Taxation is one of the most important fiscal policies a government, such as Nigeria’s, may implement to promote economic stability and finance capital expenditures. The government imposes various taxes on the income, wealth, or gains of individuals, families, and businesses for the general public’s benefit. From the perspective of the student researcher, tax is a financial charge or other levy imposed by a state on a tax payer, who may be an individual or a legal business, and failure to pay is penalized by law. Consequently, taxation cannot be viewed as a voluntary payment or donation, but rather as a compelled contribution exacted by legislative authority. In a modern taxation system such as Nigeria, taxes are levied in money that can be used for a variety of services or purposes, including public order, protection of lives and property, economic infrastructure treatments such as roads, public works, social engineering, and the running of government (Carrol, et al 2000). This project studies the consequences of various taxation on the survival of businesses in Nigeria.
1.1 Context of the Study
Taxation is one of the most important fiscal strategies a government may employ to create economic stability and fund capital expenditures. The government imposes various taxes on the income, wealth, or gains of individuals, families, and businesses for the general public’s benefit. From the perspective of the student researcher, tax is a financial charge or other levy imposed by a state on a tax payer, who may be an individual or a legal business, and failure to pay is penalized by law. Consequently, taxation cannot be viewed as a voluntary payment or donation, but rather as a compelled contribution exacted by legislative authority. In a modern taxation system such as Nigeria, taxes are levied with funds that can be used for a variety of functions or purposes, including expenditures on public order, protection of lives and property, economic infrastructure cures such as roads, public works, social engineering, and the operation of government (Carrol, et al 2000).
The government collects taxes from a variety of sources, including personal income tax, corporate income tax, capital gain tax, property tax, education tax, and task tax, to name a few. In an effort to increase money and boost Nigeria’s economic development, the Nigerian government has subjected numerous businesses to multiple taxes that they are required to pay, regardless of the industry in which they operate, or face the wrath of the law. Multiple taxes was highlighted in a poll conducted by the Manufacturers Association of Nigeria (MAN1) and the Centre for International Private Enterprise (ICIPE) as the greatest hindrance to private sector business growth in Nigeria (Anyamvu, 2012). The survey established the relationship between multiple taxation in the pilot state across the three levels of government and reaffirmed its detrimental effects on the growth of the private sector and Nigerian enterprises. According to the report, multiple taxation could result in divestment and imperil foreign direct investment coming into Nigeria, while negatively impacting the competition and survival of current enterprises. In addition, it was determined that the majority of businesses in Nigeria now view the tax climate as unfavorable and deterrent to business, noting that it causes both the government and private firms to lose man hours.
According to Osagie (2012), Nigeria’s tax environment, particularly its policy on multiple taxation, raises the cost of conducting business in the country. As a matter of fact, certain businesses, especially manufacturing firms, have ceased operations and, in some instances, have relocated their plants to other West African nations that are seen as more investment-friendly. This project studies the consequences of various taxation on the survival of businesses in Nigeria. Recent global economic growth has been strongly correlated with the operations of Small and Medium-Sized Enterprises (SMEs), particularly in developing nations. According to a study conducted by the Federal Office of Statistics, 97% of Nigeria’s economy is comprised of small and medium-sized businesses (Ariyo, 2005). Although smaller in size, they are the most significant businesses in the economy because, when all their individual effects are summed, they outweigh those of the larger businesses. The economic and social benefits of small and medium-sized businesses cannot be emphasized. Panitchpakdi (2006) views small and medium-sized enterprises as a source of employment, competitiveness, economic dynamism, and innovation, which fosters the entrepreneurial spirit and the dissemination of skills. SMEs contribute to a more equitable distribution of wealth since they have a broader geographic footprint than large corporations. Small and medium-sized firms have served as a vehicle for job development and the empowerment of Nigeria’s citizenry over the years, creating approximately fifty percent of the country’s jobs and contributing to the construction of local capital. They are very innovative, leading to the usage of our natural resources, which in turn contributes to a rise in national wealth through increased production. Small and medium-sized businesses have unquestionably improved the level of living for so many people, particularly in rural areas (Ariyo, 2005). Nonetheless, the mortality rate of these tiny businesses is extremely high. According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), 80 percent of SMEs fail before their fifth anniversary. Among the causes of these untimely closures are tax-related concerns, such as multiple taxation and excessive tax obligations, etc. Many government laws perceive and treat small and medium-sized businesses in the same manner as giant firms. However, their size and character distinguish them. Therefore, while dealing with small and medium-sized businesses, these characteristics must be taken into account. How these tax policies can be tailored to encourage the growth of SMEs and the most efficient means of administering them must be taken into account when levying taxes on these businesses in particular. Often overlooked is the significance of small and medium-sized enterprises (SMEs) as an economic growth and development mechanism. They are viewed as little businesses with a negligible impact on the economic climate. However, the SME sector has the greatest potential to revolutionize our economy provided a conducive regulatory environment is created for their growth. Similarly, taxes are essential to the government because they are the primary source of revenue for government expenditures. Individuals and businesses are taxed to fund government operations and provide infrastructure such as roads, water, and power, which are vital for the proper operation of these firms, which are primarily manufacturing companies and as such rely on these commodities to thrive. Nevertheless, according to Holban (2007), taxation can contribute to development and welfare in three ways: It must be able to generate sufficient funds for financing public services and social transfers at a high level of quality; it must provide incentives for more employment and an efficient and sustainable use of natural resources; and it must be able to reallocate income. In the case of small and medium-sized enterprises, however, taxation must take their income and survival needs into account. It is prudent to grant them sufficient profits for the purpose of expanding their enterprises. The tax policy must not encourage small and medium-sized enterprises to continue in the informal sector or to evade or avoid paying taxes. In addition, the perceived benefits outweigh the perceived costs for many small businesses in Africa, particularly Nigeria, who prefer to remain in the informal sector. Companies rarely experience the benefits of their tax contributions, and the compliance expenses are substantial, which discourages compliance. The expense of monitoring and collecting tax from small enterprises by revenue authorities, whose resources are typically limited, can sometimes exceed the revenues generated by small businesses (Stem and Barbour 2005).
