THE EFFECT OF COMPANY INCOME TAX ON NIGERIA ECONOMY
ABSTRACT
The importance of Company Income Tax (CIT) to the global economy cannot be overstated. In addition to generating money for the government, it also assists the national government in achieving its macroeconomic objectives in the fields of fiscal and monetary policies.
Over the years, in the Nigerian economy, it has been noticed that the taxation obtained from firms has been greatly understated due to the inefficient administration of the Nigerian tax system in the collection and assessment of corporations in any fiscal year.
Companies are notorious for tax evasion, which is criminal in nature, and tax avoidance due to the numerous tax law loopholes. Noncompliance with tax rules and regulations has been a significant role in the inefficiency of the Nigerian tax system management.
The primary purpose of this research is to investigate the connection between corporation income tax in Nigeria and national economic development. In doing this research, both primary and secondary data were utilized. The findings indicate that there is a significant relationship between company income tax and Nigerian economic development, that
tax evasion and avoidance are major impediments to revenue generation, that tax payer compliance with tax laws is a hindrance, and that ineffective tax administration has provided sufficient loopholes for the poor generation of this major source of revenue. We advocate, among other measures, the computerization of integrated tax procedures to improve revenue collection.
CHAPTER ONE
INTRODUCTION
1.1 CONTEXT OF THE STUDY
Tax, according to the Black Law Dictionary, is a rateable portion of the produce of the property and labor of the individual citizens, taken by the nation, in the exercise of its sovereign rights, for the support of government, for the administration of the laws, and as the means for maintaining the various legitimate functions of the state.
According to the Institute of Chartered Accountants of Nigeria (2006) and the Chartered Institute of Taxation of Nigeria (2002), tax is a compelled monetary contribution legislated by legislative power. If a charge is not imposed by a valid statute, it is not a tax. On persons or property within the taxing authority, tax is apportioned in line with some reasonable rule.
Sanni (2007) argued that taxes are a tool of social engineering that may be utilized to boost general or targeted economic growth. Company income tax is one of the several tax schemes utilized by the Nigerian economy.
In accordance with section 8 (1) of the Companies Income Tax Act (CITA) of 1990, specified taxes are payable on the profits of any company accruing in, derived from, brought into, or received in Nigeria in respect of, among other things, any trade or business, for whatever period of time the trade or business was conducted. The current corporate income tax rate is thirty percent of taxable income.
According to Akpotoboro (2009), the majority of considered tax is paid on earnings at the company’s income tax rate of 30%. The law allows the Federal Board of Inland Revenue (FBIR) to consider a position of the foreign company’s turnover or gross income as profit, as foreign enterprises subject to this tax do not normally operate in Nigeria and therefore submit complete accounts to the FBIR.
Therefore, the company’s presumed income will equal 20% of its revenue. This assessed considered income will be subject to tax at the current corporate tax rate of 30%, resulting in a final tax liability of 6% of total revenue.
Effectively, the company will be assessed income tax equal to 1% of its revenue, as 5% would have been withheld. Section 57 CITA 1990 requires companies trading on the Nigerian Stock Exchange to submit monthly returns to the Federal Board of Inland Revenue within seven days of the end of each calendar month.
Mobilization of tax revenue as a source of funding for development operations in Nigeria has been a difficult issue, mostly due to resistance in the form of tax evasion, avoidance, and corrupt practices. These actions are viewed as economic sabotage and are frequently cited as reasons for the country’s underdevelopment.
Government exists to effectively collect taxes from available economic resources and utilize same to create economic prosperity such that available and willing human and other resources are gainfully employed, infrastructures are provided, and essential public services (such as the maintenance of law and order) are provided; tax resistance renders these goods unobtainable.
Changing or fine-tuning tax rates is used to impact or attain macroeconomic stability, based on some argument. Recent examples include the governments of Canada, the United States, the Netherlands, and the United Kingdom, which have employed Company Income tax, Value-Added Tax, and Import Duties to foster economic growth (Oluba 2008).
In Nigeria, the contribution of tax revenue, particularly corporate income tax, has not matched the government’s objectives. Government has also voiced its unhappiness and has committed to increase non-oil tax collection as a result.
According to Amadasu (2001), the majority of taxes serve multiple purposes, but the primary function of tax is macroeconomic regulation.
Tax on alcohol/tobacco consumption and tax to restrict the movement of resources from one sector to another.
In reality, the system aids in the stabilization of the economy. A good tax system should have a positive impact on the economy, and it is believed that Nigeria’s tax system is equitable. Amadasu took this to mean that everyone should be treated fairly (2001).
