This study examines the
effect of taxation on business and investment decision, it is undertaken to
investigate the effect of company income tax on business and investment
decision of companies in Nigeria. The main objective of this study is to bring into focus the importance of effective and
efficient tax planning. The researcher
employed descriptive statistics method and percentage in the analysis of data.
The study revealed that there exist statistical significance relationship
between taxation and business and investment decision. The study concludes that
taxation is indispensable in all modern business organizations. Therefore, the
study recommends that optimum rate of tax that will be beneficial to the
government on one hand and the firms on the other hand should be charged in
order to bridge the negative effects of taxation.
Title Page i
Table of Contents
1.1 Background to the Study 1
Statement of Problem 3
Research Questions 4
1.4 Objective of the Study 4
Statement of Hypotheses 5
Significance of The Study 6
1.7 Scope of the Study 8
1.8 Limitations of the Study 8
1.9 Definition of Terms 9
Chapter Two: Review of Related
2.1 Introduction 11
2.2 Main Objectives of Tax 11
2.3 The Administration of Personal Income Tax in Nigeria 12
2.4 Definition of Income 17
2.5 Effect of the Personal Income Tax
and Company Tax on the Economy 20
Taxation on Business And Investment Decisions 22
Implication of Taxation on the Economy
2.8 The Objective or Motive of Taxation 30
Chapter Three: Research Method and
3.1 Introduction 34
3.2 Research Design 35
3.3 Description of Population of the Study 35
3.4 Sample Size 35
3.5 Sampling Technique 35
3.6 Sources of Data Collection 36
3.7 Method of Data Presentation 37
3.8 Method of Data Analysis 37
Four: Data Presentation, Analysis and Hypothesis Testing 39
4.2 Presentation of Data 39
Five: Summary of Findings, Conclusion and Recommendations 47
of Findings 48
Appendix I 53
Appendix II 54
1.1 Background to the Study
expenditure is one of the fundamental functions or roles of every responsible
government. Therefore, in meeting this financial obligation, the need to
explore various sources of revenue to the government becomes imperative. To
this end, one of the oldest and till modern days known source of revenue to the
government is tax beside others. Taxation therefore in this context can be
defined as a “non punitive yet compulsory levy imposed by government on the
properties and income of individuals, incorporated and unincorporated business
entities (Ola, 2011).
serves as a major source of revenue to government for financing its
expenditures. Despite the fact that its be seen as a process of transferring
income from the private sector to the public sector for the provision of public
goods. It also serves as a major fiscal policy tool through which government
manage and control the economy in the area of balance of payment, income
distribution, protection of infant industries and discouragement of the
consumption of harmful goods in the economy.
is the responsibility of the government through its appropriate authority to
impose tax on the properties, individual and organisation in order to generate
revenue. Due to the various mixed effects of taxation, every tax imposed on
organization or tax payer is continuously interpreted in terms of its special
applicability and effect on the various transaction of the organization. The
dynamic nature of the field of taxation occasioned by new court rulings and
amendments has been a determining influence on the outcome of the various
economics decisions undertaken by business entities. On the part of government,
there have been tougher measures instituted to control the adverse economic
trend in the economy. These measures are designed to generate revenue,
stabilize prices and achieve other economic goals. Undoubtedly, these rules
have significant impact on business and investment decision. Every rational decision
of the organization undertakes should be based on the profit after tax
consideration. Once an investor decides on the type of investment he intends to
commit his financial resources into, the tax impact of such choice should be
one of the basic criteria. Where the tax is negligible the organization should
afford to make decision without regards to income taxes but with the current
high corporation tax rate at 30%, it becomes absolutely necessary that tax
implication of every business decisions be understood before implementation.
This is because they “Double Taxation” (Tax on profit and dividend) on
corporation have a reducing effect on the residual profit made by the
Statement of Problem
It is believed that there is a relationship between
the performance of organization’s investment and imposition of tax on the organisation. Therefore, the
imposition of company income tax said to
impact on business and investment decision in various ways. However, the
direction of the effects of taxation for instance whether positive or negative
on business and investment decision is not clearly defined. In view of this,
the research seeks to investigate the validity of this theoretical underpinning
of the effects of taxation on business and investment decisions in Nigeria
following are the research questions underlying the study:
Does taxation have a significant impact
on investment and business decisions?
Is inflation a militating factor against
investment decision in the Nigerian economy?
