CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
The Nigeria Tax system has undergone significant changes in recent times. The Tax Laws are
being reviewed with the aim of repelling obsolete provisions and simplifying the main ones.
Under current Nigeria law, tax revenue is enforced by the 3 tiers of Government, which are
Federal, State, and Local Government with each having its sphere clearly spelt out in the
Taxes and Levies Act, 1998.
The whole essence of tax revenue is to generate revenue to advance the welfare of the
people of a nation with focus on promoting economic growth and development of a country
through the provision of basic amenities for improved public services via proper
administrative system and structures. Tax revenue plays a crucial role in promoting economic
activity growth and development. Through tax revenue; government ensures that resources
are channeled towards important projects in the society, while giving succor to the weak. The
role of tax revenue in promoting economic activity and growth may not be felt if poorly
administered. This calls for a need for proper examination of the relationship between
generated from taxes and stake holder wealth, to enable proper policy formulation and
strategy towards its efficiency. According to Olashore (2009), the Nigerian economy has
remained in a deep slumber with macroeconomic indicators reflecting an economy in dire
need of rejuvenation, revival and indeed radical reform. Also in the view of Oni (2008), tax
administration needs to be revamped and refunds of taxes as well as duty drawbacks
administration are inefficient.
A critical challenge before tax administration in the 21st century Nigeria is to advance
the frontiers of professionalism, accountability and awareness of the general public on the
imperatives and benefits of tax revenue in our personal and business lives which include:
promoting economic activity; facilitating savings and investment; and generating strategic
competitive advantage. If tax administration does not for any reason meet the above
challenges, then there is a desperate need for reform in the area of the tax regime, and in the
administration of taxes.
A country tax system is a major determinant of other macroeconomic indexes,
specifically, for both developed and developing economies; there exists a relationship
between tax structure and the level of economic growth and development. Indeed it has been
argued that the level of economic growth has a very strong impact on a country tax base
(Kiabel, 2009, and Vincent, 2001), and tax policy objectives vary with the stages of
development. Similarly, the economic criteria by which a tax structure is to be judged and the
relative importance of each tax source vary over time (Vincent, 2001). For example, during
the colonial era and immediately after the Nigeria's political independence in 1960, the sole
objective of tax revenue was to raise revenue. Later on, emphasis shifted to the infant
industries protection and income redistribution objectives. In his discussion of the
relationship between tax structure and economic development,(Vincent, 2001) divided the
period of economic development into two, the early period when an economy is relatively
underdeveloped and the later period when the economy is developed. During the early period,
there is limited scope for the use of direct taxes because the majority of the populace resides
in the rural areas and is engaged in subsistence agriculture because their incomes are difficult
to estimate. therefore, tax assessment at this stage is based on presumptions prone to wide
margins of error.
Tax revenue is a powerful tool of economic reform and a major player in every
economy of the world. It is never static but dynamic and should reflect current realities
prevailing in the economy. The tax system is an opportunity for government to collect
additional revenue besides other sources of income, which is needed in discharging its
pressing obligations. A good system of tax also offers itself as one of the most effective
means of mobilizing nation's internal resources and it lends itself to creating enabling and
conducive environment to the promotion of economic growth and development (Ogbonna,
2010).
Besides, an important source of government revenue during the early stage of
economic development is the foreign trade sector because exports and imports are readily
identifiable and they pass through few ports. However, revenue from export and custom
duties is not stable because of periodic fluctuations in the prices of primary products. This
tends to complicate plan implementation in many developing countries (Kiabel, 2009). Tax
revenue mobilization as a source for financing development activities in Nigeria has been a
difficult issue primarily because of various forms of resistance, such as evasion, avoidance
and corrupt practices attending to it. These activities are considered as sabotaging the
economy and are readily presented as reasons for the underdevelopment of the country.
(Adegbie et al, 2010). Government exists in order to effectively collect taxes from available
resources and make use of same to create economic prosperity such that available and willing
human and other infrastructures resources are gainfully employed, public services provided,
essential (such as the maintenance of law and order) are put in place etc. Tax resistance only
makes the development process unattainable. (Onairobi, 2008). It could be deduced that
changing or fine-tuning tax rates is used to influence or achieve macroeconomic stability.
Some of the most recently cited examples are the governments of Canada, United States,
Netherland, United Kingdom, who derive substantial revenue from Company Income tax,
Value Added Tax, Import Duties and have used same to create prosperity (Adegbie et al,
2010). Thus it can be said that the economic development of a country depends on various
reasons one of which is the presence of an effective and efficient tax revenue policy. In
Nigeria the contribution of tax revenue has not met the expectations of Government.
