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THE EFFECT OF COMPANY INCOME TAX ON
NIGERIA ECONOMY
ABSTRACT
The
contributions of Company Income Tax (CIT) to any economy globally cannot be overemphasized.
Apart from the revenue function it performs for the government, it is also used
to assist the national government to achieve the country’s macro-economic
objectives in the areas of fiscal and monetary policies. It has been observed
over the years in Nigerian economy that the taxation derived from companies has
been grossly understated due to the improper administration of Nigerian tax
system in the collection and assessment of companies in any fiscal year.
Companies are known to be evading tax which is criminal in nature and also
avoiding tax due to the various loopholes in the tax laws. Non-compliance with
tax rules and regulations has been a bottle neck which is a key factor in the
ineffectiveness in the management of Nigerian tax system. The main objective of
this paper is to explore the relationship between company income tax in Nigeria
and economic development of the nation. Primary and secondary data were applied
in carrying out this research work. The findings reveal that there is a significant
relationship between company income tax and Nigerian economic development, tax
evasion and avoidance are major hindrances to revenue generation, on compliance
with tax laws on the part of the tax payers are a hindrance and ineffective tax
administration has given enough loop holes to poor generation of this major
source of income. We recommend among others the computerization of the
integrated tax operations for enhancement in revenue collections.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
According to
Black Law Dictionary, tax is a rateable portion of the produce of the property
and labor of the individual citizens, taken by the nation, in the exercise of
its sovereign rights, for the support of government, for the administration of
the laws, and as the means for continuing in operation the various legitimate
functions of the state.
The
Institute of Chartered Accountants of Nigeria (2006) and the Chartered
Institute of Taxation of Nigeria (2002) view tax as an enforced contribution of
money enacted pursuant to legislative authority. If there is no valid statute
by which it is imposed; a charge is not tax. Tax is assessed in accordance with
some reasonable rule of apportionment on persons or property within tax jurisdiction.
Sanni (2007)
advocated tax an instrument of social engineering which can be used to
stimulate general or special economic growth. Company income tax is a structure
among the various tax structures in Nigerian economy.
By virtue of
section 8 (1) of the Companies Income Tax Act (CITA) 1990, taxes are payable as
specified upon profits of any company accruing in, derived from, brought into,
or received in Nigeria in respect of amongst others, any trade or business for
whatever period of time the trade or business may have been carried out. The
current rate of companies’ income tax is 30% of assessable income.
According to
Akpotoboro (2009) deemed tax is primarily payable on profits at the companies
income tax rate of 30%. However, as foreign companies liable to such tax do not
ordinarily operate in Nigeria, and thus account to the Federal Board of Inland
Revenue (FBIR) with full accounts, the law permits FBIR to deem a position of
the foreign company’s turnover or gross income as profit. Therefore the deemed
income of the company will be 20% of the turnover. Such deemed income so
assessed will itself be liable to tax at the current companies tax rate of 30%,
which final assessment will amount to 6% of total income. Effectively, the
company will be assessed for income tax at 1% of its turnover, as 5% would have
been withheld. Section 57 CITA 1990 mandates companies operating in the
Nigerian Stock Exchange to file monthly returns with the Federal Board of
Inland Revenue not later than 7 days after the end of each calendar month.
Tax revenue
mobilization as a source for financing development activities in Nigeria has
been a difficult issue primarily because of various forms of resistance, such
as evasion, avoidance corrupt practices attending to it. These activities are
considered as sabotaging the economy and are readily presented as reasons for
the underdevelopment of the country. Government exists in order to effectively
collect taxes from available economic resources and make use of same to create economic
prosperity such that available and willing human and other resources are
gainfully employed, infrastructures provided, essential public services (such
as the maintenance of law and order) put in place etc, tax resistance only
makes these goods unattainable. Following some reasoning, changing or
fine-tuning tax rates is used to influence or achieve macroeconomic stability.
Some of the most recently cited examples are the governments of Canada, United
States, Netherland, United Kingdom, who derive substantial revenue from Company
Income tax, Value Added Tax, Import Duties and have used same to create
prosperity (Oluba 2008).
In Nigeria
the contribution of tax revenue especially company income tax has not met the
expectations of government. Government has equally expressed this
disappointment and has accordingly vowed to expand the non-oil tax revenue.
According to
Amadasu (2001), most taxes serves for more than one purpose but a single
dominant of tax to regulate in a macro sense.
Tax on consumption of liquor/tobacco
and tax to regulate flow of resources from one sector to another respectively.
In the actual sense, the system helps
to stabilize the economy. A good tax system should have a desirable effect on
the economy, on the same vein it is believed that tax system in Nigeria have
equity, as value judgment in this orientation and it was further interpreted
equal should be treated equally Amadasu (2001).
Further explanation shows that the
progressive and the proportional or regressive rate aspect of taxation.
