THE EFFECTS OF CORPORATE TAX ON THE PROFITABILITY OF BUSINESS ORGANIZATION,
This study effect of corporate tax on the profitability of business organizations shows the result of corporate tax on company’s profit. It allows the public and corporate bodies to view and understand the importance and benefits of paying tax out of their profit. Income tax was first introduced in 1904 by Lord Lugard when he was the high commissioner for Northern Nigeria. Taxation was defined by many people such as Agyes, A.K 1983, Amaechina, P.U. 1995 e.t.c. The information for the study was collected using both primary (questionnaire) and secondary data (internet). A population of 200 was assumed and a sample of 133 was gotten using Yaro Yamines formular. All the responses gotten was analysed using tables and percentages. it was found out that there is no free flow of information about corporate tax. However, public enlightenment should be organized by the government so as to explain the need for companies to pay tax promptly and adequately, emphasizing on the benefits they stand to get.
TABLE OF CONTENTS
Title page i
Approval Page ii
Table of contents vi
List of table ix
1.1 Background of the Study 2
1.2 Statement of the Problems 6
1.3 Objective of study 7
1.4 Research Question 8
1.5 Significance of the study 9
1.6 Scope of the study 10
1.7 Limitation of the study 11
1.8 Definition of Terms. 11
2.0 LITERATURE REVIEW
2.1 Effects of Tax on Company’s profit 13
2.2 Effects in details 14
2.3 Double Taxation Argument 15
2.4 Discouragement of Company’s Investment 17
2.5 Increase in Price of Shares and Commodities 18
2.6 Tax avoidance and evasion 18
2.7 Revenue which Government Generate from Tax 23
2.8 Payment of Unnecessary fees to Influence some of the corrupt Relevant Tax authorities. 29
3.0 RESEARCH DESIGN AND METHODS
3.1 Research Design 31
3.2 Area of Study 31
3.3 Population Size 31
3.4 Sample size 32
3.5 Research Instrument 35
3.6 Validity and Reliability of Research Instrument 35
3.7 Source of Data 36
3.8 Method of Investigation 37
4.0 PRESENTATION AND ANALYSIS OF DATA
4.1 Presentation and analysis of result 38
5.0 SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Findings 47
5.2 Conclusion 49
5.3 Recommendations 49
LIST OF TABLES
Table 3.1Population Distribution Table 33
Table 4.1Perception of staff on the benefit of corporate
Table 4.2Perception of staff as regards to the relationship between unwillingness of corporate organization and ignorance of corporate tax benefits. 41
Table 4.3Perception of staff to the negative way corporate tax influence their profit. 43
Table 4.4Perception of staff on the attainment of First Bank of Nigeria PLC. objectives. 45
In Nigeria, one of their major problems is the problem of generating income through taxation. Since it is known to everyone that taxation is a way of generating income to the government, it is not suppose to be a problem especially in corporate taxation.
Developed countries like America have effective corporate tax system which has gone a long way to making their economy better. However, this tax being paid by business organization also has effects on their profit both in a positive and negative way which is the purpose of this study.
1.1 BACKGROUND TO THE STUDY
Corporate taxation serves as a vital factor in the economic planning and development of a nation as well as social change. In Nigeria, in context, income tax was first introduced in 1904 by Lord Lugard who enacted the first income tax statue when he was the High commissioner for Northern Nigeria. The colonial government in Nigeria introduced various taxes in order to tap the financial resources from the people for their own personal operations. In that situation, government taxation was an extension of the network exploitation of the colonized people.
The post colonial states unavoidably inherited and sustained taxation as one of the government sources of revenue.
Tax has been defined by so many people in the different ways. An oxford advanced learners dictionary by Hornby, A.S, (1977) sees tax as money compulsorily levied by the state or local authorities on individuals, properties, or business. Amaechina, P.U (1995) defined tax as a levy which a government imposes on the income of the citizens of a state for which the government makes no direct benefits to the tax payer (s). Tax according to Agyes A.K (1983) is the transfer of resources from private sector to public sector in order to accomplish some of the nation economic and social goals. However, the universality of taxation accounts for its description as a popular way of raising revenue by Turner and Hunt (Okoye 1998). In that light or view, Benjamin Franklin is quoted to have argued that in this world, nothing is certain but death and tax.
The corporate tax we know was introduced in 1965 in Britain. Companies are taxed at different rate from individuals and union corporate business was followed during the second world war by the recent development of this tax is attributed to the fact that until after the second world war, the corporate form of business was practically non-existing in Nigeria. Being recent, it has therefore, not received as much adequate attention from the populace as personal income tax has. However, with the growth of the economy, the corporate sectors has expanded considerably bringing more; sharply into focus the problems of taxing corporate income and at exploiting a potentially sources of revenue.
