TABLE OF CONTENTS
CHAPTER ONE
1.0
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
1.2
STATEMENT OF THE PROBLEM
1.3
OBJECTIVES OF THE STUDY
1.4
RESEARCH QUESTIONS
1.5
STATEMENT OF HYPOTHESES
1.6 SIGNIFICANCE OF
THE STUDY
1.7 SCOPE OF THE
STUDY
1.8 DEFINITION OF
TERMS
REFERENCES
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.0 INTRODUCTION
2.1 THE CONCEPTUAL
FRAMEWORK
2.1.0 Principles of
Taxation
2.1.1 Purpose of
Taxation
2.1.2 Features of a Good
Tax System
2.1.3 Economic Effects
of Taxation
2.1.4 Tax Administration
in Nigeria
2.1.5 Taxes and levies in Nigeria
2.1.6 Nigerian Tax Law
2.1.7 Impact
of Taxation on the profits earned by entrepreneurship
2.2 THEORETICAL FRAME
WORK
2.3 REVIEW OF RELATED
LITERATURE
REFERENCES
CHAPTER THREE
METHODOLOGY
3.0 RESEARCH DESIGN
3.1
AREA OF THE STUDY
3.2 SOURCES OF
DATA
3.2.1 Primary Sources
3.2.2 Secondary Sources
3.3 SAMPLE
AND SAMPLING TECHNIQUES
3.4
METHODS OF DATA COLLECTION
3.5 METHODS OF DATA
ANALYSIS
3.6 VALIDITY AND
RELIABILITY OF THE INSTRUMENT
3.7 LIMITATIONS OF
THE STUDY
REFERENCES
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 DATA
PRESENTATION
4.1.1 QUESTIONNAIRE
ANALYSIS
4.2 TEST
OF HYPOTHESES
4.2.1 ANALYTICAL
TOOL EMPLOYED
4.2.2 OPERATIONAL
ASSUMPTIONS
4.2.3 Discussion
of findings
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 SUMMARY OF
FINDINGS
5.2 CONCLUSIONS
5.3 RECOMMENDATIONS
BIBLIOGRAPHY
APPENDIX: RESEARCH QUESTIONNAIRE
LIST
OF TABLES
Table
4.1 Duration of Enterprise 38
Table
4.2 Nature of respondents’
enterprise 39
Table
4.3 Keeping of financial records
by enterprise 39
Table
4.4 Payment of corporate tax by
enterprise 39
Table
4.5 Number of agencies enterprise
pays tax to 40
Table
4.6 Assessment of profit before
payment of tax 40
Table
4.7 Percentage of profit used for
tax payment 41
Table
4.8 Stability of government
policies on tax relating matters 41
Table
4.9 Consideration of size of
enterprise in tax payment 42
Table
4.10 Effect of taxation on
operational cost 42
Table
4.11 Effect of taxation on profitability
of enterprises 44
Table
4.12 Calculation of Chi square value
for Hypothesis I 44
Table
4.13 Effect of taxation on the
reinvestment rate of enterprises 46
Table
4.14 Calculation of Chi square value
for Hypothesis II 46
Table
4.15 Effect of taxation on the
growth rate of enterprises 47
Table
4.16 Calculation of Chi square value
for Hypothesis III 48
Table
4.17 Effect of taxation on the productivity
of enterprises 48
Table
4.18 Calculation of Chi square value
for Hypothesis IV 49
CHAPTER
ONE
1.0
INTRODUCTION
In theory, taxation, which includes personal income tax, capital
gains tax and companies’ income tax etc., often leave individual entrepreneurs
with less expendable capital to reinvest in their respective businesses. It is
generally supposed that the higher the tax rates, the more capital is taken out
of the hands of the entrepreneur and into the hands of the government. The
two primary objectives of every business are profitability and solvency.
Profitability is the ability of a business to make profit, while solvency is
the ability of a business to fulfill its various financial obligations,
including the payment of debts as at when due. However, the achievement of
these objectives requires efficient management of resources, including the
efficient management of liabilities under which category the payment of taxes
lie. Therefore, the background upon which this research work is predicated is
one that seeks to establish the various understudied links and correlations
between the concept of taxation, its implementation and its impacts on
entrepreneurship. This chapter covers the background of the study, statement of
the problem, scope of the study, objectives of the study, statement of
hypotheses, significance of the study, scope of the study, limitations of the
study and references.
1.1
BACKGROUND
OF THE STUDY
Entrepreneurship makes up the core of
majority of the world’s economy. A study carried out by the Federal Office of
statistics shows that in Nigeria, Entrepreneurial enterprises constitute 80% of
the Nigerian economy (Ariyo, 2005). Although entrepreneurs often operate small
and medium enterprises, the entrepreneurship sector remains the most important
sector in the economy due to the fact that when all the individual effects are
aggregated, they surpass that of the larger corporations and multinationals.
The social and economic advantages of Entrepreneurship cannot be underestimated.
