ABSTRACT
This research study examines the impact of inflation of taxation of capital gain(2015-2020), a case Study of Jigawa State Board of Internal Revenue. Its main objective is to find out whether the inflation of taxation increases on tax administration. For the purpose of this study, the researcher adopted the method of survey Research Design. Data used in this research were gotten from both primary and secondary sources including questionnaires and textbooks respectively. These data were analyzed and presented in tables. The findings of this research tend to show that effective tax administration resulting from the application of Information Technology leads to an increase in tax base as more potential taxpayers are drawn into the tax net when there is a conducive environment. It is recommended in this work that enlightenment campaign be made available for the masses and also adequate training for the tax officials on the use of modern technology.
TABLE OF CONTENTS
Cover page - - - - - - - -- - - - -i
Certification - - - - - - - - - - - -ii
Approval page - - - - - - - - - - -iii
Dedication - - - - - - - - - - -iv
Acknowledgement
- - - - - - - - - - v
Abstract - - - - - - - - - - - -viii
CHAPTER ONE
INTRODUCTION
1.1 Background
to the study - - - - - - - - - -1
1.2 Statement
of the problem - - - - - - - - - -2
1.3 Objectives
of the study - - - - - - - - - -3
1.4 Research Questions - - - - - - - - - -3
1.5 Research
hypothesis - - - - - - - - - -3
1.6 Significance
of the study - - - - - - - - - -3
1.7 Scope
and delimitation of the study - - - - - - - -4
1.8 Definition
of terms - - - - - - - - - -4
CHAPTER TWO
LITERATURE REVIEW
2.0
Conceptual review - - - - - - - - - -5
2.1 Meaning of Tax - - - - - - - - - - -5
2.2
Trends in Taxation of capital gain between 2015-2020 - - - - - -9
2.3
Inflation on taxation between 2015-2020
in Nigeria - - - - - -16
2.4
Empirical review - - - - - - - - - - -18
2.5
Theoretical frame work - - - - - - - - - -18
CHAPTER
THREE
RESEARCH
METHODOLOGY
3.1
Introduction - - - - - - - - - - -21
3.2
Design of the Study - - - - - - - - - -21
3.3
Area of the Study - - - - - - - - - - -21
3.4
Population of the Study - - - - - - - - - -21
3.4
Sample/Sampling Techniques - - - - - - - - -21
3.5
Sources and Method of Data Collection - - - - - - - -22
3.6
Method of Data Analysis - - - - - - - - -23
CHAPTER
FOUR
DATA
ANALYSIS AND INTERPRETATION
4.0 Introduction - - - - - - - - - - -24
4.1 Data Analysis - - - - - - - - - - -25
CHAPTER
FIVE
CONCLUSION
AND RECOMMENDATIONS
5.0 Introduction - - - - - - - - - - -33
5.1 Conclusion - - - - - - - - - - -33
5.3 Recommendations - - - - - - - - - - -33
Bibliography - - - - - - - - - - -35
Appendix - - - - - - - - - - - -38
CHAPTER ONE
INTRODUCTION
1.1 Background to the
study
Taxation is a compulsory levy
imposed by the government on the incomes of taxpayers in a geographical
territory in order to defray the expenses of governance. This implies that
anybody that generates income must compulsorily pay taxes. There are different types
of taxation. These include the personal income tax, companies income tax,
petroleum profit tax, value added tax and the capital gains tax. Recently, the
issue of taxation on capital gains in the Nigerian capital market has come to
the fore (Makin, 2010). Government, from time to time, has the responsibility
of reviewing the tax position as a component of the subsisting fiscal policy
for the purpose of meeting given objectives considering the level of inflation
in the country (Hummel, 2019).
Taxation of capital gains means a
tax on capital gains, the profit realized on the sale of a non-inventory asset
that was purchased at a cost amount that was lower than the amount realized on
the sale. The most common capital gains are realized from the sale of stocks,
bonds, precious metals and property (Glahn,2018). Not all countries implement taxation of capital gains and
most have different rates of taxation for individuals and corporations.
Regarding capital gains, an
example of a popular and liquid asset, national and state legislation often has
a large array of fiscal obligations that must be respected. Taxes are charged
by the state over the transactions, dividends and capital gains on the stock
market. However, these fiscal obligations may vary from jurisdiction to
jurisdiction. Although, taxation on capital gains are a tax on the profit
obtained from a disposal or exchange of certain kinds of assets. In Nigeria,
taxation on capital gain is 10% of the profits from the sale of the qualifying
assets. It is recognized in law under the Capital Gains Tax Act. Generally, Tax
is a financial issue and its payment is a civil duty. It is the imposition of a
financial burden for the government on individual firm and companies. In
general based, the word tax means any contribution imposed by the government
upon individual and companies for the use of government to provide facilities
or services as rendered by the state. It is not a voluntary payment or donation
but an enforced contribution made on the pronouncement or directive of
legislative authorities (Herderson, 2016). Taxation is also greatly influenced by inflation.
