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Abstract of Nigerian Tax System: the Significance of Company Income Tax and Its Effects on Nigerian Companies
It is a known fact that taxation is one of the major sources of government funds. There are various forms of levies in Nigerian tax system, among these is Company Income Tax. The present study focuses on the significance of Company Income Tax on Nigerian economy and its effects on Nigerian companies, a case study of Union Bank Plc, Illorin. Company Income Tax is a levy, which is imposed on Nigerian companies and its objectives is to examine the way company income tax is being administered as well as other related taxes, it also contain formulated hypothesis. A sample size of the top management staff within the Accounting Department was used. Out of the 40 workers, a sample size of 30 respondent were drawn. The data obtained were represented in a tabular form and the use of chi-square statistical table was used in testing the hypothesis which helps to determine the premises of accepting or rejecting the hypothesis. From the research, it was discovered that company income tax has adverse effect in various form on Nigerian companies. Since research is an on going process, no study could be exhaustive. The study therefore ended with some appropriate recommendations for the companies so that the excessive incidence of tax on them (companies) could be minimize.
TABLE OF CONTENTS
Title Page i
Certification ii
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Approval iii
Dedication iv
Acknowledgement v
Abstract vii
Table of Contents viii
List of Tables
CHAPTER ONE
1.0Introduction1
1.1Background of the Study1
1.2Statement of the Problem 3
1.3Objectives of the Study3
1.4Research Questions 4
1.5Research Hypothesis 5
1.6Significance of the Study5
1.7Scope of the Study 5
1.8Limitation of the Study6
1.9Definition of Terms 6
References 8
CHAPTER TWO: LITERATURE REVIEW
2.1An Overview of Nigeria Tax System 10
2.1.1Tax Law 10
2.1.2Tax Administration10
2.2Historical Outline of Taxation 11
2.2.1History of Company Income Tax 12
2.3Administration of Company Income Tax, Education Tax
and With-Holding Tax 12
2.3.1Administration of Company Income Tax 12
2.3.1.1Roles of Company Income Tax 14
2.3.1.2Stabilization Policies Role 15
2.3.2Administration of Education Tax16
2.3.3Administration of With-holding Tax 16
2.4Filling of Returns 18
2.5Computation of Tax Liability 18
2.6Loss Relief and Capital Allowance 20
2.6.1Loss Relief20
2.6.2Capital Allowance 21
2.7Assessment Procedure 21
2.7.1Notice of Assessment 22
2.7.2Additional Assessment22
2.7.3Amended Assessment 23
2.7.4Assessment Lists 23
2.7.5Validity of Assessment 23
2.7.6Finality of Assessment 24
2.8Objection and Appeal 24
2.8.1Objection 24
2.8.2Appeal 25
2.9Minimum Tax Computation 26
2.10Dormant Company Levies 27
2.11Collection Procedure of Company Income Tax 27
2.12Offences and Penalties of Company Income Tax 28
References 31
CHAPTER THREE: RESEARCH METHODOLOGY
3.0Introduction 32
3.1Research Design 32
3.2Area of Study 33
3.3Population of Study 33
3.4Sample and Sampling Technology 33
3.5Sources of Data 34
3.5.1Primary Data 34
3.5.2Secondary Data34
3.6Instruments for Data Collection 35
3.7Validity and Reliability of Instruments 35
3.8Administration of the Instrument 36
3.9Method of Data Analysis36
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1Introduction 38
4.2Data Presentation (Annual Reports) 39
4.2.1Profit Left for Appropriation 39
4.2.2Working Capital Position 41
4.2.3Re-Investment Capacity44
4.3Basic Control and Prevention of Direct Incidence of Tax 44
4.4Analysis of Questionnaire 46
4.5Test of Hypothesis 57
4.6Discussion of Findings62
CHAPTER FIVE: SUMMARY, CONCLUSION AND
RECOMMENDATION
5.1Summary 63
5.2Conclusion 63
5.3Recommendation 64
References 66
Questionnaires 69
Appendix 76
Chapter One of Nigerian Tax System: the Significance of Company Income Tax and Its Effects on Nigerian Companies
INTRODUCTION
BACKGROUND OF THE STUDY
The numerousity of government wants at the expense of its limited resource make it imperative to source for funds through other means. One of the forms through which government source for funds to meet its obligation is taxation.