It shows that if the base increase
and the rate increase. It is progressive. If it is the other way around, is
regressive (the rate increase and the base decrease) and when the base in
crease and the rate is constant it is proportional.
1.2
STATEMENT OF THE PROBLEM
In view of
the criticism of taxation in the recent years and with increasing exposure to
professional negligence in a climate of improving standards tax assessment in
Nigeria has become problem because of:
Insincerity
of the collectors – majority of them are after their personal gain and are
ready to receive bribe no matter how small from tax payers in place of actual
amount they are supposed to pay.
False
declaration of income - many workers especially those in private firms do not
declare their real incomes.
Improper
book of account – majority of the traders keep improper or no book of account
at all.
Tax evasion
– many people do not fulfill their civic responsibilities by paying tax as when
due.
Ignorance of
importance of taxation – many people as a result of ignorance think that the
money is for the tax collectors and therefore, refused to pay tax.
Mismanagement
of government fund – embezzlement and misappropriation of government fund by
those at the corridors of powers may kill people’s enthusiasm to fulfill their
civic obligation of paying tax.
Lack of
provision of Amenities – many people with the belief that the money they pay as
tax is used only for provision of social amenities will resist payment of tax
if these anticipated amenities are not provided.
1.3
OBJECTIVE OF THE STUDY
The
following are the objectives of the study
1. To identify the economic contribution of
company’s income tax to the development of the national economy.
2. To access the impact of company income tax
to Nigerian economic growth.
3. This study helps to identify the
importance of taxation particularly company income tax in Nigeria.
4. To identify the nature of company income
in practice in Nigeria.
5. To examine whether there is any
significant relationship between company income tax and Nigerian economic
development.
1.4 RESEARCH
HYPOTHESIS
Based on the
foregoing, the following research hypotheses formulated will be empirically
tested and the result gotten will serve as a spring board for recommendations.
The Null hypothesis will tested against the Alternative hypothesis. These are
as follows:
Null
Hypothesis (Ho): there is no significance relationship between company income
tax and economic growth.
Alternative
Hypothesis (Hi): There is a significance relationship between company income
tax and economic growth.
Null
Hypothesis (Ho): company income tax does not contribute significantly to the
development of Nigerian economy.
Alternative
Hypothesis (Hi): company income tax contributes significantly to the
development of Nigerian economy.
1.5
SIGNIFICANT OF THE STUDY
This study
will serve as an enlightener to the general public on the importance of tax
payment particularly company income tax.
Tax collectors will find this study
useful as some of the problems being faced are solved; in addition, accounting
and management students will be adequately informed on the impact of company
income tax on an economy like Nigeria. Hence, this work is to specifically to
explain in detail the impact of not only company income tax but also taxation
in general.
1.5 SCOPE OF THE STUDY
This study
is limited to the impact to company income tax in relation to economic growth
in Nigeria.
This study deals specifically on how
tax particularly company income tax enhances the performance of economic
development in Nigeria.
1.6
METHODOLOGY
Methodology
in research refers to the methods, produces of modalities by which the
researcher tends to accomplish the objective of his research work
This study involved the analysis of
data collection from both primary and secondary sources, the primary sources
are:
a. Questionnaires
b. Interview
The
secondary sources are:
a. Text books
b. Journals and magazines
c. The internet.
1.7 LIMITATION OF THE STUDY
There is no
gain saying that there are no limitations in research work generally. Any
shortcoming that arises in this study is as a result of factors which acted as
a limitation to this research work.
Therefore, it will be of more
importance to highlight certain militating factors that tend to narrow or limit
my scope of study. Some of these factors are:
Ø Time
factor: time was not enough to consult various sectors of the economy to give
out questionnaires to various companies on the effect and impact of company
income tax on the economy.
Ø Finance:
this is another barrier that limited the researcher’s scope of the study.
1.8 DEFINITION OF TERMS
Taxation:
Taxation refers to a compulsory payment of money periodically by private
individual, institution or groups to the government.
Efficiency:
This is a fact of performance which relate to the rate of resource utilization
(i.e. cost incurred in the course of the work. Ovuorie G (1997).
Policies:
Koontz, O Donnell and Weihrich (1980) define policies as a general statement or
understanding which guide thinking in decision making; the essence of policies
is the existence of discretion, within certain limits in guiding decision
making.
Cause: It is
a kind of knowing or finding out the problems facing a particular situation or
a thing.
Effects:
this can be defined as the effect of a situation or a thing. It could be a
positive effect or negative effect.
Inadequate:
It is a situation where there is an insufficient or inappropriate amount of
something in relation to another.
Financial
Capacity: It is the level of finance or amount of money available for an
organization, individual or government.
Economic
development: According to Aigbomian D.O et al (2008), Economic development is
defined as the full utilization of all the available resources in every sector
in an economy in such a way that will increase the standard of living and
enhance economic growth of the economy.
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