The increasing cost of running a government coupled with dwindling revenue has led various state governments in Nigeria to formulating strategies to improve their revenue. This project shows the impact of company income tax on revenue generation in Nigeria. The method used in collecting data for this research work is through primary, personal observation and secondary data as the major source of information.
The researcher administered the questionnaires randomly to the staff of Federal Inland Revenue Services, registered Company Income Tax agents and in some public places in Adamawa State. One hundred (100) questionnaires were generally administered to all the various respondents at the rate of one questionnaire per individual. The data collected were analyzed using simple percentage.
The analysis revealed that there is no any marked difference in the various respondents’ general perception of Company Income Tax on government revenue generation and its impacts on living condition of people in Adamawa State. Therefore, based on the findings, the study recommends among others that; the government agency responsible for the collection of companies income tax, the Federal Inland Revenue Service (FIRS) should work in liaison with the Commission (CAC) to ensure that all companies registered in Nigeria i.e. Foreign and Domestic meet their tax obligations to the nation.
TABLE OF CONTENTS
ACKNOWLEDGMENT
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Research Hypothesis
1.7 Scope of the Study
1.8 Definition of Key Terms
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
2.2 Historical Background of Adamawa State
2.4 Concept of Taxation
2.5 Functions of a Tax System
2.6 Company Income Tax: The Economic Impact
2.7 Major Types of Nigerian Taxes
2.7.7 Taxation System in Nigeria; A Review
CHAPTER THREE
RESEACRH METHODOLOGY
3.1 Introduction
3.2 Research Design
3.3 Population of the Study
3.4 Sample Size and Sampling Techniques
3.5 Sources of Data Collection
3.6 Instrument for Data Collection
3.7 Method of Data Analysis
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 Introduction
4.2 Data Presentation and Analysis
4.3 Findings and Discussion
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
5.2 Conclusion
5.3 Recommendations
5.4 Suggestion for further Study
BIOGRAPHY
QUESTIONNAIRE
ACKNOWLEDGMENT
All appreciation is given to God almighty, the source of my study who saw me through my study, may his name be gloried. (Amen)
Also my warn gratitude goes to my supervisor Dr. Peter Teru for his support of putting me through even though it was not easy for him to guide me through the part of this success. May God Bless you.
I appreciate God for the life of my lecturers especially, Mr. Abel Tarfa, Mr. Benson, Mrs. Joyce, Mal. Bakari Maude, and many more for the role they play in impacting into me knowledge. My prayer is that they will never remain the same. My appreciation goes to Uncle Danladi Kotohulla for his prayer and financial support towards my academic programme.
I will not forget people that gave me this life, my parents in question who stood the ground of taking me to school even when I proof not to love the idea, but they patiently love and show me way on how to catch the fish myself. Mummy Elnah, I am reaping the benefit of your handwork, remain bless, also my daddy Japhet Maude for his financial support towards my academic programme.
Finally, I will like to thank special brothers, sisters and friends for their advice, My Mummy Omega Joshua, Bro Ibrahim Japhet, Godiya Japhet, Esther Japhet, Dorcas Japhet (kakas), Hyelda Joshua, Helen Joshua, Benjamin Joshua, Paul Joshua, the families of Samuel pella, Nyakwi Saidu, Madam Yemisi, Hapsat and All my course mate for their advice and prayers towards this success. May God Bless you all and grant long life and prosperity.
DEDICATION
This project is dedicated to Almighty God and to my parents Mrs. Elnah Japhet, Mr. Japhet Maude, My Siblings and Mrs. Omega Joshua.
ABSTRACT
The increasing cost of running government coupled with dwindle revenue has led various state government in Nigeria with formulating strategies to improve their revenue. This project the impact of company income tax on revenue generation in Nigeria. The method used in collecting data for this research work is through primary, personal observation and secondary data as the major source of information. The researcher administered the questionnaires randomly to the staff of Federal Inland Revenue Services, registered Company Income Tax agents and in some public places in Adamawa State. One hundred (100) questionnaires were generally administered to all the various respondents at the rate of one questionnaire per individual. The data collected were analyzed using simple percentage. The analysis revealed that there is no any marked difference in the various respondents’ general perception of Company Income Tax on government revenue generation and its impacts on living condition of people in Adamawa State. Therefore, based on the findings, the study recommends among others that; the government agency responsible for the collection of companies income tax, the Federal Inland Revenue Service (FIRS) should work in liaison with the Commission (CAC) to ensure that all companies registered in Nigeria i.e. Foreign and Domestic meet their tax obligations to the nation.
