THE EFFECT OF TAXES ON DIVIDED POLICY OF BANKS IN NIGERIA (A STUDY OF FIRST BANK OF NIGERIA PLC ENUGU)
This research work is concerned with the Effect of Taxes on Dividend Policy of Banks in Nigeria. Nigeria banks operate in an environment that is rarely the same with their foreign counter – parts. Thus the purpose of this study is to reveal how propounded dividend policy models could apply to banks in Nigeria and the impact of taxes on dividend payout in the banks. The research methodology used in this research was the quasi-experimental design, while the sampling procedure adopted was basically the simple random sampling method. The analysis of data in this research was based on certain statistical tools including the chi-square (X²).The findings showed that taxes have a great influence on the dividend pay-out of companies. It also showed that shareholders are normally concerned about the payout ratio of their companies. It was therefore recommended that companies should not neglect the payment of taxes as this would lead to enhanced business environment and profitability in the long –run. Government on its own part should also make policies that would not lead to multiple taxation so that these indigenous banks can grow. This growth will lead to economic stability.
1.1 OVERVIEW OF STUDY
Tax is a compulsory levy imposed by government on the incomes of individuals and corporate organization for the performance of its duties of social welfare and security. In other words, it is a levy imposed by the government against the income, profit or wealth of the individuals, partnership and corporate organization. (Ochiogu 2001:1). For government it is dispensable for it to provide all the important amenities which are needed to make life worth living. Some of the services performed by government include: maintenance of law and order, defense, basic education, health services, pipe-borne water, road construction etc. If any of these services is not provided, our lives and economy (i.e. business environment) would become worse off. Therefore the government tries to generate the funds to carry out these activities through taxation.
Every corporate organisation is expected as a requirement to pay taxes as one of its corporate social responsibilities. Dividend policy on the other hand forms a major financial decision often faced by management of corporate organisations in their pursuit of maximizing the value of their organisation. Dividend policy allocates the earnings between payment to shareholders and reinvestment in the firm. A lot of controversies regarding taxes ad dividend policy have attracted many academic interests. Some scholars are of the opinion that taxes affect organisational corporate dividend policy. If this speculation is true, changes in corporate dividend policy would be expected whenever the government changes its income tax policy (Wu 1996). However, this is not the case in the banking business. Linter (1996:12) asserted that the major determinants of dividend policy are the anticipated future earning and the pattern of past dividend.