Nzotta (2006) sees Entrepreneurship as a source of employment generation,
competition, economic dynamism, and innovation which stimulate entrepreneurial
spirit and the diffusion of skills. Because they enjoy a wider geographical
presence than big companies, entrepreneurship also facilitates better income
distribution.
Over the years,
Entrepreneurship has been an avenue for job creation and empowerment of
Nigerian citizens by providing about 50% of all jobs in Nigeria.
Entrepreneurship has undoubtedly improved the standard of living of so many
people especially those in the developing areas. Sadly, however, while this
sector has been a major catalyst for socio-economic development, it has become
apparent that majority of our national stakeholders have failed to recognize
the pivotal role played by this sector in relation to the long-term
socio-economic development of the nation. This skewed perception results in
undue interference in the operations of entrepreneurs by various stakeholders
of the society and particularly agencies of government. Predominantly, this
sector has witnessed many unfavorable interventions and actions from various
Ministries, Departments and Agencies (MDAs) of governments (at the three tiers)
who see the imposition of sundry taxes and levies on entrepreneurs as an
opportunity to generate revenue for government.
Innovation and
entrepreneurship play a pivotal role in sustained economic growth and improved
standards of living through engendering lower prices for products which is made
possible by achieving cost efficiencies in the production/marketing processes
and taking advantage of economies of scale; this in turn makes increases in
revenues and higher wages achievable. Entrepreneurship also often advances new
ways of manufacturing, novel methods of providing services and innovative modes
of doing business. There are many factors involved in bringing an idea to the
market and successfully executing said idea, but we know surprisingly little
about the role of government, and taxation specifically, in attracting or
motivating entrepreneurs and spurring or repressing indigenous innovation.
Taxation is a major
source via which a country's government generates revenue. Tax is generally
used to pursue the various objectives and to fulfill the sundry obligations of
a government. The tax structure or combination of tax policies being
implemented in a given economy at a particular time is known to reflect the
future aspiration of that economy. Like in many other developing countries,
there exists in Nigeria a variety of taxes which are paid by companies,
business firms and self-employed individuals. Among these are consumption taxes
like VAT, companies’ income tax, capital gain taxes, personal income tax,
petroleum profit tax, etc.
A well-functioning
internal revenue system, which comprises chiefly of tax systems, structures and
policies, is a necessary condition for strong, sustained and inclusive economic
development. However, the revenue systems in most developing countries, like
Nigeria, have fundamental shortcomings
Numerous, and often
conflicting, principles guide the design of a tax system and its structure. One
of the major principles underlying the choice of any taxation structure or
policy is that it should promote growth, or at least should hamper growth as
little as possible. Because innovation has been shown to be an important engine
of long term growth and development, and because innovation often takes place
in settings where entrepreneurship is vibrant, a successful implementation of
that principle requires that the impact of the tax system or structure on
entrepreneurship be taken into account.
In Nigeria, for instance,
with the reality of ever decreasing revenue from crude oil, it has become
imperative, now more than ever before, for the Government of Nigeria to seek
out other viable, albeit sustainable, means of revenue generation.
Unfortunately, the tax system in Nigeria has remained inherently flawed for
decades with subsequent governments having to face and grapple with much the
same challenges with regards to tax policies, effective policy implementation,
efficient tax administration and collection.
Nigeria, being an
import-dependent and majorly trade-driven country, has a great deal of
potential if and only if her tax system and tax institutions become structured
in such a way that harnesses the tax revenue generation capacity of her
commerce-based economy, without necessarily hampering or negatively impacting
entrepreneurial drive.
Tax administration, in the Nigerian context,
is a hydra-headed monster, often manifesting in multiple folds via which
taxpayers are fleeced multiple times by government Ministries, Departments and
Agencies (MDAs). The high level and compliance costs have significant
implications for Nigerian enterprises by reducing incentives to expand
production thereby leading to higher prices of products and distorting factor
incomes, as enterprises take investment decision based on long run returns to
capital. The cost of taxation reduces the size of the capital stock and
discourages investment in productivity. This ultimately leads to lower return
to human capital and lower incentive to innovate.
The failure of the
entrepreneurship sector to submit to the IGR demands of government often result
in disruptive enforcement actions carried out by these MDAs (Michael, 2013).
Entrepreneurship continues to witness harassment from MDAs such as forceful
sealing of business premises or removing of components of site installations in
their bid to compel compliance. This continued intervention in this sector by
MDAs results in disruption of services, reduction in quality quantity of
products/services, increase in operating costs and the general cost of carrying
out business in Nigeria. While it is true that the untoward consequences of
taxation and illegitimate taxes is not born solely by the Entrepreneurship
sector alone, it is cogent to believe that the critical nature of services
provided by the Entrepreneurship sector imply that urgent actions are needed to
address these challenges before a total collapse of this sector is witnessed.
The importance of this
sector to the development of the Nigerian economy has motivated this study of
assessing the effects of taxation on the performance of Entrepreneurship and
innovation the third world countries, with the bubbling entrepreneurship
environment of Lagos state serving as a case study.