Government has equally expressed this disappointment and has accordingly vowed to
expand the non-oil tax revenue. (Festus and Samuel, 2007). It is in the light of the foregoing
that this study examines the extent to which the stake holder wealth has contributed to tax
revenue of Nigeria. In Nigeria, the Federal Inland Revenue Services has identified nine types
of taxes in Nigeria to include Corporate Income Taxes (CIT), Value Added Taxes (VAT),
Withholding Taxes (WHT), Petroleum Profit Taxes (PPT), Personal Income Taxes (PIT),
Stamp Duties (SD), Capital Gains Taxes (CGT), National Information Technology
Development Levy (NITDL) and Tertiary Education Taxes (EDT). Supporters of corporate
taxation argue that corporations are independent entities that should be taxed independently
from their shareholders; that businesses pay a premium, a levy, for the exclusive benefits they
enjoy; and that corporate taxation excludes private profits from being taxed (Yunusa, 2003;
Hubbard, 2005 Dharmapala, 2008); and if these should hold true, the dividends of the
investors should not be affected by corporate taxation. As noted by Azubuike (2007), taxation
is not a novel term in Nigeria or the world as a whole. Taxation was in practice in Nigeria
long before the arrival of the colonial rule. It is characterized as a mechanism for enforcing a
mandatory tax on all wages, products, services and assets of persons, corporations, trustees,
executives and government agencies (Yunusa, 2003).
The stakeholders of a company are usually in two (2) categories, that is, internal and
external stakeholders (Freeman, (2004). The internal stakeholders are the shareholders and
employees while the external stakeholders are the government, tax authority, potential
investors, and lenders, amongst others. Tax remittance whether regularly or periodicaly has
influence on decision making of these stakeholders. For example, employees may be affected
by increase or decrease in the Pay-As-You-Earn (PAYE), the revenue of the company could
be affected by value added tax charged on goods, shareholders would be willing to know the
dividend that would be receive at the end of the year or return on their investment while the
government would be willing to generate more revenues through collection of taxes. There
are a lot of controversies concerning the relationship between taxation and stake-holder
wealth. Beginning with Miller and Modigliani (M and M) (1961), their dividend irrelevance
proposition suggested that a firm's dividend strategy does not influence its valuation in the
ideal and full stock market, and that only investment policy counts. A number of scholars
have sought to crack the puzzle as many are still debating on the effect of taxation on stakeholder wealth (Dharmapala, 2008). Several assertions and assumptions have been made as to
whether the taxes paid by organizations impact their trend of dividend payment. In fact,
corporate tax on corporation has been proposed as a way of raising inequalities in operational
structure, pay-out policies and funding decisions (Hubbard, 2005).
Therefore, this study investigated the effect of taxation on stakeholders’ wealth with
evidence from selected companies in Kwara State.
1.2 Statement of the Problem
Taxation is a charge on income; hence, corporate tax reduces the amount of distributable
profit; as dividend and retained earnings. Income generated by an organization is
one of the items to
measure organizational profitability. Usually, tax is charge as a
percentage of the income. This has been over the years at 30% for company income tax and
2% for education tax and 5% on withholding tax.. It is therefore, a progressive tax, since, the
amount paid increases as income increases.To extent theses tax affect a company’s
profitability has been issue of interest and concern to scholars, investors and other
stakeholders.
Many companies have closed down in Nigeria, citing among other factors,
multiple taxation, in addition to high tax rate. While some were of the view that government
should be more friendly in its approach to issues of taxation bearing in mind that
government benefits more from a going concern that continues to pay tax than huge tax
from a discontinued operation.
Also there are agitations from shareholders for the low payment of dividends which
gradually affects the spirit of investment. Dividends are normally paid to the shareholders or
owners of the corporation at a specified period and, if profits are not made, dividends are not
reported, so where profits are made, the company is obliged to pay income tax to the
government. It is a core corporate responsibility, especially for profit-making businesses. As
a rule, dividends are usually received after income tax has been charged.
Other problems concern
with
the
tax administration
in
Nigeria
citing
inefficiency and corruption as the main problem of tax in the country and not the tax rate, as
such, opines that tax has insignificant effect on the profitability of manufacturing company
in Nigeria. Shareholders and firm executives contend that though company income tax
and education tax are worth-while, the deduction usually remove reasonable proportion of
income such that little or nothing is left for shareho lders and for growth and maintenance
of the organization. It is in the light of the above arguments as to the correct effect of tax on
the profitability of firms in Nigeria that the study examined the effect of company income
tax and education tax and withholding tax (WHT) on the shareholders wealth of
Manufacturing Company in Nigeria. (Onwuzurike Emmanuel Nnamdi and Ugwu, James Ike
Ph.D 2020)
1.3 Objectives of the Study
The study evaluated the effect of tax on the stake holders wealth of some selected companies
in kwara state Nigeria. In specific terms, the study tends to
i.
