THE EFFECT OF TAXATION IN BUSINESS DEVELOPMENT AND DECISION
MAKING
ABSTRACT
This study examined the effect of taxation in business development and
decision making. Taxation in business development and decision is one that
established two divides for assessment of subjects. One taxed alongside
employment and the other as a body corporate. Those taxed alongside employment
pays less, these may influence choice of forms, which may have avoidance
connotation. The study evaluates the effect of tax differential on choice of
business form of investors. The study reveals that tax differential affect
investors decision on choice of Business form and that the existing
differential reduces government revenue potential. Segregation of personal
income tax between employment and business incomes is recommended. Because of
desirability problem revealed in the study, an equal business tax could not be
recommended, rather the kind of differential that currently exist under company
income tax was recommended. Ii is expected to be applied to all the forms in an
equitable manner. The researcher used primary and secondary methods of data
collection to gather the needed data. The data obtained through questionnaires
were presented in tables and analyzed using the simple percentage. The findings
have also shown that factors which militate against successful taxation in
business development and decision making are: raising of revenue,
redistribution of wealth, management of the economy. The study recommends that Government should help to increase business operation by reducing the
high cost of tax in other to increase the economy growth of the nation.
CHAPTER ONE
1.0
INTRODUCTION
The political, economic
and social development of any country depends on the amount of revenue
generated for the provision of infrastructure in that given country. Taxes have
the characteristic of being a common source of revenue to all countries. It is
not dependent on availability of resources like could be said of oil and other
minerals revenue Hassett (1992). However, yield differs from country
to country or even region to region within a country, depending on nature’s
endowment, ability to administer and collect, and the extent to which the
revenue from it is required by the government of individual state, among other
thing. Taxes that apply to business income fall under direct taxes and under
Nigerian Law; it is administer in two forms. According to Auerbach (2002), one is assessing business income to tax only in the hand of
the owners of the businesses, which is the case when business is a sole
proprietorship or partnership. The other, taxes business income first, taken
the business as a person, and later assess the dividend received by owners from
the same business’s profit to tax. If tax is properly administered generally,
the revenue through it can improve greatly and government expenditure needs
could be better met. The place of business taxation is particularly important
in Nigeria because out of the over twenty million population only a small
fragment takes up salaried employment and more are in one trade, business or
other crafts Hubbard (2002). All these non-salaried income
earners could be classified under sole trade partnership or company, all of
whom are not discriminated against in terms of use of government provided
amenities, accessibility to labour and capital market and enjoyment of
customer-ship. However, one means of generating the amount of revenue for
providing the needed infrastructure is through a well-structured tax system.
The importance of taxation in the activities of any government cannot be
overemphasized. The world over, tax system is one major source of government
revenue, however, not every national government have been able to effectively
exploit this great opportunity of revenue generation Nzotta (2007:19). This can
be attributed to a number of reasons including the system of taxation; tax
legislation, tax administration and policy issues; over reliance on other
sources of revenue (such as foreign aid and grants), corrupt practice in the
system especially as it relates to the system of tax collection and behavoiur
of the citizens towards tax payment and ease of tax payment. According to
Ogbonna Appah (2012:7), in Nigeria, the level of tax evasion is quite high. The
effect is seen in the lack of resources for effective business development and
decision. If Nigerian Nation is to make the transaction from perpetually
development to a developed nation then they need to be tax compliant. According
to Azubike (2009:134) who also pointed out that tax system is an opportunity
for government to collect additional revenue from individual and business
dealers needed in discharging its pressing obligation. Business
development and decision can be considered one of the most important
instruments taken by financial managers, for effective business productivity if
not the most important one. The business decision making process influence the
enterprise affirmation in the business environment and increase its market
share Summers (1991:212). It concerns with the issue of capital allocation for
fixed assets or financial assets; central place returns to fixed assets,
acquired as a result of capital investment. By this decision, financial
resources at its disposal are allocated efficiently to the acquisition,
construction, modernization of fixed assets and the accumulation of material
stocks, in the appropriate volume and adequate structure for its function at
the highest parameters. Also, the available liquidities may be placed
respecting the efficiency criteria on the capital market, to purchase financial
assets. Regardless of the selected variants, the business decision should be
subordinated to accomplish the performance objectives at long-term, established
by the general policy of the enterprise. In another approach Bucataru, (2002:
22), opined that business development and decisions are those concerning the
conversion of capital money in material form such as machinery, equipment,
buildings, through operations of acquisition of these assets. Most actions of economic
entities are influenced by taxes. In order to obtain an unbiased valuation of
business development, it is essential for organizations, especially for those
who operate internationally to consider the impact of taxes. However, business
decisions are often based on very simplistic tax models. The implementation of
these concepts in the finance curriculum enables businessmen to assess the
importance of taxes, especially in cross-border investments. According to Schramm (2007:115), it pertinent to attempts to narrow the gap between research
and practice by breaking these partly complex models down and by making them
more accessible. By reducing the complex reality to its fundamental components,
this approach helps businesses to focus on the essentials and to understand the
idea behind the complex research concepts. Business decisions in all areas of
responsibility have the common goal of maximizing long-term wealth by cash flow
enhancement Foley, and Hines (2004). The business decision
making involves identifying and analyzing alternative courses of action,
including after-tax cash flows. Since the amount and timing of income tax can
vary significantly between alternatives, the impact of taxes should always be
considered in the decision-making process of all managers in business
organizations. Management’s role is to be aware of and apply known tax law, as
opposed to interpreting tax law which is the function of independent advisors.