CHAPTER ONE INTRODUCTION
1.1 Background to the Study
The increasing cost of running government coupled with dwindle revenue has led various state government in Nigeria with formulating strategies to improve the revenue base more so, the near collapse of the national economy has create serious financial stress for all tier of government. Despite the numerous source of revenue available to the various tier of government as specified in the Nigeria 1999 constitution, since the 1970s till now, over 80% of the annual revenue of the three tiers of government came from petroleum. However, the serious decline in the price of oil in recent years has led to a decrease in the funds available for distribution to the states. The need for state and the local government to generate adequate revenue from internal sources has therefore, become a matter of extreme urgency and importance. This need underscores the eagerness on the part of states. The need for state and local government to generate adequate revenue from internal sources has become aggressive and innovative in the mode of collecting revenue from existing sources.
Development is a sine qua non for modern civilization in order to carry out development at all nooks and crannies of the society, it is responsibility of the Adamawa state government to provide direct development to people to a certain level. Development is associated with funds and much revenue is needed to plan, execute and maintain infrastructures at the state level. The need revenue generated for such developmental projects, like construction of accessible roads, building in public schools, health care centres, construction of bridges are generated from taxes, royalties, haulages fines, and grants from the states, national and international governments. These funds could either be obtained internally or externally. Thus, the Adamawa state government cannot embark, execute and possibly carryout the maintenance of these projects without adequate revenue generation.
1.2 Statement of the Problem
Company income tax is one of the taxes that are imposed by government in Nigeria. There are various views for and against the imposition of company income tax in the opinion of (Omolehinwa 1990). Companies’ income tax contributes insignificantly to the government general revenue profiles and therefore should be abolished.
In line with the above the Research observed that the disclosure of chargeable/taxable profit of companies are not honest with consequently leads to lower tax derivable from this sources.
More to this, where disclosure is made, separate accounts are prepared by companies in order to avoid paying the correct tax this is as a result of Nigerians corrupt tendencies i.e. tax evasion and or avoidance.
It is against this back drop that the researcher felt the need to critically examine these mitigating factors in the tax system in Nigeria in relation to the contribution of companies’ income tax to the general revenue profile of government.
Therefore, this project is aimed at examining the growing trend in the assessment and contribution of company income tax on government revenue.
1.3 Objectives of the Study
The main objective of this study is to assess the impact of company income tax on government revenue generation in Nigeria. Specific objectives include the following:
i. To determine the proportion of companies income tax contribution in relation to total government revenue.
ii. To ascertain whether or not it should be abolished in view of the attendant problem in its assessment.
iii. To suggest measures on how to improve the contribution of companies income tax to government revenue base.
iv. To review the administration of the companies income tax and recommend improvement in its structure.
1.4 Research Questions
The following research questions were formulated to guide the study;
i. What is the proportion of companies’ income tax to total government’s revenue?
ii. What are the problems associated with assessing companies’ income tax?
iii. What are the measures to be taken to improve the contribution of companies’ income tax to government’s revenue base?
iv. What measure should be taken with a view to reviewing the administration of the companies’ income tax structure?
1.5 Research Hypothesis
The research hypotheses stated will be tested in two ways; the null hypothesis and alternative hypothesis.
Hypothesis one:
H0: Company Income Tax has no significant impact on revenue generation of Adamawa State
H1: There is no significant difference between Company Income Tax and sales tax in the volume of revenue generation in Adamawa State
Hypothesis two:
H0: There is no significant relationship between Company Income Tax and the living condition of the people in local government particular Adamawa State
1.6 Significance of the Study
This study is basically concerned with the impact of companies’ income tax on government revenue. The study will attempt to find the significance of this tax as a source of government revenue. Other taxes will be compared to companies’ income tax so as to ascertain the difference between them.
The major tax which benefit from company income tax are petroleum profit tax, custom and excise duties and value added tax (VAT), have been chosen as yardstick to measure companies’ income tax contribution since these are major taxes.
Due to the fact that value added tax was not introduced until 1993, its data is in complete and will therefore not be useful for regression analysis. Other taxes are not included are minor tax due to unavailability of data to show their contribution to government revenue.
