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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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