The versatility of taxation cannot be overemphasized. This is true because it does not only serve as one of the major sources of government revenue through which public interests are satisfied but also it is one of the major fiscal policy measure being used in stabilizing the economy. For instance, it can be used to curtail the velocity of money when inflation arises. Taxation also serves as an effective way of redistributing income among citizens of a nation.
In fact, taxation plays a crucial role in promoting economic activity and growth. through taxation, government ensures that resources are channelled towards Important projects in the society (Emeni, 2000).
It is necessary to mention that during the pre-colonial period, taxation functioned more or less on an ethnic basis. The Nigerian tax system took after the British tax system both in administration and governing
enactments. It is therefore not surprising that income tax as we know it today was first introduced into Nigerian by the British through Lord Lugard in 1904 in the North (Abdul Razaq, 1993).
The Nigerian tax system has about ninety various forms of levies which it imposes on the citizens and companies. These taxes fall under two basic categories, which are direct and indirect taxes.
Direct taxes are those taxes that are levied on incomes/profits of individuals, partnership and companies. These levies have direct incidence and Impact on tax payer. Examples of direct taxes include personal income tax, company income tax, which this research work is focused upon, capital gain tax, petroleum profit tax and capital transfer tax which had been abolished in Nigerian with effect from 1st January 1996 (Abdul Razaq, 1993 and Osita, 1999).
These taxes are governed by Decrees, Acts, and Case Laws, which constitute the statute is force today, personal income tax, company income tax, capital gain tax and petroleum profit are governed by Income Tax Management Act 1961, Company Income Act 1979, Capital Gain Tax Act 1967 and Petroleum Profit Tax 1959 respectively
Company income tax is governed by Company Income Tax Act of 1979. This Act consolidated the Company Income Tax Act 1961 and other amending legislations. This is true because existing Laws and Acts are only amended since no new ones have been enacted.
Part 1, Section 1 of the Company Income Tax Act 1979 provides that “administration of company income tax is to be by a Board of which the official name shall be the Federal Board of Inland Revenue”. Thus, Federal Board of Inland Revenue is responsible for the administration of company income tax which governs company income tax.
The other category of taxes which is indirect taxes are those taxes levied on the manufacturers, wholesalers and importers of goods and services in which effects are shifted wholly or partly to the final consumers of such goods and services. Example includes custom duty, Import duty and Value Added Tax (VAT).
Having taken interest in the happenings in recent time on Nigerian tax system and current economy trend in the country, this research work is focused on the significance of company income tax on Nigerian economy and its effects on Nigerian companies.
STATEMENT OF THE PROBLEM
Despite the significance of taxation, it is clearly noticed that it has various impact which include;
Company income tax is imposed on taxable profit of the company, which reduce the investment capacities of the company
The company income tax has some adverse effects on the performance and financial position of the companies.
According to Abdul Razaq (1998), the tax system makes it more expensive for a company to maintain its net flow of dividend to its shareholders.
Withholding tax, which is a tax deductible from source, on the sum of all form of contract and services of the companies, has the capacity of tying down the capacity of companies.
Also education tax makes the companies to pay excess taxes, which result in reduction of their profits.
The retained earnings of companies are adversely affected.
OBJECTIVES OF THE STUDY
It is not an understatement that income tax has adverse effects on Nigerian companies, despite all its benefits on the Nigerian economy.
In the light of the above, this study extensively explains the company income tax by;
examining the way it (company income tax) is being administered as well as other related taxes.
analyzing various ways through which Nigerian companies are affected by the imposition of company income tax.
providing useful suggestions and recommendations to the foregoing.