Does taxation discourages extravagant
spending, capital formulation and economic development?
1.4 Objective of the Study
research is undertaking to investigate the extent to which company income tax
imposition has affected certain management decisions. The researcher explores
all relevant sources available in obtaining vital information in order to
provide insight into the economic activities of investor. Based on the outcome
of the research, the study is also intended to offer recommendation as to how
the problem identified in the problem statement would be solved, thereby
bringing into focus the importance of effective and efficient tax planning.
According to Golf (1981: 13) “The investor who fails to appreciate the relevant
fundamentals of this vast increasingly complicated and dynamic subject of tax
will be poorer for his omission”.
this work is designed to examine the degree of the effect the Nigeria tax
system has militated against investment decision in organization with
particular reference to the economy of Seven-Up Bottling Company and Mouka Foam
in Benin City.
Statement of Hypotheses
to provide answers to the question raised in the study, the researcher
formulate a set of hypothesis to determine the degree to which the problem of
taxation and inflation had influenced the investment and business decision
making of companies.
hypotheses are thus outlined below:
does not have a significant impact on investment and business decision.
H1: Taxation has
significant impact on investment and business decision.
is not a militating factor against investment decision in the Nigerian Economy.
H1: Inflation is a militating factor against
investment decision in the Nigerian Economy.
Taxation does not discourage extravagant spending, capital formulation and
Taxation discourages extravagant spending, capital formulation and economic
Significance of The Study
business firms in Nigeria do not take into consideration the effect of taxation
on their portfolio selection. This has partly been responsible for the low
investment level in such organization.
this democratic dispensation, the Nigeria economy is poised to witness
increased investment opportunities through increased foreign investment and the
privatization of Public Parastatals. With privatization, public non-taxable
companies will now become private taxable companies. This is to take advantage
of these investment opportunities on investing company has to plan for tax.
This research study becomes very relevant and significant because investors
need to know how tax rules affect their investment and business decisions.
is important to recognize that even when a firm is not currently paying a large
tax, its potential income tax expense from future investment may be enormous.
Therefore it is needful for the management of business organization to know how
future decisions and income will be affected by tax. Moreover since money has a
“time value’ it will be of much benefits to the organization if its management
defers the money and payment of tax where such opportunities exist.
management requires that the transaction of an organization be planning in a
manner that minimizes the amount of tax paid when submitting the financial
report for tax purpose. The management of firms should therefore employ those
planning methods that will enable them reduce their tax liability.
1.7 Scope of the Study
study is undertaking to investigate
the effects of taxation on business and investment decisions in the Nigeria
economy using descriptive research method. The method is adopted owing to the
use of questionnaires the researcher employed in the gathering of data for
time horizon is relatively short, therefore, the research’ focused on selected
companies in Edo state for easy analysis and the extent to which conclusion can
be reached. The variables like taxation, inflation, business and investment
behaviour are significantly analyzed.
1.8 Limitations of the Study
social research is inherently hindered and this is more so when such research
is outside experimental studies. In the course of undertaking this research
work, the researcher encounters a number of constraints.
was the problem of non-cooperation from some officials of the Seven-Up Bottling
Company and Mouka Foam in Benin City. Some of the personnel contacted for
interview did not co-operate while some that did, did so reluctantly. The
difficulty in getting access to official and up-to date records and documents
was also encountered.
was another great constraint as lecturers, course work and examination
preparation were along side with the writing of this research work.
constraint that readily comes to mind is cost of writing the research work.
1.9 Definition of Terms
terminologies used in this study are defined as follows:
demand made by the government of a country for a compulsory payment of money by
the citizens of the country. It can also be defined as a compulsory
contribution imposed by a public authority irrespective of the exact amount of
services rendered to the taxpayer in return.
Decision: These involve the decision to allocate capital to a prospective
project or asset or to reallocate capital to another project or asset when the
existing project is no longer viable enough to justify the capital committed to
Decision: Strategic and operational decision taken
periodically by management in order to realize the organization overall
Liabilities: The portion of a firm’s residual income
that government required to achieve the countries economic objectives.
The law of legislation regulating the administration of taxes.
Square: It is a statistical technique used to test
hypothesis concerning the difference between a set of observed frequency and a
corresponding set of expected frequency.
of Freedom: This is the relevant range within which
the hypothesis testing will be done.
Level: The level or limit within which we may be confident
that the true population average lies.