CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
For the sake of surviving recent developments, business growth and tax policies are extremely dependent on one another. Tax laws are being reviewed with the help of various studies and research conducted by tax experts with the goal of eliminating obsolete clauses and simplifying the primary ones. For most countries, including Nigeria, having an enlightened state with a robust and stable economy is a pipe dream. Tax instalment is a manifestation of this longing, however some low-wage employees see it as a way for decision-makers to abuse their position. Taxation is a legal obligation imposed by the government on single-wage workers, associations, money-related authorities, exporters, and merchants (Murphy, 2005). Tax revenue is an important source of revenue for the government. When businesses succeed, so does the economy, because there is no faster way of resolving economic challenges without the assistance of organizations that transmit services, items, cash, and ventures from those who have and products to those who do not (Baurer, 2005). Basically, Small business companies are generally seen as critical drivers of financial success. As job creators, sales generators, and tax revenue producers, they are critical components of a healthy economy. The importance of small businesses as employment generators in Nigeria is widely recognized, particularly among those with low skill levels. Small and medium-sized enterprises (SMEs) contribute considerably to Nigeria’s gross domestic product (GDP) and employ approximately 98 percent of the private sector’s workers. In the last few years, the development has accelerated. Since the falling price of oil on the international market, taxation has become the primary source of revenue for the Nigerian government in providing public services to its citizens. Because of its significance, tax policy debates and decisions become a vital problem for the public, businesses, and the economy as a whole, due to the various effects it will have on each of these groups (Mutua, 2011). Regulations and tax regulations are cited as one of the barriers to small business expansion in Nigeria and around the world. Nonetheless, these ventures, like the rest of Nigeria’s businesses, are subject to a variety of taxes that must be paid at various stages of the business. For the sake of this discussion,
STATEMENT OF PROBLEM
The income tax rates levied on small and medium-sized businesses are inaccurate. In many cases, tax rates are calculated without taking into account an entity’s actual revenue, despite the fact that these organizations are losing money. Furthermore, since the establishment of devolved governance, business rates have been increased, raising the tax burden on most small and medium-sized businesses. Profit maximization is the primary goal of any small business. However, this is not always the case, as a large majority of them fail to meet this objective (Patricoff, 2005). The revenue collection and profitability of all entities are considerably aided by income tax administration. In an effort to broaden the state’s tax base, the tax burden.
OBJECTIVES OF THE STUDY
The overall or primary goal of this study is to look into the impact of taxes on profit levels in small businesses. The following are the precise goals:
I To determine how the rate of taxation influences the rate of investment in the economy.
ii) To look into the pace of small business expansion in relation to the various taxation rates.
iii) To assess the general attractiveness of enterprises and individuals for investment purposes as a result of taxation.
iv) To determine the numerous steps taken to enhance industrial production and financing, as well as how they have impacted the achievement of the established objectives.
v) Using relevant data acquired from a few firms, determine the impact of taxation on small businesses.
RESEARCH QUESTIONS
The following are some of the questions that this research will attempt to address:
I How has the taxation rate influenced the rate of investment in the economy?
ii) What is the rate of small business expansion in relation to the various taxation rates?
iii) As a result of taxation, what is the overall desirability of enterprises and individuals for investment purposes?
iv) What are the various steps that have been used to enhance industrial production and financing, and how has this affected the achievement of the established objectives?
v) Using relevant data acquired from some businesses, what are the effects of taxation on small businesses?
RESEARCH HYPOTHESIS
The research hypotheses that will be tested in this study are as follows:
I In Nigeria, there is no substantial relationship between tax rates and the growth of SMEs.
ii) In Nigeria, there is no significant relationship between tax policy and the growth of SMEs.
iii) In Nigeria, there is no substantial relationship between different types of taxation and the growth of SMEs.
SIGNIFICANCE OF THE STUDY
One of the most frequently debated concerns in Nigeria right now is how to tackle the country’s economic problems and build an industrial basis that will ensure self-sustaining growth. Nonetheless, while having abundant human and material resources, the country has shifted from an agricultural resources economy to a “mono prominent” economy reliant on petroleum for foreign exchange gains. Unfortunately, the country has only achieved a shaky industrial development as a result of a strategy oriented on major industries, which are capital demanding and inappropriate for the country’s resources. However, it is vital to highlight that, with the government’s help, small enterprises may bring Nigeria out of its current economic quagmire.
SCOPE OF THE STUDY
The goal of this study is to examine the impact of taxation on small businesses in a developing country. It will also look into the role of taxation.
LIMITATION OF THE STUDY
The process of gathering data for this study was fraught with challenges. In a study of nature, the majority of respondents were unwilling to share important and reliable information. Some of the people there were doubtful about the purpose for which the information provided would be used. The majority of the small businesses that were used did not keep accurate accounting and records of the taxes they paid. The researcher was unable to visit every state in the country in order to obtain information.
DEFINITION OF TERMS
A tax is a mandatory financial charge or other levy imposed by a state or its functional equivalent on an individual or legal entity, for which failure to pay is penalized by law. It is not a voluntary contribution, payment, or donation; rather, the government imposes it under the guise of import duty, exercise, and so on.
Tax rate: most taxes are calculated as a percentage. As a result, the tax rate is the percentage of an individual’s income or profit that is paid as tax.
Small-scale business: This is also known as a small-scale enterprise. It is a firm that employs a small number of people and does not generate a large amount of revenue.