1.2
STATEMENT
OF THE PROBLEM
There are lots of
problems facing Entrepreneurship and innovation globally. Although some of
these problems are peculiar to many countries, the challenges faced by
Entrepreneurship in different countries and geopolitical divisions are
basically the same. A study carried out by the Federal Office of Statistics
shows that in Nigeria, Entrepreneurship makes up 80% of the economy (Ariyo,
2005). In spite of this importance, the mortality rate of entrepreneurship
ventures is very high as stated in Small and Medium Enterprise Development
Agency of Nigeria (SMEDAN). SMEDAN has reported that about 80% of Small and
Medium scale Enterprises (SMEs) in Nigeria die before their 5th
anniversary. Among the factors responsible for these untimely shut-down are
tax-related issues which are: (1) Multiple taxation (2) High tax rates (3) Low
Efficiency of tax collection bodies (4) High collection charges (5)
Inarticulate tax policies and structures (6) Low profitability etc.
Furthermore, owing to the
compulsion of taxation as a charge against income, capital investments and
properties of individuals, partnerships, Entrepreneurship and corporate bodies
in the country, there has been an ample quest by the Nigerian government to
increase the rate of some of the existing taxes as a means of generating
additional revenue. This mostly affects SMEs that are struggling to stay afloat
in the business environment who still have to pay tax out of the little profit
they make.
1.3
OBJECTIVES
OF THE STUDY
The broad objective of
the study is to examine the implications of taxation on the performance of
Entrepreneurship in Lagos State.
The specific objectives include:
1.
To ascertain whether there is a
significant correlation between taxation and the profitability of
Entrepreneurship.
2.
To determine if there is a relationship
between taxation and the reinvestment rate of Entrepreneurs.
3.
To ascertain whether there is a
relationship between taxation and the growth of Entrepreneurship.
4.
To determine if there is a relationship
between taxation and the productivity of Entrepreneurship.
1.4
RESEARCH
QUESTIONS
For the purpose of this research, the following research questions
were formulated and addressed:
1.
How does taxation affect the
profitability of entrepreneurship?
2.
What is the relationship between taxation
and the reinvestment rate of entrepreneurship?
3.
What is the relationship between taxation
and entrepreneurial growth?
4.
What is the relationship between taxation
and the productivity of entrepreneurship?
1.5
STATEMENT
OF HYPOTHESES
In order to carry out this study; the
following research hypotheses were formulated. These hypotheses were structured
in both null and alternative forms as follows:
Ho1:
There
is no significant relationship between taxation and the profitability of
Entrepreneurship.
HA1:
There
is a significant relationship between taxation and the profitability of
Entrepreneurship.
H02: There is no significant relationship
between taxation and the reinvestment rate of Entrepreneurship.
HA2: There is a significant relationship between
taxation and the reinvestment rate of Entrepreneurship
H03: There is no significant relationship
between taxation and the growth of Entrepreneurship.
HA3: There is a significant relationship between
taxation and the growth of Entrepreneurship.
Ho4:
There is no significant relationship between taxation and the productivity of
Entrepreneurship.
HA4:
There is a significant relationship between taxation and the productivity of
Entrepreneurship.
1.6 SIGNIFICANCE OF THE STUDY
The findings from this study will be of good benefit to
the general Nigerian populace and the business community as it will help the
tax payers to have a deep understanding of their obligations and the need to
meet such duties on tax liabilities. Government and its agencies on their own
part will equally see the need for effective planning, administration and
collection of taxes and also providing incentive for tax payers so as to limit
the problem of tax avoidance and evasion hence, achieving the overall
macro-economic goals of the country.
Finally, it could serve as a possible benchmark for
other further advanced studies in this regard.
1.7 SCOPE OF THE STUDY
For
the purpose of achieving acceptable and realistic results, this study is
primarily focused on Entrepreneurship in Lagos State. The
study central objective centres on identifying the effects and implications of
taxation on entrepreneurial undertakings.
1.8 DEFINITION
OF TERMS
Taxation: The most
dependable and reliable definition of taxation was given by Hugh Dalton who
defined a tax as “a compulsory contribution imposed by a public authority,
irrespective of the exact amount of services rendered to the taxpayer in
return, and not imposed as a penalty for any legal offence”. Imposition
of a tax, therefore, creates a tax liability upon those liable to pay the
imposed tax. A tax liability is always expressed in monetary terms, and it is
worth noting here that any monetary liability creates a burden. In other words
imposition of a tax creates a tax burden on taxpayers.
Entrepeneurship: Entrepreneurship
is the process of using private initiative to transform a business concept into
a new venture or to grow and diversify an existing venture or enterprise into
one with high growth, through innovative practices (UNDP, 2010).
Entrepreneur: An entrepreneur
is a person who makes money by starting or running a business, especially when
this involves taking financial risks ( Hornby, 2006).
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