Assess the extent to which company income tax affects stakeholders’ wealth of
selected company in kwara state Nigeria
ii.
Identify the types of taxation levy on stake holder wealth of selected company
iii.
Investigate the effect of value added tax on stakeholders’ wealth of selected company
in kwara state Nigeria;
iv.
Examine the effect of withholding tax on stakeholders’ wealth of selected company in
kwara state Nigeria;
v.
Examined the purpose of taxation on stake holder wealth of selected company
vi.
Examine the effect of National Information Technology Development Tax on
stakeholders’ wealth of selected company in kwara state Nigeria.
vii.
Examine the issues and challenges of Nigeria taxation system.
1.4 Research Questions
Based on the foregoing, the following research questions were raised in the course of the
study: in company income tax
i.
To what extent does company income tax affect stakeholders’ wealth of selected
company in kwara state Nigeria?
ii.
What are the types of taxation levy on stake holder wealth of selected company in
kwara state Nigeria?
iii.
What degree of effect does value added tax has on stakeholders’ wealth of selected
company in kwara state Nigeria?
iv.
What are the effect of withholding tax on stakeholders’ wealth of selected company in
kwara state Nigeria;
v.
What are the purpose of taxation on stake holder wealth of selected company in kwara
state Nigeria;?
vi.
To what extent does National Information Technology Development tax effects of
stakeholders’ wealth of selected company in kwara state Nigeria?
vii.
What are the issues and challenges in company income tax?
1.5 Research Hypothesis
The following null hypothesis is posed to test the study:
H01: There is no significant effect of withholding, education, company income and information
and technology taxation on stake holder’s wealth.
1.6 Justification of the Study
The most basic function of taxation is to fund government expenditures. Varying
justifications and explanations for taxes have been offered throughout history. Early taxes
were used to support the ruling classes, raise armies, and build defenses. Often, the authority
to tax stemmed from divine or supranational rights. Later justifications have been offered
across utilitarian, economic, or moral considerations. Proponents of progressive levels of
taxation on high-income earners argue that taxes encourage a more equitable society. Higher
taxes on specific products and services, such as tobacco or gasoline, have been justified as a
deterrent to consumption. Advocates of public goods theory argue taxes may be necessary in
cases in which the private provision of public goods is considered sub-optimal, such as with
lighthouses or national defense.
1.7 Significance of the Study
The researcher is motivated as a result of constant closure of firms in Nigeria which some of
them have been attributed to multiple taxes charged by the government and consequently
reducing the the profitability of the companies and as well as the stakeholders wealth
generally.
Various studies have been conducted on the effect of taxation on different
variables such as profitability (see Auyuba & Tanko, 2018; Omodero & Ogbonnaya, 2018;
Olaoye & Alade, 2019; Akadakpo & Akogo, 2023) and shareholders’ value (see Oloyede,
Olaoye & Oluwaleye, 2018; Nnubia & Okolo, 2018; Offiaeli & Oziegbe, 2020; Andrew,
2020; Alashe, Olayiwola & Bello, 2023). However, few studies conducted on the effect of
taxation on stakeholders’ returns had been carried out largely in other countries (see
Alexander & Michael, 2018; Fuest, Peichl & Siegloch, 2018; Knaisch & Poschel, 2023).
These studies had reported conflicting results (positive, negative and no effect).
It will also serve as a point of reference for future researchers that want to conduct
study on the subject matter.In addition, the results of the study would enlighten policy makers
such as Federal Inland Revenue Service (FIRS) and State Internal Revenue Services (SIRS)
on how various forms of taxes influence wealths of different stakeholders of companies. It
will also assist policy makers on the effects of changes in the tax laws on corporate behavior
which are of utmost importance to stimulate private investment and economic growth.
The outcome would also enlighten the management, employees and other
stakeholders on how firms are subject to different taxes and the effect on their expectations
from the investments and companies at large. For managers, maximizing shareholders’ value
requires taking into account the consequences of the taxation when designing financial
policies for the firm. For investors, stock portfolio selection should take into account payout
behavior and how changes in dividend taxation affect stocks’ value.
