TAXATION IN NIGERIA: IMPACT ON INVESTMENT DECISION
ABSTRACT
Decision making is only one of the tasks of an executive: it is expected to eth executive by virtue of position or knowledge to make decision that has significant impact on the entire organization, its performance and result hence, effective, instead of making many decision, concentrate on the strategic and generic ones such as those associated with taxation.
The term taxation as used in this work simply refers to a levy the government imposed on properties and income of corporations. In an organization, this levy causes a change in cash flow. This arises from the fact that some portions of profit that accrue to an organization are paid to government as required by the law. This research work therefore dwells on “the impact of taxation on business and investment decision”
Chapter one which is introduction, looks at the background of the problem purpose of this study, its assumption and scope of the study among other things.
Chapter two, the literature review, features summary of only those studies that are plainly relevant, completely executed and dearly reprinted as seen in writing of recognized authorities and previous res3arch in this problem area.
Chapter three, talks about the summary, conclusion, recommendation to the research problem.
CHAPTER ONE
1.0 INTRODUCTION
Taxation has been defined in many ways by different authors. According to P.U. Amaechima (1988: pg). It may be defined as “a levy which the government impose on the income of the citizen of corporation of a state for which the government makes on direct benefit to the tax payer” or as “a non- punitive but yet a compulsory levy by government on properties and income of individual and corporations. The government does not build a school or a hospital personally for somebody because he ha paid his taxes, but the money realized is used to finance federal government expenditure.
Every tax imposed on an organization needs continual interpretation of its specific application and effect on the various transaction of the organization. The field of taxation changes everyday, as new court rulings is announced and as laws is being made so every organization need to be at alert to such changes.
Corporate tax is a tax on the profit of corporations. After a corporation receives its revenue and deducts all its costs, it comes out with profit before corporation income tax is progressive in nature because the higher the income or profit from business activities, the higher the tax and vice versa. Since the inception of corporate tax, it has been a pervasive force tending to influence the economy decision of business. The federal government is taken about 30% of the profit of big corporation; this turn supports government development projects.
Government equally adopted certain economic measures to boost the economy. Among such measures are the rules that are designed in income revenue and accomplish other economic goals but invariable, these rules have a significant impact upon business decision.
Once an investor conceives the idea of the legal form of his business, his choice will be based on tax consideration where tax rate is negligible, an investor could afford to make decisions without regard to income tax. However, with the corporation tax rate it is wise for him to undertake the statutory demand on his income before implementing a choice of legal entity a public united company will continue to effect the residual profit made by the company.
However, income tax rules and regulations are such that informed investors can reduce he amount of tax liability through various proper and timely action. Therefore, this research work is based on finding ways of breaking through those constraints facing business organizations in order to realize their goals of profit and wealth maximization.
1.1 BACKGROUND OF THE STUDY
The Oxford Advanced Learners Dictionary defined impact as the powerful effect that something has somebody or something.
Decision making is only one of the tasks of an executive it is expected of the executive by virtue of position or knowledge to make decision that have significant impact on the entire organization. The term “taxation” as used in this work, simply refers to a levy the government imposes on properties and income of corporation.
Hence, the study is all about the effect or the role that taxation has played on both investment and business decisions. Taxes are designed as a means for government bodies to collect revenue to provide service and finance themselves. Furthermore, tax code is structured to redistributed wealth throughout the population.
1.2 STATEMENT OF THE PROBLEM
Since tax has a vital role play in business decision cannot work in isolation. Hence, some problem created by tax in business decision making include the following.
High rate of tax leads to increase in the cost of capital and with this, business cannot grow.
The effect of taxation on business has created some problems like unemployment and inflation as companies who cannot meet up the high operation costs have to lay of some workers.
Rate of taxation when high, can cause low productivity in country’s productive sector as companies may not have enough capital to go into full production capacity and also expand their products.
High rate of taxation on importation of materials or factors of production can lower the trends of business there by, making business sector to be slow in their production.
1.3 OBJECTIVES OF THE STUDY
The study is aimed at determining the effects of taxation in business decision making. Managers are responsible for business decision making and every decision taken by it affects the organization. The populace is enlightened through the study on eth relationship between taxation and business decision making.
Furthermore, this study will cost more light on taxation therefore making the subject more understandable and removing the fear bored by several business decision making regarding the subject.
It will also help to boost investment by making management aware of taxation effects thereby preparing them for tax planning, and other average achieved will enable them reduce their tax liabilities.
1.4 RESEARCH QUESTIONS
The research question will go a long way in finding possible solution to the problem and the question includes:
Question One:
What are the roles of taxation is decision making.
Question Two
What are the reaction of individuals business and firms on a high tax rate?
Question Three
What are the likely dangers of taxation?
Question Four
What are the possible means of breaking through the constraints facing business organization?
Question Five
How can a high tax rate affect the decision made by a corporate body?
1.5 SIGNIFICANCE OF THE STUDY
This study is carried out to identify the importance and role of taxation on business decision making. To find out what tax saving techniques firms are adopted to increase productivity. To examine how inflation caused by tax has created unemployment and to introduce possible ways of creating job opportunities.
Examine how companies can reinvest their fid in fixed assets so that they can enjoy capital allowance. To find out ways firms can source their capital in order to take advantages of methods of financing that can reduce their tax liability.
1.6 SCOPE OF THE STUDY
This study concentrates on taxation and its impact on business decision making. Taxation in this content includes making income tax for companies, however, such taxes like capital gain and partnership taxes will be mentioned where necessary.
1.7 LIMITATION OF THE STUDY
A research of this nature cannot be carried out without difficulties it should be noted that the aim of tax planning as a major management decision to discover loopholes in the tax law so as to reduce tax liability. However the context changes in these laws in order to cover such loopholes readers obsolete taxation textbook.
This fact makes it difficult for eth researcher to obtain standard textbooks that contain up to date information on company tax matters.
TIME: Time is one of eth factor that affect this work.
RESPONDENTS: The nature of the topic of this work also posed a problem. This topic being a sensitive matter des not attract the co-operation of company employee. So obtaining the information needed for the study was a bit difficult
1.8 DEFINITION OF TERMS
Taxation: This refers to the position of a firm’s profit that I required by law to be paid to eth government.
Effect of Taxation: This mean the impact result of taxation on profits, accounting and financed method management decision etc.
Business Decision: This refers to strategic and operational decision taken from time to time by management in order to achieve organizational goals or objectives.
Corporate Tax: This is tax on the profit of corporation.
Investor: This refers to a person who parts of money in a firm properly etc. to make a profit.
Fiscal Policies: This is the use of government expenditures, taxes borrowing and financial administration to further national economic objectives.
Monetary Policies: This is the policy which deals with the discretionary control of money supply by the monetary authorities in order to achieve stated or desired economic growth.
TAXATION IN NIGERIA: IMPACT ON INVESTMENT DECISION