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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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An amended ordinance that extended the provisions in the Native Revenue Ordinance of 1917 to southern Nigeria was passed in 1918. The first ordinance applied to Abeokuta in Ogun State and Benin in Edo State, and in 1928 it was extended to Eastern Nigeria.
The Native Revenue Ordinance of 1917, 1918, and 1928 were later incorporated into the Direct Taxation Ordinance No4 of 1940, cap 54, which repealed the Native Revenue Ordinance No41 of 1937.
The Direct Taxation Ordinance of 1940 could therefore be the fore runner of Nigerian tax legislations. Under the ordinance, the Europeans in the regions were not subjected to tax in the region in which they were resident whereas both the Africans and Europeans in the Federal Territory of Lagos were taxed. This situation led to the Raisman Fiscal Commission of 1958 that recommended the introduction throughout Nigeria of basic principles for taxing incomes. This recommendation was embodied in the Nigeria Constitution Order in Council of 1960, and formed the basis of the income Tax Management Act of 1961 (Ola, 1981).
It is clear to note that the Nigerian tax system, although not documented, was virile and alive except for the differences in nature and method. Without a good tax structure that was in place in the North, it would probably have been tougher for Lord Lugard to start off the exercise. A good organization in the place in the North, made it possible for him to lay proper foundation through codification and hence the subsequent extension to other part of Nigeria after the amalgamation.
In the Eastern Area of Nigeria, the initial attempt in 1928 to codify and restructure the tax after the enactment of the Native Revenue Ordinance practically resulted in the well-known ‘‘Aba riot’’ of 1929, which was triggered off from the imposition of taxation on the Ibo women. ‘‘The Ibo women, in our opinion, merely served as fronts for their men would have needed to pay more tax anyway’’ (Otusanya, 2001).
2.1.2 THE ROLE OF TAXATION IN THE ECONOMY OF NIGERIA
According to Abdallah (2006) the government uses taxes for a number of reasons including:
a. To raise revenue to finance its expenditure, for example in health, education and roads. Taxation is required to raise revenue to cover government expenditure. It raises revenue to cover the cost of administration, defense, to provide infrastructure, to settle both internal and external debts. Taxation is in fact the main source of revenue to governments. In Nigeria for instance, taxation alone generates more than 50% of government revenue.
b. To redistribute income and help the less well-off, for example the unemployed. It often happens that a greater part of the nation’s wealth will be in the hands of a few people while the majority remains in abject poverty. This problem can be solved by redistributing income among the various social classes. The progressive tax system is effective for this. It ensures that, the higher income earners pay proportionately more in the form of taxes than the lower income earners, hence redistribution of income.
c. To control the economy and influence the level of inflation and economic growth. Taxation is often used to check the effects of inflation and thus stabilize prices. High taxation reduces the disposable income of consumers, hence, low demand for goods and services, and this help solve inflation.
d. To give incentives to industry to influence location and encourage production and investment. Infant industries are industries that have not yet found their feet in the field of production or cannot effectively stand competition on their own. To make them grow, tax (import duties) are imposed on imported goods to raise their prices. This has the effect of making imported goods expensive thus stimulating the demand for the locally produced goods, leading to the growth and expansion of such industries. This has additional advantages of creating employment avenues for the local people and promoting the spirit of self-reliance.
e. To control the import of certain goods either for balance of payments or other reasons. Balance of payment deficit result when a country’s total imports bill for the year exceeds its total export bill. Tariffs (taxes) on imported goods will have the effect of increasing import prices and thereby discourage imports. If exports are evenly constant, a fall of imports may help correct the anomalies in the balance of payment.
f. To avoid dumping. Taxation is an anti-dumping tool. Normally, the advanced countries are fond of dumping goods of lower prices on developing ones. This does not offer any incentive to local industries. To avoid this unpleasant situation, high taxes are placed on such items to protect the local or even prevent the importation of such items.
g. To discourage or control the consumption of certain goods. Taxes are imposed on certain goods which are considered harmful to the health of the people. High taxes are levied on goods as tobacco and alcoholic beverages to make their prices relatively expensive so as to discourage their consumption.
2.1.3 SMALL BUSINESS
The Monetary Policy Circular No. 22 of 1988 of the Central Bank of Nigeria defined small-scale enterprises as enterprises whose annual turnover was not more than N500, 000. In the 1990 budget, the Federal Government of Nigeria defined small-scale enterprises for purposes of commercial bank loans as those with an annual turnover not exceeding N500, 000, and for Merchant Bank Loans, those enterprises with capital investments not exceeding 2 million naira, (excluding cost of land) or a maximum of N 5 million. The National Economic Reconstruction Fund (NERFUND) put the ceiling for small-scale industries at N10 million. Section 37b(2) of the Companies and Allied Matters Decree of 1990 defines a small company as one with an annual turnover of not more than N 2 million and net asset value of not more than 1 million naira. (Ekpenyong & Nyong, 1992). The Small and Medium Enterprise Equity Investment Scheme (SMEEIS) sees the SME as “any enterprise with a maximum asset base of N500 million (excluding land and working capital), and with no lower or upper limit of staffâ€. However, for tax purposes, Section 40(6) of the Companies Income Tax Act Cap C21 LFN 2004 alludes to companies with a turnover of N1 million and below operating in the manufacturing, agricultural production, solid mineral mining, and export trade sectors as Small businesses; While subsection 8 states that as from 1988 all companies engaged in trade or business with a turnover of N500,000.00 and below qualify as small and medium enterprises.
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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 ONE - [ Total Page(s): 4 ]Taxation can help small business to get a high profit target bearing in mind that they will pay tax from the profits they make. From the above assertion, it is obvious that taxation has some impact on the establishment of small business. In the economy, there are manipulations of taxation rules for the encouragement of small business. This research work is an attempt to Enquirer whether a high incidence of corporate tax will go a long way to reducing the number of small business establishments w ... 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---
