for tax payers facing lower tax rate than for those facing higher rates and Schmidheing (2003) also opined that finding is that income tax changes affects choice of house hold location. The fact that this study reflect a situation where investors choose a business form after given due consideration to tax effects, makes the result of this study to be in line with past similar. Peter fan (2003:44) in his view suggested that suitability considerations, he believes that sole trade, especially, and to some extent partnership are particularly suited to investors that have all their assets put into the business. Company, on the other hand, should be for those that have some other asset not used for the business.
RECOMMENDATIONS
- Government should help to increase business operation by reducing the high cost of tax in other to increase the economy growth of the nation.
- The tax revenue should be use in effective manner to boast the spirit of business dealer to comply more with taxpaying.
- The business organizational body should raise a public opinion to by pouring out their mine concerning the high rate of taxation.
- Infrastructures, by the government should be made available to encourage the effective tax paying the user of the facilities.
Reference:
- Auerbach (2002), Tax Policy and Business Fixed Investment in the United
- States, Journal of Public Economics, 47, 2, 141-170
- Agell et al. (1997) Taxing Profits in a Global Economy: Domestic and International Issues.
- Azubike (2009) ‘Deficit Financing and Economic Development: Empirical Perspectives from Nigeria’. Project report presented to the African Economic Research Consortium. Nairobi, Kenya. 7- 11 December
- Bucataru, (2002) “Fiscal Operations in a Depressed Economy”. Nigeria, 1960-1990,
- AERC Research Paper Forty-four, Nairobi, Kenya,p.6
- Barro V. (1991) Note on the Taxation of Capital and Economic Rents, IFS Working Paper Series No. W95/18.
- Dandago (2001) Mobilizing Resources for Development: Problems and Prospects of Import
- Taxation in Nigeria, NES, Ibadan, pp.227-228
- David Begg (1984) The Effect of corporate Taxes on Investment and Entrepreneurship, NBER Working Paper 13756, Cambridge, Massachusetts.