1.8 Scope and limitations of the study
The scope of the study covers the effect of taxation on the shareholder wealth using some
selected company in Kwara State like Olam Grain Industry, Tuyil Pharmaceutical Company,
Cam Wire Steel Industry, 7up Bottling Company and Lubcon Oil Company. The scope of the
research therefore, covers a period of 5yeas from (2018-2023). The limitation of the study
varies from inability of management to divulge certain information which they consider
sensitive and fear of publication which might be detrimental to their operation. Another
limitation to the study is short time factor which did not give time for thorough research
work, hence gathering adequate information becomes very difficult. Finally, lack of materials
on the topic. Therefore, the researcher resolved to seek friendly approach in order to obtain
the needed materials or information from the organizations under study through the
administered of questionnaire
1.8 Operational Definition of Terms
In order to avoid confusion surrounding the words, the following technical terms have
precisely been defined, as they relate to the context of the research work.
Income Tax- An amount of money levied by a government on its citizens and used to run the
government, country, a state, a county or a municipality/ local government.
Tax Evasion- This is an act whereby the taxpayer can achieve the minimization of tax
through illegal means. It involves outright fraud and deceit.
Tax Avoidance- This arises in a situation where a taxpayer arranges his financial affairs in a
form that will make him pay the least possible amount of tax without breaking the law.
Stakeholders- Those persons/ entities that contribute to, and derive benefits from, the
country‟s tax system. This includes every Nigerian citizen and resident, corporate entities,
government at all levels and government agencies.
Tax Base: This is the legal description of an object on which tax is imposed or charged. It
can be the income of the taxpayer, gain from certain activities he engaged in, property or
asset owned or some services received. The base of Income Tax is the income received by the
taxpayer, while the base of Petroleum Profit Tax is the profit from petroleum operations.
Tax Rate: This is the proportion of the tax base that is payable as tax. It is usually fixed by
the law imposing such tax but is sometimes reviewed. Presently, the rate of Company Income
Tax is 30% of the profit, while the rate of Petroleum Profit Tax is 85% of the profits.
Tax Revenue: This is the total amount of revenue generated from tax imposed. It is the
product of the tax rate and the tax base. {TY= TB X TR} (Agbetunde, 2004)
1.9 Organization of the Chapters
This research work is organized in five chapters, for easy understanding, as follows. Chapter
one is concern with the introduction, which consist of the (background of the study),
statement of the problem, objectives of the study, research questions, research hypotheses,
significance of the study, scope of the study etc. Chapter two being the review of the related
literature presents the conceptual framework, theoretical framework, and other areas
concerning the subject matter. Chapter three is a research methodology covers deals on the
research design and methods adopted in the study. Chapter four concentrate on the data
collection and analysis and presentation of finding. Chapter five gives summary, conclusion,
and recommendations made of the study
CHAPTER TWO
REVIEW OF RELATED LITERATURE
3.1 INTRODUCTION
Social, economic, and political development of a country depends on the amount of revenue
generated for the provision of infrastructure. However the major means of generating the
amount of revenue for providing the needed infrastructure and developing human resources is
through a well-structured tax system. Governments raise taxes for public expenditure,
ranging from social security to national defense education, and infrastructure like highways
or airports. The question is what kinds of taxes are raised and what sorts of effects they have.
In particular, the difference between income taxes and consumption taxes is important
(Bumpei, 2011).
Taxation is an important part of fiscal policy which can be used effectively by
government in developing economies. Taxation play a vital role in economic development of
a country which includes: resource mobilization, reduction in inequalities of income,
improvement in social welfare, foreign exchange, regional development, control inflation.
Apart from the objectives of raising public revenue, tax can be used as an important tool in
the following manner; optimum allocation of available resources, encouraging savings and
investments acceleration of economic growth, price stability and control mechanism. Since
its inception, Income Tax has been a pervasive force tending to influence the economic
decisions of business entities. On the part of government, there have been tougher economic
measures in order to control the adverse economic condition of the country. Among such
measures are tax rules which are designed to increase revenues and accomplish other
economic goals, but invariably; these rules have significant impact on business and
investment decision.
Taxes inhibit investment rate through such taxes as Corporate, Personal income and
Capital gain taxes. Taxes can slow down growth in labour supply by disposing labour-leisure
choice in favour of leisure. Taxation can also affect research and development expenditure. It
can lead to a flow of resources to other sectors that may have lower productivity. High taxes
on labour supply can distort the efficient use of human capital. Investment responds
negatively to an increase in the taxes like corporate tax rate and a decrease in capital
depreciation allowances through changes in the user cost of capital. Different tax policies can
affect investment and productivity. It is well understood that taxes can distort investment
plans by reducing the after tax returns of new investment. For most investors and small
business people, taxes play a role on how business and investment decisions are made. Taxes
could also affect investment by reducing the amount of cash a firm has available to invest
This study used the most recent data and thus provides an up to date findings on the effect of
taxation on Stake holder wealth in Nigeria.