Inflation is a sustained increase
in the general price level of goods and services in an economy over a period of
time (Barro, 2019). When the price level rises,
each unit of currency buys fewer goods and services. Consequently, inflation
reflects a reduction in the purchasing power per unit of money – a loss of real
value in the medium of exchange and unit of account within the economy. A chief
measure of price inflation is the inflation rate, the annualized percentage
change in a general price index, usually the consumer price index, over time.
The opposite of inflation is deflation.
Inflation affects economies in
various positive and negative ways. The negative effects of inflation include
an increase in the opportunity cost of holding money, uncertainty over future
inflation which may discourage investment and savings, and if inflation were
rapid enough, shortages of goods as consumers begin hoarding out of concern
that prices will increase in the future (Barro, 2017). Positive effects include reducing the real burden of public
and private debt, keeping nominal interest rates above zero so that central
banks can adjust interest rates to stabilize the economy, and reducing
unemployment due to nominal wage rigidity Inflation distorts all aspects of the
taxation of personal income but is particularly harsh on the taxation of
capital gains. When corporate stock or any other asset is sold, current law
requires that a capital gains tax be paid on the entire difference between the
selling price and the original cost even though much of that nominal gain only
offsets a general rise in the prices of consumer goods and services. Taxing
nominal gains in this way very substantially increases the effective tax rate
on real price-adjusted capital gains. Indeed, many individuals pay a
substantial capital gains tax even though, when adjustment is made for the
change in the price level, they actually receive less from their sale than they
had originally paid.
1.2 Statement of the
problem
Several research works has been described as
arguments from a very narrow position based on the fact that it prays for
government policy on tax to facilitate reduction in taxation on capital gains
because of the inflation in some countries of the world including Nigeria.
1. High or unpredictable inflation rates are
regarded as harmful to an overall economy. They add inefficiencies in the
market, and make it difficult for companies to budget or plan long-term.
2. Inflation can act as a drag on productivity
as companies are forced to shift resources away from products and services in
order to focus on profit and losses from currency inflation. Uncertainty about
the future purchasing power of money discourages investment and saving.
3. Inflation can also impose hidden tax
increases, for instance, an increase in the taxation of capital gain. It is
therefore the purpose of this study to examine the various impacts of inflation
on the taxation of capital gains with a view of proffering suggestions for
appropriate policy initiatives.
1.3 Objectives of the
study
The following are the objectives
of this study:
1.
To examine the
trends in taxation of capital gains between 2015 and 2020.
2.
To examine the
impact of inflation on taxation between 2015 and 2020.
3.
To examine the
impact of inflation on taxation of capital gains between 2015 and 2020
1.4 Research Questions
1. What
is the trends in taxation of capital gains between 2015 and 2020?
2.
What is the impact of inflation on taxation between 2015 and
2020?
3. Did the inflation have
effect on taxation of capital gain between 2015 and 2020?
1.5
Research hypothesis
1.
There is no
significant difference in the trends of capital gains taxation between 2015 and
2020
2.
There is no
significant relationship between inflation and taxation between 2015 and 2020
3.
There is no
significant relationship between inflation and taxation of capital gains
between 2015 and 2020
1.6
Significance of the study
The following are the significance
of this study:
1.
Findings from
this study will provide a comprehensive framework and guide for stakeholders in
business sector as regards impact of inflation on the taxation of capital
gains. It will also reveal the trends in taxation and how inflation has
distorted the process.
2.
This research
will be a contribution to the body of literature in the area of memorandum of
understanding MOU as an instrument in maintaining relationship between a
company and the host communities, thereby constituting the empirical literature
for future research in the subject area.
1.7 Scope and
delimitation of the study
This study is delimited to the
impact of inflation on the taxation of capital gains in Nigeria between 2015
and 2020. It will also cover the trends in inflation and its effects on
taxation within the years under study.
1.8 Definition of terms
Inflation: a general increase in
prices and fall in the purchasing value of money
Fiscal policy: is the means by
which a government adjusts its spending levels and tax rates to monitor and
influence a nation's economy
Tax: a compulsory contribution to
state revenue, levied by the government on workers' income and business profits
or added to the cost of some goods, services, and transactions.
Bond: a debt investment in which
an investor loans money to an entity
Stocks: the capital raised by a
business or corporation through the issue and subscription of shares
Capital gain: a profit from the
sale of property or of an investment
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