RESEARCH QUESTIONS
This research work is designed to carry out an in-depth study of the significance of company income tax and its effect on Nigerian companies like Union Bank PLC.
The questions are:
1.What are the roles of Company Income Tax in Union Bank PLC?
2.How does Company Income Tax affects Union Bank?
3.How does Company Income Tax reduce investment capacities of Union Bank PLC?
4.To what extent does the Company Income Tax affect the retained earnings of Union Bank?
5.What are the control measures of Company Income Tax adopted by Union Bank?
6.How does with-holding tax affect the capacity of Union Bank?
7.How does the tax system in Union Bank affects the net flow of dividends of its shareholders?
RESEARCH HYPOTHESIS
Ho:Union Bank PLC are not affected by the imposition of Company Income Tax
H1:Union Bank PLC are affected by the imposition of Company Income Tax
Ho:Company Income Tax does not provide useful suggestions to Union Bank.
H1:Company Income Tax provide useful suggestions to Union Bank Plc.
Ho:Company Income Tax is not properly administered in Union Bank.
H1:Company Income Tax is properly administered in Union Bank.
SIGNIFICANCE OF THE STUDY
The significance of Company Income Tax and taxation as a whole cannot be undervalued because they contribute immensely to the economic growth and development.
This work will help tax administrators and government to realize the importance of taxation, so that much attention will be paid to it.
Also, this work is useful for our law makers since the critical effects of taxation on Nigerian companies are analyzed so that only reasonable laws will be made.
SCOPE OF THE STUDY
The scope of the study can be defined geographically, temporally, and in terms of the subject matter. There are various forms of levies in Nigerian Tax System, examples include Petroleum Profit Tax, Personal Income Tax and Company Income Tax.
Hence, the scope of this study is limited to Company Income Tax and its effects on Nigerian companies.
Also, due to the fact that Nigerian organizations are multifarious in operation; ranging from Banking, Sea and Air, Insurance and others made it difficult for the research work to touch every sector. The Union Bank Ilorin is chosen as the case study. The recent five years (1999 to 2004) annual reports and financial statements of the organization are analyzed. Since there was no publication in the year 2000.
LIMITATION OF THE STUDY
Since no study is perfect, this study therefore limited by the fact that the effects of taxes on companies are not contained in most texts, thus available data from the concerned organization are made use of.
DEFINITION OF TERMS
Assessable Profits: According to Section 25, Subsection 1 of the Company Income Tax Act (1990), assessable profits are the profits of any company for each year of assessment from such source of its profits. They are the adjusted profits of any company for each year of assessment.
Balancing Charge: Ishola (1999) defined balancing charge as the excess of the sale proceeds from the disposal of assets over the tax written down value.
Basis Period: This refers to the accounting period of a business where income is assessable to tax in the year of assessment (Ishola 1999).
Capital Allowances: These are allowances granted to any individual i.e. sole trader or partners in a partnership or corporate body who during an accounting year ended in the preceding year of assessment incurred qualifying capital expenditure in respect of assets in use for the purpose of a trade or business in the last day of the basis period. It is given in place of depreciation (Baiyewu 2000).
Preceding Year Basis (PYB): Ishola (1999) defined preceding year basis of assessment under which the profit of the accounting period ending in the preceding year of assessment is assessable to tax in the year of assessment under consideration. It is a basis on which taxation of any company arises.
Tax Avoidance: Tax avoidance can be described as the art of dodging tax without actually breaking the law (Abdul Razaq, 1993).
This research work is divided into five chapters.
Chapter one is the theoretical background of the study. It states the rationale behind the study as well as the objectives for which the study is being carried out.
Chapter two is a critical review of the relevant literatures that have direct bearing to the study.
Chapter three clearly states the methodology employed in data collection and data analysis.
Chapter four focuses on the analysis of data collected and the presentation of findings.
Chapter five contains the summary, the conclusion as well as the recommendations.
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