Over one thousand (1000) companies were subjected to company’s income tax in 1963 compared with only about three hundred and fifty (350) in 1960, comparing these figures with the great number of business organizations now in existence presently we have over three thousand companies which are subject to company’s income tax. Companies income tax has become crucial not only from point of view of revenue but also from the point of rivals of stimulating rapid industries. Also, this has answered one of the reasons why government has so much interest in tax as a source of revenue. The huge sum of money generated by the government from corporate tax has made them to set out several decree/Act in respect of corporate tax.
In Nigeria, the company tax Act was enacted in 1979, several amendments were made to the original ordinance of 1961 where separate laws were enacted for the tax of income and profit of both individuals and companies. Also from 1961, the law (companies income Tax Act-CITA) has followed several amendments till April, 2007 with the rate of 30% on companies profit with effect from 1st January 1996. Generally, tax is imposed on the net taxable income of a company. It is strongly believed that there are many effects on the profit of business organizations due to corporate taxation.
1.2 STATEMENT OF PROBLEM
There has been an outcry of various business organizations in Nigeria over their profit due to high level of corporate tax. Despite their tax avoidance and evasion, there is no difference. This ugly development have placed some companies where they are not suppose to be, hence, a compelling need to put an end to this situation through proper problem identification.
The problems include the following:
a. The extent to which the objectives of the companies are been achieved
b. The problem of double taxation
c. The problem of complex tax structure which has become a disincentive to business growth and profitability.
d. The problem of determining the relationship between the ignorance of tax benefits and the unwillingness of companies to pay their taxes.
e. The use of revenue collectors by the finance of Nigeria.
However, companies shall ratify these problems facing them.
1.3 OBJECTIVES OF THE STUDY
1. To identify both the negative and positive effects of corporate tax on the profitability of business organization.
2. To know the importance and benefits of this corporate tax.
3. To find out the extent to which the objectives of companies are being attained.
4. To determine the relationship between the ignorance of tax benefits and the unwillingness of companies to pay their taxes.
5. To know if and/or to what extent efforts have been made to solve the possible problems facing business organizations in Enugu state (first Bank of Nigeria PLC Enugu main branch in particular).
1.4 RESEARCH QUESTIONS
1. To what extent has corporate taxation been a great benefit to the company?
2. To what extent has the negative way influenced the profit of companies?
3. What is the relationship between the unwillingness of corporate organizations (companies) to fulfill their tax obligations and the ignorance of corporate tax benefits?
4. What is the level of the attainment of the company’s objectives in the recent past years?
1.5 SIGNIFICANCE OF THE STUDY
This research work is being undertaken in order to identify the effects of corporate tax on companies’ profit. These are hope that this study will help to correct the negative aspects of corporate tax on companies’ profit.
Furthermore, since corporate taxation is way of raising income for the government, it is important to know that it helps the government to finance its expenditures being drawn up in the budget. It also helps the government in the provision of infrastructural facilities and social amenities as well as other services. This tax also helps the company to make more profit in increment of shares etc.
Thus, this research work on this topic is very necessary in providing a lasting solution to unhealthy problem of tax avoidance and evasion through inefficient and ineffective corporate income tax administration and collection in companies in Enugu state in particular and Nigeria as a whole.
1.6 SCOPE OF THE STUDY
This research work “the effects of corporate tax on the profitability of Business Organizations (A Case Study of First Bank of Nigeria PLC)”covered an area in Enugu which is the first Bank of Nigeria in Okpara Avenue to discuss on how their profits are been affected by the tax paid to the government.
1.7 LIMITATIONS OF THE STUDY
This study which is supposed to cover the whole companies in the country was restricted to a particular company in Enugu State only because of time, finance and management constraint.
There was not enough capital to spend in transport and fact finding as well as respondents especially the branch manager not co-operating as was expected together with the reluctant of workers in different sections in answering some of the questions asked. Not withstanding, all these problems did not prevent the continuation of this research work.
1.8 DEFINITION OF TERMS
Tax: A compulsory levy imposed by government on individuals, corporate bodies, goods and services in order to finance its expenditures and create condition for the economic well being of the society.
Corporate tax: A tax imposed on the income or profits of companies operating in a country.
Corporate: People united in a group with same view and aims.
Revenue: Income generated by a country from tax paid by their citizens.
Profitability: Bringing profit which includes benefits made out of business.
Effects: The result or an outcome produced by an action.
Net taxable income: Is the financial statement of a company with modifications.
The Company Income Tax Act-CITA
A law that regulates the taxation of all limited liability companies doing business in Nigeria (Private and Public Limited Companies) other than those engaged in petroleum operations.