1.7 Scope of the Study
The scope for this research study is for ten years (from 2003-2013). It should be noted that the area supported to cover are all the geographical zone in the country as the topic implies the contribution of the Companies Income Tax (CITA) to Revenue generation in Nigeria.
1.8 Definition of Key Terms
The following key words and variables will be given definition as they were used in this study, they includes:
Tax: - Refers to a compulsory payment of money or occasionally of goods and services from private individuals, institutions or groups to the government, it may be levied upon wealth or income or a surcharge on price.
Government Revenue: - This refers to all monies accruing to government which increase the funds over which the treasury has control without a comparable increase in debt obligation.
Income Tax: - An income is a levy on the financial income of personnel or corporation or other legal entities.
Company: - Is a form of organizing a business with a legal personality distinct from the individual taking part in it.
MSTO: -
Corporate Tax: - Refers to a direct tax levied by various jurisdictions on the profit made by companies or associations which often includes the capital gain of a company.
CHAPTER TWO LITERATURE REVIEW
2.1 Introduction
This section reviews related literatures on the topic under study specifically; it examines the concepts of Company income tax, taxation, functions of tax system, major types of Nigerian taxes, determination of profits of Petroleum Company and taxation system in Nigeria.
2.2 Historical Background of Adamawa State
Adamawa State was created out of the former Gongola State in 1991, during the Gen. Sani Abacha regime. The splitting of Gongola into two came about the emergence of Taraba State and Adamawa State.
The State has large land mass of 42,158 square kilometer 1a1ng within Latitude 7°, 28°N and 100, 8N longitude 110. 30o 750E and 13, 750E. The 2006 census gave the population of the state as 3,024,851 with a density of 12 persons per square kilometers. (Adebayo, 1999).
Adamawa was call the Land of Sunshine because of the early rise of the sun before the day break and its late setting and it is also known as Land of Beauty because of the natural found among the people and in the environment. It is also known as the Land of the hidden treasure because of the abundant resources found in it. With a diverse ethnic and cultural group living in peace and harmony. (Adebayo, 1999).
The ethnic groups found in Adamawa State are: Margi, higgi, Chamba, Yandang, Bachama, Kilba, Gaanda, Fali, Yongur, Vere, Lala, Fulani among others. These ethnic groups live in segmented large and small communities speaking different languages and dialects with Hausa and English as the official Language spoken.
The majority of Adamawa indigenes are predominantly farmers, fishermen, businessmen and civil servants. The state is a very rich agrarian region where cash crop such as: beans, bambaranuts, groundnuts etc. are produced in a large quantity, while food crop cultivated includes, maize, rice, guinea corn, millet etc. Apart from cultivation, they involve themselves in animal rearing such as cows are in a commercial quantity.
Adamawa State shares boundaries with Cameroon in the East, Taraba State in the South, Gombe State in the West and Borno State in the North. Administratively, it is made up of 21 local government namely: Mubi North, Mubi South, Yola North, Yola South, Madagali, Michika, Maiha, Gombi, Hong, Song, Girel, Fufore, Demsa, Guyuk. Shelleng. Numan, Lamorde, Jada, Mayo Belwa, Toungo and Ganye Local Government Areas with Yola North as the state capital In terms of religion, Islam and Christianity are the math religion practice in the state.
2.3 Company Income Tax; An Overview
Companies income taxation deals mostly with the profit or gains of Limited Liability Companies, there are business organizations that are incorporated under the Companies and Allied Matters Decree (CAMD) 1990 usually, liability of member of this types of business/organizations are limited to only the capital that such members have contributed to the business.
Philipson (1946) stated that, the companies income tax in the colonial era, grew at a very slow rate due to the limited numbers of Limited Liability Companies, and moreover, most of these companies were owned and controlled by foreign nationals and profits were repatriated.
Anyaduba (1999) also stated that, Company Income Tax began in Nigeria in 1999, but was known then as Companies Income Tax Ordinance (CITO) not too long after, it was replaced due to certain anomalies that were discovered in its provisions.
In 1940, the Companies Income Tax Ordinance (CITO) was replaced by Nigeria Income Tax Ordinance (NITO) No. 4 of 1940. This new tax brought both individuals and companies under the same umbrella for the first time ever. This tax lasted until 1943 before it was replaced with Nigeria Income Tax Ordinance (NITO) No. 29 of 1943, under this view ordinance, tax rate was fixed at 50 percent.
