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Impact Of Taxation On The Operation Of Small And Medium Scale Business
[A CASE STUDY OF SMEs IN ABEOKUTA METROPOLIS]
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CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The development of small and medium scale business enterprises is greatly affected by the level of taxation, its administration and compliance; The higher the task risk of the greater the efforts to fulfill taxation requirements as well as to check how those requirements are met, the lower the initiatives for small and medium scale businesses to work hard. Thus, maintaining the tricky balance between tax rate, compliance cost, tax administration and economic growth should be a major goal of every tax policy.
The relationship between taxation and the level of growth of small and medium scale enterprises has been a debatable issue over the years. The perceived relationship can be either positive or negative depending on the type of tax policy adopted by the government. However, it is generally agreed that high task rate can lead to decrease in business activities since it dampens the incentives to invest while low tax rate, on the other hand, tends to increase growth of business activities as profits are increased which lead to further investment as well a expansion of business. A high marginal tax rate lowers an investor’s willingness to invest by lowering the returns on his investment (palacio and Harischandra, 2008). In the same vein, a reduced amount of business activities has a number of negative consequences including decreased productivity of workers and reduced output, employment and ultimately, living standard of the people.
The flow of investment expenditure at any time depends on the comparisons operators do between the potential benefit and the cost of making that investment (Ndebbio, 2007). Tax on the other hand is more of less an appropriation of the realized benefits of investors or business operators. The consequence of this appropriation is a reduction in business profit (Bassey, 2005). Business operators operating at any point in time are usually guided by their propensity to maximize the contribution to valve creation (Ndebbio, 2007). To this effect, business are not always made where they obtain the highest pre-tax return, rather, they are interested in operating where they obtain the highest post-tax return which is the income they take home or retain (Cappelea, 2001).
Small and medium scale businesses or enterprises are of crucial importance in a developing economy as it helps to bridge and reduce unemployment gap in such economy. Small and medium scale enterprise is vital to the economic growth of Ogun State as it constitutes nearly 70% of business organizations in the state.
The government of Ogun State in an attempt to widen the tax base and collect more revenues has had to levy several taxes especially on business enterprises in the state and this has resulted in slow pace of the growth of small scale enterprises as high tax rate has a major adverse effect on business decision making through affecting the profit of a firm thereby reducing the amount of after tax profit meant for re-investment and expansion. Thus, it is of great importance that the researcher is studying the impact of taxation on small scale enterprises in Abeokuta metropolis
In Nigeria, emphasis is at present on small-scale business in all sectors of the economy. With the supportive role of the government, small scale business are capable of pulling Nigeria out of the present economic malaise’s especially if the land materials are locally sourced. Many Nigerians are being called upon to invest in small and medium scale business. To back up this determination, the federal government has established some agencies to advice and co-ordinate the efforts of small business entrepreneurs. However, there is a need to emphasize that the small business is still affected by the government fiscal policy like taxation. This research work is of the intent to examine the impact of taxation on small business in developing economy. It is most unfortunate that a lot of small business outfits deliberately evade tax payment, despite the fact that they are usually given tax holiday for their first five years of their commencement of business. This could be attributed to their ignorance of some objective which taxation might be used to accomplish. The general objectives of taxation can be stated as follows: –
a. Restraining or curtailing and this transferring resources from consumption to investment.
b. To counter or reduce inflation
c. Modify the pattern of investment
d. Mitigation of economic inequalities
e. Maintenance of balance of payment
f. Increase the incentive to save and invest.
