COMPLETE SCHOOL PROJECT TOPICS & MATERIALS :
CHAPTERS: Chapter 1-5
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ABSTRACT
It is a known fact that taxation is one of the major sources of government funds. There are various forms of levies in the Nigerian tax system, among these is Company Income Tax. The present study focuses on the significance of Company Income Tax on the Nigerian economy and its effects on Nigerian companies, a case study of Union Bank Plc, Ilorin. Company Income Tax is a levy, which is imposed on Nigerian companies and its objective is to examine the way company income tax is being administered as well as other related taxes, it also contains formulated hypothesis. In order to achieve the objective, data were collected from primary sources while questionnaire was specifically used. In order to analyze the data collected both descriptive statistics such as table, simple percentage and frequencies were used while analysis of variance (ANOVA) was used as inferential statistic to test the hypothesis. The findings revealed that, there is significant difference in perception of effect of CIT on profitability among staffs at different level of Union Bank Plc, Ilorin. In addition, the finding also revealed that there are significant differences in the respondents’ perception of effect of CIT on dividend decision among staff at different levels of Union Bank Plc, Ilorin. A high corporate tax rate will lead to low profits thus affecting the dividend decision of the firms, which will subsequently lead to disinvestment decisions. This as well would affect economic growth. Thus, effort should be geared at ensuring optimum balance between the goals of revenue generation and corporate goals of the organization. Tax authorities in collaboration with the Government should use the tax paid judiciously in providing the basic amenities and create in the tax payers to perform their social responsibility of paying tax.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The numerosity of government wants at the expense of its limited resource make it imperative to source funds through other means. One of the forms through which the government sources 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 measures 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 their quest for survival and economic growth, nations of the world strive to mobilize internal resources through revenue generation and also ensure equitable and judicious distribution of these resources. One of such means of doing this is through the imposition of a compulsory payment known as tax. The role tax plays in any society cannot be undermined the formation of accountability and effective states has been closely associated with the emergence of taxation systems (Moore, 2007). Taxes generally are compulsory payments levied on all income, goods, services and properties of individuals, partnerships trustees, executorships and companies by the government.
Corporate organizations all over the world pay taxes known as company income tax. In other words, company income tax (corporation tax) is the tax that is charged on the chargeable profits of corporate organizations. In Nigeria for example, company income tax is being administered at the Federal level by a body known as Federal Board of Internal Revenue (FBIR), and is equally legislated by the Companies Income Tax ACT (CITA). Corporate tax is levied at a flat rate for each category of entities but may be subjected to a number of rebates, allowances or exemptions. The rate of tax differs in different countries around the world e.g. in Nigeria it is 30% in Organization of Economic Corporation and Development (OECD) countries it is 25%, in China 25% and USA 35 %.
As companies play a crucial role in any nation’s economic growth, so also does not corporate tax. In Norway Corporate income tax contributes about 12.4% to its entire GDP. It is also important to note that with the recent fall in oil prices, there have been necessitated calls in Nigeria for a more effective and efficient tax system to mitigate the effects. Thus, emphasizing the continuous importance and relevance of tax to socio-economic growth and development.
As corporate organizations look to maximize shareholders value, it will seek to maximize its profitability in the process. Profitability is a determinant of how well off a company is. The level of profit of a company at any point in time has consequences attributed to it. A high profit-making organization will have better motivated staffs, improved product quality and increased shareholders value while a low profit making organization will have vice-versa effect. Thus, high corporate tax rate would lead to low or declining profits which has adverse effects on the company. Other major performance determinants of corporate organization which would be affected by a disproportionate tax rate are its return on investment (ROI), dividend per share (DPs) Earnings per share (EPs) liquidity and also its market price share (MPPs).
A dividend is money a company pays to its shareholder from profits made over a period of time. Shareholders expects to be paid dividend as and when due. Firm dividend policies will determine the amount of investment it will receive as markets react positively to dividend increases and negatively to deceases. More so, investment decision of corporate organizations is to a large extent being affected by corporate taxes. Companies expect a high return on their investment. A high corporate tax rate would lead to low profits thus resulting in low investment. Similarly foreign investors will quickly re-balance off their investments and flee to other countries with a better tax system.
There is therefore, the need to maintain adequate balance between the goals of maximum resource development and tax benefits to ensure equitable and sustained growth.
1.2 Statement of the Research Problem
There is certainly no doubt that tax contributes immensely to socio-economic growth and development. It is however imperative to take cognizance of its effect on the effectiveness and efficiency of corporate organization operations.
Company’s profitability, investment decisions and dividend policy decision are likely to be affected by corporate tax among other reasons. In addition, there is another challenge of double taxation which could be looked at in two scenarios. One of which is that corporate organizations are not only being charged on the profits they make alone but also dividends being paid to its shareholders. Also, multinational organizations are being taxed twice on its main branch and that of its foreign subsidiaries. In a bid to avoid some of these challenges posed by corporate taxes, some corporate organizations indulge in tax evasion and avoidance practices. Review of related literatures has revealed that the study of such topic is still scare especially in this part of the country. It is on this backdrop of ideas and gap in knowledge that this study was necessitated.
1.3 Objectives of the Study
The main objective of this study is to assess the significance of company income tax and its effects on Nigerian companies (A case study of Union Bank Plc, Ilorin.). And specific objectives includes;
- Assess the effects of high corporate tax rate on corporate profitability.
- Examine the effects of company income tax on dividend decision policy of corporate organizations.
- Examine the impacts of corporate taxes on investment decision of corporate organizations.
1.4 Research Questions
The following constitute the research question;
- How does corporate income tax affects the profitability of corporate organizations?
- What are the effects of corporate tax on the dividend decision policies of corporate organizations?
- How corporate tax does affects the investment decisions of corporate organizations?
1.5 Research Hypothesis
In the course of this research work, the following hypothesis was formulated for test.
HO1: There is no significant difference in the perception of effect of CIT on profitability among staff at different levels of the organization.
HO2: There is no significant difference in the perception of effect of CIT on dividend policies among staff of different levels of the organization.