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Format: MS WORD
| Chapters: 1-5
| Pages: 79
NIGERIAN TAX SYSTEM: THE SIGNIFICANCE OF COMPANY INCOME, TAX AND ITS EFFECTS ON NIGERIAN COMPANIES
CHAPTER ONE
1.0 INTRODUCTION
1.1BACKGROUND OF THE STUDY
Every country in the world tends to generate income through tax administration. In Nigeria the company income tax administration aims and tries to tax each company in the state more effectively. However the level at which the company income tax Administration in Nigeria tend to achieve its desired goals and objectives depends mostly on the tax office and the company that is operating in Abia state.
For the tax Administration in Nigeria to be effective the aspect of the companies been taxed should be considered adequately and more accurately so that the company would provide reliable financial performance information for assessment. In which the federal government derives its income.
Due to the ever changing tax administration policies in the country and modifications in the aspect of taxation in Nigeria some companies want to stay afloat and employ all kind of strategies that benefits them. Some of them evade tax and some avoid tax.
When tax in Nigeria is paid by the various companies operating in the state the revenue collected are used to provide utility services and providing additional government services such as in education and transport which are of great importance to the growth of the economy of the state and to the country.
Tax administration in the country is a very important aspect that assist in the provision of revenue to the economy of which the avoidance of tax payment by the companies in the country in general and in Abia state in particular will result to a serious damage to the revenue which should have been generated and used for the provision of infrastructure.
When a company is been taxed by the federal board of inland revenue (FBIR) the company is meant to give an accurate information about their income but some companies go to the extent of forgery in provision of their documents which gives an incorrect information to the board, thereby causing reduction in their tax assessment.
Based on the above observation or trend of this action over time this study set out to examine the problems and prospects of the company income tax
administration in Nigeria and in Abia state to be precise.
1.2 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.
1.3OBJECTIVES 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.
1.4RESEARCH 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?
1.5RESEARCH 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.
1.6SIGNIFICANCE 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.
1.7SCOPE 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.
1.8LIMITATION 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.
1.9DEFINITION 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).
1.9SUMMARY
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.
CHAPTER ONE
1.0 INTRODUCTION
1.1BACKGROUND OF THE STUDY
Every country in the world tends to generate income through tax administration. In Nigeria the company income tax administration aims and tries to tax each company in the state more effectively. However the level at which the company income tax Administration in Nigeria tend to achieve its desired goals and objectives depends mostly on the tax office and the company that is operating in Abia state.
For the tax Administration in Nigeria to be effective the aspect of the companies been taxed should be considered adequately and more accurately so that the company would provide reliable financial performance information for assessment. In which the federal government derives its income.
Due to the ever changing tax administration policies in the country and modifications in the aspect of taxation in Nigeria some companies want to stay afloat and employ all kind of strategies that benefits them. Some of them evade tax and some avoid tax.
When tax in Nigeria is paid by the various companies operating in the state the revenue collected are used to provide utility services and providing additional government services such as in education and transport which are of great importance to the growth of the economy of the state and to the country.
Tax administration in the country is a very important aspect that assist in the provision of revenue to the economy of which the avoidance of tax payment by the companies in the country in general and in Abia state in particular will result to a serious damage to the revenue which should have been generated and used for the provision of infrastructure.
When a company is been taxed by the federal board of inland revenue (FBIR) the company is meant to give an accurate information about their income but some companies go to the extent of forgery in provision of their documents which gives an incorrect information to the board, thereby causing reduction in their tax assessment.
Based on the above observation or trend of this action over time this study set out to examine the problems and prospects of the company income tax
administration in Nigeria and in Abia state to be precise.
1.2 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.
1.3OBJECTIVES 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.
1.4RESEARCH 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?
1.5RESEARCH 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.
1.6SIGNIFICANCE 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.
1.7SCOPE 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.
1.8LIMITATION 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.
1.9DEFINITION 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).
1.9SUMMARY
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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