IMPACT OF TAXATION ON THE PERFORMANCE OF SMALL SCALE ENTERPRISE: A CASE STUDY OF RIVERS STATE
CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY
Tax payment is a voluntarily contribution imposed by the government on personal income earners, companies, investor, exporters, and importers. Revenue realized from taxation is a one of the major source of revenue to the government of cross river, and is an important tool used in development of cross river and its economy. There is no generally accepted definition of a "small" business, and that most persons who use the term do so without having in mind any specific definition of size. One can, of course, classify business firms by such quantitative criteria as the number of employees, total assets, or total sales, and then designate certain size classes as representing small business.
According to Manasseh (2000), a tax is generally referred to as a compulsory levy imposed by government upon assesses of various categories and taxation is a compulsory and nonrefundable contribution imposed by government for public purposes. In Nigeria a considerable fraction of the businesses are sole traders operating small scale business.
Asmelash (2002) describe small scale enterprises as an activities engaged by people who are unable to secure paid jobs or start economic activities of their choice. These kinds of business are family oriented and are often manage or controlled as family business. It is an accepted fact that small and medium scale is an engine to economic growth of the economy. Governments, and even policy makers and academics, take the survival of small scale enterprise very serious because of their roles in economic development.
Many small scale business promoters find it easy to start the business because of little capital involved. The small scale business entrepreneurs serve as commercial nerve center of Nigeria, are confronted with diverse problems which often leads to liquidation of their business. One of the main challenges confronting small scale business promoters is the issue of tax.
According to Arnold and Mclntyre (2002), tax is a compulsory levy imposed by government on citizen income and consumption of goods and services. Adeniyi and Adesunloro (2017) view tax as an important avenue for government to raise money in order to finance her projects and program. The fundamental philosophy of taxation is taking from the citizens according to their abilities and giving back to them according to their needs.
According to Decree 28 of 1998, there are categories of taxes and levies to be collected by federal government, state government and local government in Nigeria. The issue of multiplicity of revenue has not been addressed. For example, licensing fee for sales of liquor, commercial premises rate and corporate parking fees within company premises. This can be regarded as sales tax because it excludes value added tax that federal government will collect from the business on the same service rendered. In support of Yaobin (2007), this form of multiple taxes may endanger sustainability of small scale enterprises in the area.
The Nigerian Tax System has undergone significant changes in recent times. With the help of various studies and research done by tax experts, tax laws are being reviewed with the aim of repelling obsolete provisions and simplifying the main ones. Under current Nigerian law, taxation is enforced by the Federal, State, and Local Government with each having its sphere clearly spelt out in the Taxes and Levies. Small businesses are generally recognized as important drivers of economic success. They are a key ingredient in the “ecology of firms” in a healthy economy, as job creators, sales generators and a source of tax/fiscal revenue. In Nigeria the importance of small business as a creator of jobs, particularly for those with a low skills level, is widely recognized. Small, medium and micro-enterprises (“SMMEs”) contribute 36.1% of the country’s gross domestic product (“GDP”) and employ 68.2% of the workforce in the private sector. In the agriculture, construction and retail sectors, SMMEs employ more than 80% of the total workforce.
Regulations and red tape are reported as one of the constraints to the expansion of businesses both in Nigeria and internationally. International research in this field shows that tax regulatory compliance costs are a significant portion of the total regulatory cost. Several other patterns emerged from the various local and international studies performed, among the most important being that tax compliance costs comprise a much larger proportion of total compliance costs for smaller firms.
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