The progressive and proportional or regressive rate aspects of taxation are explained further.
It indicates that if both the base and the rate grow, the rate will increase as well. It is advancing. If the base decreases and the rate increases, the relationship is regressive; when the base increases and the rate remains constant, the relationship is proportional.
1.2 DESCRIPTION OF THE PROBLEM
Due to the criticism of taxation in recent years and the increased exposure to professional carelessness in a climate of rising standards, tax assessment in Nigeria has become problematic for the following reasons:
The majority of tax collectors seek personal benefit and are willing to accept bribes, no matter how modest, from tax payers in lieu of the amount they are required to pay.
False declaration of income – many employees, particularly those in private companies, do not report their true incomes.
Incorrect books of account — the majority of traders maintain inaccurate or no books of account.
Many individuals do not fulfill their civic duty by paying taxes on time.
Ignorance of the significance of taxation — as a result of ignorance, many individuals believe that the money is for tax collectors and refuse to pay tax.
Mismanagement of government funds — theft and misuse of government funds by those in the corridors of power – may discourage citizens from fulfilling their civic duty to pay taxes.
Absence of Amenities – Many individuals who believe that the money they pay in taxes is used solely for the provision of social amenities would refuse to pay taxes if these amenities are not delivered.
1.3 PURPOSE OF THE STUDY
The following are the study’s objectives:
To determine the economic contribution of corporate income tax to the growth of the national economy.
Assess the impact of corporation income tax on economic growth in Nigeria.
This paper identifies the significance of taxation, specifically corporation income tax in Nigeria.
To determine the nature of firm revenues in Nigeria.
5. Determine if a meaningful relationship exists between corporate income tax and Nigerian economic growth.
1.4 RESEARCH HYPOTHESIS
On the basis of the preceding information, the following research hypotheses will be empirically investigated, and the results will serve as a basis for making suggestions. The Null hypothesis is compared to the Alternative hypothesis. These are listed below:
There is no correlation between corporate income tax and economic growth that is statistically significant.
There is a significant correlation between corporate income tax and economic expansion.
The corporation income tax does not considerably contribute to the development of the Nigerian economy.
Alternate Hypothesis (Hi): corporate income tax considerably contributes to the growth of the Nigerian economy.
1.5 IMPORTANCE OF THE STUDY
This study will educate the general population on the significance of tax payment, specifically corporate income tax.
In addition to informing accounting and management students on the impact of company income tax on an economy like Nigeria, this study would be valuable to tax collectors as it solves some of the challenges they face. Consequently, the purpose of this paper is to illustrate in depth not just the effects of company income tax but also those of taxation in general.
1.5 RADIUS OF THE STUDY
This analysis is limited to the impact of Nigeria’s corporate income tax on economic growth.
This study focuses on how taxation, primarily corporate income tax, contributes to Nigeria’s economic development.
1.6 METHODOLOGY
Methodology in research refers to the methods, products, and modalities that the researcher employs to achieve the goal of his research.
This study included the examination of data gathered from both primary and secondary sources, with the primary sources being:
a. Questionnaires
b. Interview
These are the secondary sources:
a. Academic textbooks
b. Journals and periodicals
c. The internet
1.7 LIMITATION OF THE STUDY
There is no benefit to asserting that there are no restrictions for research in general. This study’s shortcomings are due to factors that acted as constraints on this research.
Therefore, it will be more important to identify the characteristics that likely to restrict or limit the scope of my research. Among these elements are:
Time factor: there was insufficient time to consult various economic sectors and distribute questionnaires to various companies regarding the effect and impact of company income tax on the economy.
Finances: another hurdle that restricted the researcher’s study scope.
1.8 DEFINITION OF TERMS
Taxation refers to the periodic payment of money by private individuals, institutions, or organizations to the government.
Efficiency is a performance characteristic that relates to the rate of resource use (i.e. the cost spent throughout the course of activity). Ovuorie G (1997).
Koontz, O’Donnell, and Weihrich (1980) define policies as a broad statement or concept that guides decision-making thought; the essence of policies is the existence of discretion, within certain boundaries, in guiding decision-making.
Cause is a kind of recognizing or discovering the issues confronting a given situation or entity.
This can be defined as the result of a circumstance or object. It could have either a favorable or bad effect.
Inadequate refers to a situation in which a quantity of one thing is insufficient or improper in respect to another.
Financial Capacity refers to the degree of finances or amount of money available to an individual, organization, or government.
According to Aigbomian D.O. et al. (2008), economic development is the application of all available resources in every sector of an economy to raise the standard of life and boost economic growth.
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