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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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2) The Cost of Service Theory:
By Bowen, Some economists were of the opinion that if the state charges actual cost of the service rendered for the people, it will satisfy the idea of equity or justice in taxation. The cost of service principle can no doubt be applied to some extent in those cases where the services are rendered out of prices and are a bit easy to determine, e.g., postal, railway services, supply of electricity, etc., etc. But most of the expenditure incurred by the state cannot be fixed for each individual because it cannot be exactly determined. For instance, how can we measure the cost of service of the police, armed forces, judiciary, etc., to different individuals? Dalton has also rejected this theory on the ground that there’s no quid pro qua in a tax. (Wikipedia.org)
3) Ability to Pay Theory:
This theories was presented by Arthur Cecil, The most popular and commonly accepted principle of equity or justice in taxation is that citizens of a country should pay taxes to the government in accordance with their ability to pay. It appears very reasonable and just that taxes should be levied on the basis of the taxable capacity of an individual. For instance, if the taxable capacity of a person A is greater than the person B, the former should be asked to pay more taxes than the latter.
It seems that if the taxes are levied on this principle as stated above, then justice can be achieved. But our difficulties do not end here. The fact is that when we put this theory in practice, our difficulties actually begin. The trouble arises with the definition of ability to pay. The economists are not unanimous as to what should be the exact measure of a person's ability or faculty to pay. The main viewpoints advanced in this connection are as follows:
(a) Ownership of Property: Some economists are of the opinion that ownership of the property is a very good basis of measuring one's ability to pay. This idea is out rightly rejected on the ground that if a person earns a large income but does not spend on buying any property, he will then escape taxation. On the other hand, another person earning income buys property, he will be subjected to taxation. Is this not absurd and unjustifiable that a person, earning large income is exempted from taxes and another person with small income is taxed?
(b) Tax on the Basis of Expenditure: It is also asserted by some economists that the ability or faculty to pay tax should be judged by the expenditure which a person incurs. The greater the expenditure, the higher should be the tax and vice versa. The viewpoint is unsound and unfair in every respect. A person having a large family to support has to spend more than a person having a small family. If we make expenditure. As the test of one's ability to pay, the former person who is already burdened with many dependents will have to' pay more taxes than the latter who has a small family. So this is unjustifiable.
(c) Income as the Basics: Most of the economists are of the opinion that income should be the basis of measuring a man's ability to pay. It appears very just and fair that if the income of a person is greater than that of another, the former should be asked to pay more towards the support of the government than the latter. That is why in the modern tax system of the countries of the world, income has been accepted as the best test for measuring the ability to pay of a person.
Proportionate Principle: In order to satisfy the idea of justice in taxation, J. S. Mill and some other classical economists have suggested the principle of proportionate in taxation. These economists were of the opinion that if taxes are levied in proportion to the incomes of the individuals, it will extract equal sacrifice. The modern economists, however, differ with this view. They assert that when income increases, the marginal utility of income decreases. The equality of sacrifice can only be achieved if the persons with high incomes are taxed at higher rates and those with low income at lower rates. They favor progressive system of taxation, in all modern tax systems. (Wikipedia.org)
What is a 'Proportional Tax'
A proportional tax is an income tax system where the same percentage of tax is levied on all taxpayers, regardless of their income. A proportional tax applies the same tax rate across low, middle, and high-income taxpayers.
In contrast, the progressive tax system, adjust tax rates by incomes. A marginal rate taxing system, such as the flat tax, has a constant rate for both businesses and individual taxpayers.
BREAKING DOWN 'Proportional Tax'
In some instances, a sales tax can also be considered a type of proportional tax since all consumers, regardless of earnings, are required to pay the same fixed rate. The sales tax rate applies to goods and services, and the income of the purchaser is not a part of the equation. Other examples include poll taxes and the capped portion of the Federal Insurance Contributions Act (FICA) payroll deductions.
In a proportional tax system, all taxpayers are required to pay the same percentage of their income in taxes. For example, if the rate is set at 20%, a taxpayer earning $10,000 pays $2,000 and a taxpayer earning $50,000 pays $10,000. Similarly, a person earning $1 million would pay $200,000.
Pros and Cons of Proportional Taxes
Proportional taxes are a type of regressive tax because the tax rate does not increase as the amount of income subject to taxation rises, placing a higher financial burden on low-income individuals. A tax is said to be regressive if it has an inverse association where the average tax carries less impact on higher income individuals or businesses.
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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---