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ABSRACT - [ Total Page(s): 1 ]ABSTRACTSmall and Medium Enterprises play a very important role in development of the Nigerian Economy. Making up about 97% of the entire economy, they serve as a source of employment generation, innovation, competition, economic dynamism which ultimately lead to poverty alleviation and national growth. Tax policy is one of the factors that constitute the Small businesses’ economic environment. This research work tries to establish if any relationship exists between the growth of Small bu ... Continue reading---
QUESTIONNAIRE - [ Total Page(s): 3 ]QUESTIONNAIRETHE IMPACT OF TAXATION ON THE OPERATION OF SMALL AND MEDIUM SCALE BUSINESS (A CASE STUDY OF SMEs IN ABEOKUTA METROPOLOIS)COLLEGE OF HUMANITIES MANAGEMENT AND SOCIAL SCIENCESDEPARTMENT OF BUSINESS AND ENTREPRENEURSHIPKWARA STATE UNIVERSITY, MALETE.Dear Sir/Ma, This questionnaire is designed to acquire information on the effect of entrepreneurial characteristics on business performance in Nigeria. In order to enable me carry out this research work. All information collecte ... Continue reading---
TABLE OF CONTENTS - [ Total Page(s): 2 ]TABLE OF CONTENTSContentsCERTIFICATION DECLARATION DEDICATION ACKNOWLEDGEMENTS TABLE OF CONTENTS LIST OF TABLES ABSTRACT CHAPTER ONE INTRODUCTION 1.1Background of the Study 1.2 Statement of Research Problem 1.3 Research Aim and Objectives 1.4 Research Questions 1.5 Research Hypotheses 1.6 Significance of the Study 1.7 Limitation of the Study 1.8 Scope of the Study 1.9 Outline of Chapters 1.10 Operationalization 1.11 Defini ... Continue reading---
CHAPTER TWO - [ Total Page(s): 7 ]Mugulusi (2001) found out that a large proportion of business community
is ignorant about taxes they pay and how these tax are commuted. Most
Nigerians have poor/lack understanding of the rationale of taxes and
knowledge of different taxes imposed on them. As a result, the tax
compliance in Nigeria is still very low. Besides that, various surveys
conducted on small and medium scale businesses in Nigeria suggest that
about 60% of them keep no records at all, while 25% keep partial rec ... Continue reading---
CHAPTER THREE - [ Total Page(s): 3 ]Hence, the sample size for this study is 109 3.7.2 SAMPLING TECHNIQUES According to Abosede (2010) sampling techniques are approaches used in selecting samples from a study population. Given the large scale of SMEs in Abeokuta metropolis, the judgmental sampling procedure and non-random sampling technique will be used because it will not guarantee randomness, that is, elements of the population do not have the opportunity of being given an equal chance of selection. 3.7.3 SAMPLE FRAMEThe rese ... Continue reading---
CHAPTER FOUR - [ Total Page(s): 14 ]The F-Test (ANOVA)This is used to test the overall statically significant of the variables. It is meant to test the overall significance of the entire model as regards the dependent variable. It checks the joint variance of the explanatory variables. The level of significance to be used is 5%. Hence, if the probability is ≤ 0.05, the explanatory variables’ parameter estimates will be jointly statistically significant.The correlation between productivity and progressive tax is 0.71 w ... Continue reading---
CHAPTER FIVE - [ Total Page(s): 2 ]CHAPTER FIVESUMMARY, CONCLUSION AND RECCOMENDATIONS5.0 Introduction This chapter of this research work gives an overview of the entire research work. It starts with the summary of the work from the first chapter to the last chapter. The findings were looked at from the theoretical and the empirical point of view, conclusions were also made on all the content and contexts already discussed, after which recommendations were proffered as a means of setting benchmark and target for f ... Continue reading---
REFRENCES - [ Total Page(s): 2 ]REFRENCES• Aderemi, A. (2003). Small and Medium Scale Enterprises: The Nigerian Situation. [Power Point Slides] Capital Partners Limited. Retrieved from www.capitalpartnersltd.com/Small%20Medium%20Scale.ppt• Ariyo, D. (2005): Small Firms are the Backbone of the Nigerian Economy. Retrieved October 22nd, 2010, from http://www.africaeconomicanalysis.org/articles/gen/smallhtm.html.• Aryeetey, E. & Ahene, A. (2004): Changing Regulatory Environment for Small-Medium ... Continue reading---
