EFFECT OF MULTIPLE TAXATION ON SMALL AND MEDIUM SCALE ENTERPRISE
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EFFECT OF MULTIPLE TAXATION ON SMALL AND MEDIUM SCALE ENTERPRISE
Chapter one
INTRODUCTION
1.1 Background of the Study.
Taxation can be defined as the involuntary transfer of funds from private persons, institutions, or groups to the government. It can be levied on wealth or income in the form of a price surcharge. Taxes are thus a part of a country’s agricultural and labour output placed at the disposal of the government.
Multiple taxation, on the other hand, refers to the government imposing various sorts of taxes on the people that could have been combined into a single large tax form. Some taxes are named as first-time levies.
However, in the context of this work, any forced payments made by individuals and institutions to the government are considered taxes. Taxes generally provide a basis for government revenue, assisting them in carrying out their functions.
As a result, Ojo (2003) defined tax as a means by which the government appropriates a portion of the private sector’s income and expenditure as revenue for the purpose of meeting recurrent expenditure and creating public capital formation for the development and growth of the economy’s goods and services.
A good tax has the following characteristics: fairness, convenience, simplicity, minimal collection costs, and minimal distortion. According to Musgrave (2000), taxes should be chosen in such a way that they do not interfere with economic decisions in otherwise efficient markets.
The imposition of additional burdens should be minimised. Again, a good tax system should allow for efficient and non-arbitrary administration while also being understandable to taxpayers.
As a result, taxes are widely recognised as playing a vital role in the development of an economy. This is the responsibility of providing funding for government spending. There are three primary goals of taxation.
These include government revenue generation, economic regulation, and income and employment control. A tax, while imposed for the purposes stated above, has an impact on the taxpayer’s behaviour as well as some variables inside his income and consumption functions.
Small-scale firms have several definitions due to the many criteria used by different people and institutions to define them. There is no single, widely accepted definition of a small-scale firm. Firms differ in terms of capitalization, sales, and employment.
As a result, definitions based on scale metrics (number of employees, turnover, profitability, net worth, etc.). When applied to one sector, all enterprises may be defined as small, yet using the same size criterion to another area may yield a different outcome.
However, here are various definitions of small-scale enterprises: A World Bank document (Report number 7114) on Nigeria from 1998 categorised small and medium-sized firms as those with a total fixed asset (excluding land) plus cost of investment of less than ten million naira at the 1985 price. Mead (1994) defined a small-scale enterprise as one that employs fewer than 50 people and sells at least half of its output.
Bolton committee (2000) developed an economic definition of small scale enterprises as firms that match the following criteria:
It has a relatively tiny portion of their market shares.
It is administered by owners in a personalised approach, rather than through the channel of a formalised management structure.
It is independent in the sense that it is not a subsidiary of a larger corporation.
The Central Bank of Nigeria (2002) defined SMSES as a company having a capital investment of no more than 200 million naira. According to the National Council of Industries (2003), small scale firms are projects with capital investments of more than 1.5 million naira but less than fifty million naira and/or a workforce of 11 to 100 workers.
However, the United States Committee for Economic Development provides a more widely accepted definition of SMSEs. It defined SMSEs as any enterprises characterised by at least two of the following features:
1. Management is dependant – managers are typically the owners.
2. Capital is supplied and ownership is retained by a person or small group;
3. Area is localised; while workers and owners are from the same house or town, the market does not have to be local; and
4. The firm’s size is tiny in comparison to its industry.
In truth, the concept of small scale enterprise, also known as small and medium-sized enterprises, is rather dynamic, hence there is no general definition of SMSES.
In this context, small and medium-sized firms are defined as any company organisation with a working capital ranging from 150 thousand naira to 10 million naira, excluding land, and fewer than fifty full-time employees.
Akwa Ibom was founded in September 1987. It is one of the country’s newly constituted states, with a population of roughly 1.2 million people and a land mass of about square kilometre, according to the 2006 population census.
The state has 31 Local Government Areas. Politically, there are three senatorial districts: Uyo, Ikot Ekpene, and Eket, respectively.
Economically, the people’s primary activity is trading, while the majority of rural dwellers work in agriculture, which is primarily subsistence. Because the state is economically booming, modern industrial establishments are limited and focused around Uyo, the state’s main city, and its surrounding areas.
There are various SMSES throughout the state. The majority of these SMSES are farming, extractive, processing, eateries, and service-oriented operations. Examples of these enterprises include block industry, poultry farming, and so on. However, the state offers a lot of potential for mineral exploration.
1.2 Statement of Problem
To fulfil her responsibility of providing social infrastructure and other development projects for her residents, the government puts taxes on them.
This is done by the several levels of government (federal, state, and municipal) in relation to their fiscal power (tax power). However, the rate at which the government increases existing taxes should concern the economic agent.
While the federal government advocates for a stable general price level, increased GDP growth, and increased employment opportunities through the establishment of small-scale businesses, the state and local governments are busy imposing new taxes and raising the rates of existing ones.
Small businesses in Akwa Ibom state pay the following taxes or levies: personal income tax, sanitation fee, business premises tax, market toll, business registration fee, hawkers permit and other types of permits, haulage fee, fire service price, development fee, advertisement fee, and so on. Some of these taxes are excessively divided into multiple types of taxes, which disadvantages enterprises.
Government agents sometimes rationalise the collecting of these taxes by claiming that the infrastructure provided by the government with tax income contributes significantly to the SMSES’s productivity rise.
SMSES providers, on the other hand, complain that the government is not providing adequate infrastructure to attract the large number of levies imposed on them.
Many advanced industrial economies around the world achieved advanced industrial development by beginning their industrial development with programmes in small-scale firms.
SMSEs contribute to long-term industrial growth by boosting the number of enterprises that emerge from the small-scale sector. Why is this tendency not noticed in Nigeria, particularly in the state of Akwa Ibom? Instead of increasing, most SMSEs are on the verge of extinction.
The government’s role is to act as a catalyst, creating an atmosphere conducive to SMSE success. Taxes should be used to promote economic progress rather than for other purposes.
Knowing full well that the effect of taxes refers to changes in the economy as a result of tax imposition, one may wonder what type of effect has multiple taxation had on SMSEs in Akwa Ibom state. How desirable or unfavourable are multiple taxation SMSEs? This therefore becomes the focus of this study project.
1.3 Research Question.
In order to meet the goal of this study, the following questions were developed:
Does the multitude of taxes imposed by lower levels of government improve or limit the operational capacities of SMEs?
Does various taxation actually boost SMEs’ productivity, or do they stifle their growth and development, as claimed by SMEs’ entrepreneurs?
Does double taxation reduce the reinvestment rate of small businesses?
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