THE IMPACT OF TAXES ON SMALL AND MEDIUM SCALE ENTERPRISES IN AKWA IBOM STATE
CHAPTER ONE
INTRODUCTION
Background of the Study
In recent time the world economy has developed tremendously and this has been linked with activities of small and medium scale enterprise (SMEs), especially in developing countries. A study carried out by the federal office of statistics shows that in Nigeria, small and medium scale enterprise make up to 97% of the economy (Ariyo, 2005).
Over the years, small and medium scale enterprise have been avenue for job creation and the empowerment of Nigeria’s citizen providing about 50% of all jobs in Nigeria and also for local capital formation. Being highly innovative, they lead to the utilization of our natural resources which in turn translate to increasing the country’s wealth through higher productivity (Ariyo, 2005). Small and medium scale enterprises have undoubtedly improved the standard of living of so many people especially those in the rural areas of Akwa Ibom State.
Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN) Nigeria’s 80% of SMEs die before their 5th anniversary. Among the factors responsible for these untimely close-ups are tax issues ranging from multiple taxation to enormous tax burdens etc. in many government policies, small and medium scale enterprise are usually viewed and treated in the same light as large corporation. However, their size and nature makes them unique, therefore, in dealing with small and medium scale enterprise, these unique qualities need to be considered, in levying of taxes for these enterprise in particular, issues that need to be considered are how these tax policies can be designed to boast the growth of SMEs and the most effective ways to administer them. The important of SMEs as a mechanism of economic growth arid development is often ignored.
There are perceived as minute establishment that have minimal effect on the state of the economy. However, if favourable environment is created for these SMEs to grow through proper regulation, the SMEs sector has the highest propensity to transform our economy. In the same light, taxes are important for the government as they are the major source of funds for government expenditure. Income obtained from taxation of individuals and business are used to run governments as well as provide infrastructure such as good roads, water supply, and electricity which are essential for the smooth running of these business that are mainly manufacturing companies and as such rely on these commodities to survive.
The desire to build a civilized country with a strong economy is the desire of every country, states and continent at large, including a country like Nigeria. Tax payment is the demonstration of such desire, although some income earners see it as a means of exploitation by the government, tax payment is a voluntary contribution imposed by the government on personal income earners, companies, investors, exporters, importers etc. revenues realized from taxation is a major source of revenue to government of Akwa Ibom State, and Nigeria has her economy. A country’s tax policies and systems are greatly related with business ventures in that country. An economy that enacts favourable and progressive tax laws and policies will definitely breed successfully and finance healthy business organizations.
Once business flourish, the economy flourishes as well, as there is no quicker way of striving the affairs of an economy without the help of organization that move services, goods, money and investment from those with surplus to theses with deficit, those with marketable ideas and output to those who need the ideas and products. In essence, business no like small scale business and tax policies greatly depend on one another for survival, if one is greatly affected, the other follows suite.
The development of small and medium enterprise is greatly affected by the level of taxation, its administration and compliance: the higher the tax rate is, or the greater the efforts to fulfil taxation requirements are, as well as to check how those requirements are met, the lower the initiative are for SMEs to perform well. The focus of this research therefore is to examine the effects of taxation on the performance of small and medium scale enterprise the relationship between tax policy and the growth of SMEs in Akwa Ibom State, Nigeria.
1.1 Background of the Study
The Akwa Ibom State and Nigeria as a country has undergone significant changes in recent time with the help of various studies and research done by tax expert, tax laws are being reviewed with the aim of repelling obsolete provisions and simplifying the main ones under current Nigerian Law, taxation is enforced by the 3 tiers of government, that is the Federal Government, the State and the Local governments, each having its sphere clearly spelt out in the taxes and levies (Approved list for collection). Small and medium scale business is generally recognised as important drives of economic success. They are a key to ingredient in the “ecology of firms” in a healthy economy, ass job creators, sales generators and a source of tax/fiscal revenue.
In Akwa Ibom State, the importance of Small and Medium Scale Enterprises as a creator of jobs, particularly of those with a low skill level, is widely recognised, Small and Medium Scale Enterprises alongside with Micro-enterprise (SMEs) contribute 36.1% of the country’s Gross Domestic product (GDP) and employ 68.25 of the workforce in the private sector of Nigeria. In the agricultural construction and retail sectors, SMEs employ more than 80% of the workforce.
Over the last few years, the growth in employment by SMEs has exceeded the growth in their contribution to Gross Domestic Product, highlighting the job creation potential of this sector of the economy.
THE IMPACT OF TAXES ON SMALL AND MEDIUM SCALE ENTERPRISES IN AKWA IBOM STATE