The Impact Of Taxation On Project Investment, With Particular Reference To Anchor Insurance Company Limited. Uyo-Akwa Ibom State As Case Study
Chapter One
Introduction
Tax is a pecuniary burden laid upon individual or property owners to support the government, the payment exerted by legislative authority is not a voluntary payment or donation, but an enforced contribution imposed (pursuant to legislative authority) by Government.
Money provided by taxation has been used by State and their functional equivalents throughout history to carry out many functions. Some of these include expenditure on war, the enforcement of law and public order, protection of property economic infrastructure such as road, legal tender. A portion of taxes also go to pay off the state debt and the interest this debt accumulated these services include education, health care system, pension for the elderly, public transportation etc.
The primary economic goal of developing countries is to increase the rate of economic growth and hence the per-capital income which will lead to high standard of living.
Since its inception taxation of corporate, income has been a pervasive force tending to influence the economic decision of business entities. One is the part of government. There have tougher economic measures in order to control the adverse economic condition of the country. Among such measure are tax revenue and accomplish other economic goals, but invariable, these rules have or significant impact upon business and investment decision.
In other words, any rational decision should be on after tax consideration basis. They are taxed heavily, sometime double taxation and one wonders whether their problem or management and development attributed to high rate of tax on investment.
This is became the double taxation on such corporation as a limited liability company will continue to affect the residual profit made by it (Walter 2003).
Therefore emphasis are directed toward the constraint. Posed by taxation to investors, and how it can be reduced.
The investors should not only be focused on returns but also on the associated risk of the investment held. However, income tax rules and regulations demand that tax liabilities should be paid on regular and timely basis. It is therefore these constraints facing business organizations that require them assess investments in line with associated risk, tax and wealth maximization objectives.
Statement Of Problems
A lot of reasons necessitate this research on The Impact of Taxation on Project Investment Decision. Taxation complicates the appraisal of a capital investment in several ways:-
The appropriate discount rate has to be chosen in order to calculate the present value of a cash flow. Theoretically where there is a perfect capital market, it access to unlimited funds and all other worth wile investment have been undertaken, the discount rate to be used should be the perfect capital market. The additional profit (or loss) generated by the project in each year is subject to income tax payment, where fiscal allowance are granted on the cost of a capital investment they are not necessarily related to the economic depreciation of that investment. This is because the government use fiscal allowance to manipulate investment in private sector.
Objective Of The Study
The main purpose of this research is geared towards achieving the following objectives:-
To assess the level of taxation Act as an incentive to project investment decision in Anchor Insurance Company, Ltd., Uyo.
To examine the effect of the other factors (example inflation) which influence investment decision.
To assess the various income tax rules and regulations on company project.
To make suggestions and recommendations on how to reduce the negative effects of taxation on investment decisions.
Significance Of The Study
The study will be of tremendous benefit to the Nigeria insurance companies at large, and other cooperate bodies, as it will provide them with a standard of best practice to insurance company for the implementation of effective and sound impact of taxation on project investment.
It will also help insurance companies to gear effort towards improving upon tax impact which need to be improved.
It would help potential investors to remedy the problems associated with taxation of corporate income
It would help to provide the necessary information at out how taxation. Implication on project investment should be managed and controlled.
Lastly, the finding would be useful for management of large-scales industry research.
Research Hypothesis
HO: Increase in tax rate does not influence the companys profitability.
HI: Increase in tax rate influences the companys profitability.
HO: Taxation does not influence capital investment decision.
HI: Taxation influences capital investment decision.
HO: Income tax rules and regulations does not affect companys income margin.
HI: Income tax rules and regulations affect companys income margin.
Definitions Of Terms
TAXATION: This is one of the instruments of fiscal policy in a capitalist economy. Also this is a means by which government finances their expenditure by imposing charges on citizen and corporate entities. O.A Lawal (1982,p110).
INVESTMENT: This is the involvement of sacrifice of current consumption opportunity in or to obtain the benefit of future consumption possibilities.
BUDGET: The Budget is the financial statement of the proposed expenditure and expected revenue of the government during a particular period of time usually one year. O.A Lawal (1982, p145).
A Budget is a systematic and comprehensive framework for recording and regulation through a central agency. Ekpung Edame (2001, p 54).
CAPITAL BUDGETING: This is a firms decision to invest its current fund most efficiently in long term activities in anticipation of an expected flow of future benefits over a series of year. Akpabio (2012, p 113).
COST OF CAPITAL: This cost of capital is the cost of raising the fund to invest in the project that is opportunity cost forgone. It is important in the investment decision, as project should only be undertaken if their return is higher than the cost of capital.
TAX: Tax is a pecuniary burden laid upon individual or property owners to support the government, it is not voluntary payment or donations but an enforce contribution imposed by government.
Ekpung Edame (2004, p 11) define tax as a compulsory levy on the citizen of a country to defray the debt or expenses incurred by the government.
IMPACT OF TAX: By impact of tax, this is the effect of a tax upon production and consumption of the good being taxed.
Scope/Limitation Of The Study
This study covers the impact of taxation on project investment restricting its scope to the Anchor insurance company limited Uyo.
The work is limited by time. The time frame allowed for the submission of the project was too short considering the process involved. Other constraints are in the areas of data collection, Luke-warm attitude of some respondents etc.
The importance of finance for the execution of the research work cannot be overemphasized as lack of adequate finance hindered some activities which would have been carried out.
Organization Of The Study
This study is organized in five of chapter, chapter one focuses on the general introduction of the study and an overview of what the entire research is all about. It contains headings such as back ground of the study research hypothesis, significant of the study, scope or limitation of the study. Also included in the organization of the study and definitions of terms.
Chapter two focuses on a review of related literature. Here heading such as introduction, taxes vs. levies, the tax system, cooperation or company income tax, imposition of tax on companies, profit exempted from corporation tax, value added tax, the concept of investment decision and the influence of the tax policy, impact of taxation etc are discussed.
Chapter three is concerned with the research methodology. It represents the procedure used in conducting the research and all the sources of that data. The method of collection used as well as the analysis technique employed.
Chapter four is based on data presentation, analysis and interpretation.
Lastly, chapter five presents findings conclusion and recommendation.
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