However, if a company can prove that it had paid dividends out of its chargeable profits it will be relieved of some sums. The amendment continued over the even up to 1963 in 1961 Companies Income Tax Acts (CITA) remained the main tax legislation dealing with the assessment and taxation of companies throughout the country until 1979, when it was re-enacted as the Companies Income Tax Act (CITA) 1979 which was consolidated with the numerous amendments in to the Companies Income Tax Act of today. For a tax structure to be effective it must be efficient and apply equally.
2.4 Concept of Taxation
Taxation can be defined as a compulsory levy imposed on a subject or upon his property by the government having authority over him or his property (Akaule 1991) stated that the main purpose of taxation is to raise funds to meet government’s expenditure. To him taxation should be regarded as a potential weapon of economic regulation. Anyaduba (1999) further adds that, taxation can also be defined as the process of or system of raising revenue through the levying of different types of taxes.
Taxation according to Ola (1985) is the demand made by the government of a country for compulsory payment of money by the citizens of the country. Various taxes have been put in place by governments in order to mobilize resources to finance public expenditure, which is a major function of any government especially in a developing country like Nigeria. No matter its political ideology the process of any government depends on its ability to generate sufficient revenue to finance an expanding non-revenue generating public service.
According to Akaule (1991) taxation is the raising of funds to meet governments expenditure, to him it is a potential weapon of economic regulation. Since it affects the amount that is available for spending by the private sector.
Aiyedun, (1996) also share the same view with Akaule, since according to him government uses taxation to promote economic and social policies.
If according to Aiyedun, (1996) taxation can be used to promote economic and social policies and Akaule (1991) stated that it is a potential weapon of economic regulation since it affects the amount available for private, sector spending effective taxation can then actually be one of the keys to Nigeria’s economic development.
2.5 Functions of a Tax System
The objectives of a tax system which has long been reduced to three will be discussed:
i. Revenue Raising: As stated by some economic scholars, taxes are raised to meet government expenditure and this is the key function of a good tax administration. In the absence of tax, the ability of the Federal government to meet its obligations to its citizens might be highly impaired. Indeed, it is sometimes suggested that without the largeness from the Federal government certain state of the federation might find it difficult to survive. Basic non-revenue yielding social amenities such as education, health, security defense, law and order cannot be ordinarily be provided by the free market. A review of the revenue of the Federal government shows that taxes has contributed immensely to the meeting of the expenditure of governments. By the way taxes are administered in Nigeria, it is evident that what is basically on the mind of the tax administrators in Nigeria is to raise revenue. That also appears to be the uppermost thing in the mind of a typical tax administrator, they even sometimes forget its impact on investment in the economy thereby mortgaging the chances of increasing the wealth of the nation on the long run, since some provisions in the tax law is disadvantageous to tax payers but increases revenue collection.
ii. Redistribution of Wealth: This objectives is based on two premises: one, that taxation should basically rest on the ability to pay, thus, requiring that the greatest burden be borne by the rich. Therefore, taxes should have a built-in redistribution function. With reference to Nigeria, tax reverse is what is obtained since the rich who are supposed to represent the “fattest back” shun payment of taxes in any and every possible way. Thus, some writers have argued that this is due to the inability of Nigeria’s tax authorities to deal strictly with this group of people.
iii. Management of The Economy: Taxation as a Fiscal policy has helped also in the management of the economy, examples are the various tax reforms since 1995 which were supposed to release more money to the hands of the household, thus, positively affecting the economy.
2.6 Company Income Tax: The Economic Impact
Company income tax is a tax which mostly affect income especially in a developing country. On the grounds of efficiency and equity, company income tax has been subjected to criticism, some proposed its abolition others felt that states rather than the Federal government should administer this tax. The companies income tax in as much as the government embarks on it has to have additional source of revenue generation, and should be administered with caution since it affects the desire and ability of people to invest.
[...]
- Quote paper
- Mivayi Japhet (Author), 2015, Impact Of Company Income Tax On Revenue Generation Of Federal Inland Revenue Service (Msto) Yola, Adamawa State Nigeria, Munich, GRIN Verlag, https://www.grin.com/document/370339
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