Taxation is the obligatory transfer or payment of funds from private persons, institutions, or organizations to the government. It may be applied as a surcharge on pricing based on wealth or income. Therefore, taxes are a share of a country’s land and labor output that is allocated to the government. Multiple taxation, on the other hand, is the government’s imposition of various forms of taxes that could have been collected under a single major tax form. Occasionally, some taxes are referred to as levies. In the perspective of this book, however, all mandatory payments paid by individuals and institutions to the government… are considered taxes. Taxes are the primary source of government revenue, enabling them to carry out their duties. This is why Ojo (1996) defined tax as a method by which the government appropriates a portion of the private sector’s income and expenditures as its revenue for the purpose of meeting recurrent expenditures and creating public capital formation for the development and growth of goods and services-of the economy. A good tax has the following characteristics: fairness, convenience, simplicity, low collection costs, and minimal distortions. Musgrave (1980) stated that taxes should be chosen so as to avoid interference with economic decisions in markets that are otherwise efficient. The imposition of excessive burdens should be kept to a minimum. Again, a good tax system should allow for efficient and non-arbitrary administration and be easily understood by taxpayers.
1.2 DESCRIPTION OF THE PROBLEM
Government imposes taxes on its citizens in order to fulfill its responsibilities of providing social infrastructures and other development initiatives for its citizens. This is accomplished by the several levels of government-Federal, State, and Local-in accordance with their respective budgetary authorities (Tax Powers). Nonetheless, economic agents should be concerned about the rate at which the relevant governments increase existing levies. State and local governments are busy introducing new taxes and increasing the rates of existing taxes, while the federal government demands a stable general price level, an increased rate of Gross Domestic Product (GDP) growth, and an increase in employment opportunities through the establishment of small-scale enterprises. In light of this, the researcher plans to examine the impact of multiple taxation on the growth and development of small scale enterprise in Nigeria.
1.3 PURPOSE OF THE STUDY
This study’s primary purpose is to determine how various taxation affects the growth and development of small-scale firm in Nigeria. To aid in the effective completion of the study, the researcher aims to achieve the following sub-goals: i. To determine the effect of multiple taxation on the survival of businesses in Nigeria.
ii) To determine the relationship between multiple taxation and business growth.
iii) Examine the impact of multiple taxation on the profitability of small-scale business
iv) Determine the effect of multiple taxation on the failure of small-scale businesses.
1.4 RESEARCH HYPOTHESES
To aid in the completion of this study, the researcher has developed the following research hypotheses:
Multiple taxation has no substantial effect on the survival of businesses in Nigeria.
Multiple taxes has no meaningful association with the growth of small-scale enterprise in Nigeria.
There is a clear correlation between multiple taxation and the expansion of small businesses.
1.5 Importance of the Research
At the conclusion of the study, it is anticipated that the findings will be of considerable use to the joint tax board and the federal inland revenue agency in assessing and collecting taxes from small-scale enterprises in order to reduce double or triple taxation. The purpose of the study is to remind state board of internal revenue and local government revenue collectors of the dangers of multiple taxation on small scale firm. The study will also be useful to scholars who wish to conduct similar research, as it will serve as a roadmap for their work. The project will ultimately benefit academic students and the broader public.
1.6 RADIUS AND RESTRICTIONS OF THE STUDY
The scope of the study encompasses the impact of various taxation on the expansion and growth of small-scale enterprises in Nigeria. However, in the course of the investigation, the researcher encountered obstacles that limited its reach.
The research material supplied to the researcher is insufficient, consequently limiting the scope of the investigation.
b)Time: The time allotted for the study does not allow for a broader scope because the researcher must mix it with other academic activities and examinations.
(c)Finance: The available funding for the research does not allow for a broader scope, as the researcher must also pay for other academic expenses.
1.7 DEFINITION OF TERMS
Tax: A tax is a monetary charge or other levy imposed on a taxpayer (an individual or legal entity) by a state or its functional equivalent to finance various public expenses. Failure to pay, tax evasion, or tax resistance is typically penalized by law.
Taxation refers to the obligatory or coercive collecting of funds by a levying authority, typically the government. The phrase “taxation” encompasses all sorts of mandatory levies, including income, capital gains, and estate taxes.
Small Scale Enterprise: Sometimes referred to as a small business, a limited-scale enterprise is a business with a small number of employees and low sales volume. Such businesses are typically owned and operated privately as single proprietorships, companies, or partnerships.
1.8 STRUCTURE OF THE STUDY
This study project is divided into five chapters for simple comprehension: The introduction comprises the (overview, of the study), statement of problem, aims of the study, research question, significance or the study, research methodology, definition of terms, and historical context of the study. The second chapter discusses the theoretical framework upon which the study is founded, as well as the relevant literature. The third chapter discusses the study’s research strategy and methodology. Chapter four focuses on data collection, analysis, and findings presentation. The fifth chapter provides a summary, conclusion, and study recommendations.