All factors that affect profit and cash flows are relevant to a business
decision. Income tax would be one of these relevant factors and should be
addressed in the same manner as other relevant factors. Including tax
implications is not synonymous with tax avoidance. According to Klemm (2002), it is simply the inclusion of a relevant cost and, in fact,
the lowest tax alternative may not be the alternative chosen. The management
process will be enhanced when the decision maker is aware of the amount and
timing of the related tax consequences. The
effect of taxes on business development and decision is one of the central
questions in both public finance and development. This effect matters not only
for the evaluation and design of tax policy, but also for thinking about
economic growth Barro V. (1991:45).
STATEMENT OF THE PROBLEM
The problems identified
with taxation in business decision and development is a situation where two
businesses probably, making similar profit from similar turnover that is also a
result of equivalent level of investment, pays different amount as tax simply
because one is a Company and the other is not, is one. A clear demonstration of
inequality is depicted here especially in a situation where there is no
discrimination among forms of businesses. Various means of avoiding taxes
exists. What this perceivable inequality could lead to is a form of tax
avoidance in which case, investors who are conscious of above facts may from
the threshold (even with all the capabilities of floating a Company) choose a
partnership or sole trade, even if it is glaring that it is not appropriate,
because of tax advantage. A second possibility is the fact that existing
investors in an organization that has gained reasonable ground may deliberately
liquidate and raise partnership business to avoid high taxes.
OBJECTIVES OF THE STUDY
1. To examine effect of taxation on business decision for Economic growth.
2. To assess the benefit of business decision and development in for
effective tax compliance
3. To identify the strategies for efficient business decision to enhance
adequate tax payment.
4. To examine the ways to minimize the high rate of taxation business
development and decision.
RESEARCH QUESTIONS
1.
What are the effects of
taxation on business decision for Economic growth?
2. What are the benefit of business decision and development in for
effective tax compliance?
3.
What are the strategies for
efficient business decision to enhance adequate tax payment?
4. What are the ways to minimize the high rate of taxation business
development and decision?
SIGNIFICANCE OF THE STUDY
In this research, the significance of this study is to bring together the
various ways and facts as regards to subject matter, the effect of taxation in
business development and decision making.
1. It is believed that the
outcome of this research work will be of interest to businessmen and
organizations.
2. The research work will
provide them with vital information regarding challenges facing business growth
through heavy taxation. Businessmen and organizations can utilize this study to
make amendments or control a number of lapses that may be affecting the
business development and decision for efficient productivity in country.
3. It will also highlight
the benefits of business development and decision on productivity to increase
the economy status and create employment.
4. This research work will
also serve as a vital material to those who may want to carry out further
research work in this regard.
SCOPE OF THE STUDY
This research focus on the effect of taxation in business development and
decision making.
LIMITATION OF THE STUDY
This research was constrained by so many factors:
1. TIME FACTOR: A study of this nature needs relatively long time
during which information for accurate or at least near accurate inference could
be drawn. The period of the study was short, time posed as constraints to the
research.
2. FINANCIAL FACTOR: The research would have extended the
survey to other area at the empirical level, but limitation as included cost of
transportation to the source of material and the cost of time setting of the
already completed work.
3. LACK OF COOPERATION: Many of the respondents are usually
aggressive to relay the issue that borders cooperation among the respondents
border.
4. MATERIAL FACTOR: – Shortage of relevant materials
for literature review posed a great difficulty.
a. In ability to retrieve
all the questionnaire forms for good representative used for the anticipation
sample.
b. The study equally
limited to the information gathered from primary and secondary sources.
DEFINITION OF TERMS
Business: – A business, also known as
an enterprise or a firm, is an organization involved in the trade of goods,
services, or both to consumers. Businesses are prevalent in capitalist
economies, where most of them are privately owned and provide goods and
services to customers in exchange for other goods, services, or money.
Development: – The act or process of
developing, growth and progress.
Decision: – This can be regarded as
the cognitive process resulting in the selection of a belief or a course of
action among several alternative possibilities. Every decision-making process
produces a final choice that may or may not prompt action.
Revenue: – Is income that a company receives from its normal business
activities, usually from the sale of goods and services to customers. In many
countries and states, revenue is referred to as turnover.
Tax: – Is a financial charge or
other levy imposed upon a taxpayer (an individual or legal entity) by a state
or the functional equivalent of a state to fund various public expenditures.