2.2 Concept and types of Taxation
The government of Nigeria, like others in different parts of the world, has legislative powers
to impose on its citizens any form of tax and at whatever rate it deems appropriate. A perusal
of the Nigerian Tax Laws shows that no attempt has been made to define the term “tax”.
However, the Oxford Advanced Learner‟s Dictionary defines tax as, “money that has to be
paid to the government so that it can pay for public services.” Also Black Law Dictionary
defines tax as; “monetary charged imposed by the government on persons, entities or
property levied to yield public revenue.” According to Winfry (2004), tax is regarded as a
compulsory payment imposed on the public by an authority (federal, state or local
government).
Nworji (2000) also defines tax as a compulsory levy by government (federal, state or
local) on the profit, income, wealth or consumption (e.g. sales or VAT) of an individual or
estate through trustee or executor and corporate organization (registered under the Companies
Allied Matters Act of 1990). Another author defines tax as; a compulsory levy imposed by
the government through its agents on its subjects or his property to achieve some goals. It is
paid “quid pro qui” i.e. without expecting something specific in return (Agbetunde,
2004).Taxation is also a compulsory imposition of levy within a society on individuals,
organizations, companies, goods and services (Igwe-Kalu, 1998). In simple terms, taxation is
a compulsory contribution levied by a sovereign power on the incomes, profits, goods,
services or properties of individuals or corporate persons, trusts and settlements, which when
collected, are used for carrying out government functions. Tax has three basic features,
namely; a. A compulsory levy, b. Imposed by government or local authority; Tax must be a
payment to a public authority or a government. Where payment is made to an individual it
becomes extortion. c. For public purpose; A tax must be for public purpose. This has to do
with the intended purpose of the tax. If a contribution is made for the use of an individual, it
is not a tax. ‘According to thomas Cooley in “The Law of Taxation” defines tax as; “enforced
proportional contributions from persons and property, levied by the state, by the virtue of its
sovereignty, for the support of government and for all public needs.” In the same vein, the
Institute of Chartered Accountants of Nigeria (ICAN, 2023) sees tax as a compulsory
contribution levied by a sovereign power, on the incomes, profits, goods, services or
properties of individuals and corporate persons, trusts and settlements. Such taxes when
collected are used for carrying out governmental functions, such as maintenance of law and
order, provision of infrastructure, health and education of the citizens, or as a fiscal tool for
controlling the economy. This study adopts the definition of the ICAN.
The purpose of collecting taxes by the government is to improve revenue generation,
redistribution of income among the rich and the poor, management of the economy,
harmonization of economy objectives and a device to improve gross national income, induce
economic development and influence favourable balance of payments with other countries
(ICAN, 2023).
Taxes are categorized into two namely classification according to methods and
incidence. Classification of tax according to methods includes progressive tax, proportional
tax and regressive tax. Classification according to incidence comprises of direct and indirect
taxes. Direct taxation is a form of tax assessed directly on the income of the tax payer such as
individual/corporate income, property, rent and so on. Examples of taxes under the direct tax
include Companies income tax (CIT), Tertiary Education tax (EDT), Capital Gains tax,
Petroleum Profit tax, Personal Income tax (Obi, 2020, ICAN, 2023).
On the other hand, indirect taxes are form of taxes that are imposed on commodities
at flat rates before they get to the owner of these commodities. In this case, the burden of
payment is on the final user of the commodity, because they are merged into the total sales
price for that commodity. Typical examples of taxes that fall under this prerogative are
Excise and Customs Duties, Value Added tax, Stamp duties (Ekeocha, Ekeocha, Malaou &
Oduh, 2012; Obi, 2020, ICAN, 2023). However, this study focused on direct taxes such as
company income tax, education tax, withholding tax and national information technology
development levy.
2.2.1 Nigeria Tax System
The tax system is the process of taxation involving sets of rules, regulations and procedures
with the organs of administration interacting with one another to generate fund for
government (Agbetunde, 2004). Economists often argue that the tax system should be
designed to avoid the taxation of intermediate goods (Ogbuefi, 2004). The reason is that it
may lead to inefficiencies, in that different industries will face different relative prices, so
that the marginal rate of transformation between inputs, or between an input and an output
would be unequal across industries. Therefore, each tax system must be defined to fit into the
particular circumstances peculiar to a country (Tomori, 2003). The Nigerian Tax System
involves the following tripartite activities; a. Formulation of tax policy b. Translating the tax
policies into tax laws and c. Tax administration. (Agbetunde, 2004).
2.2.2 Features of the Nigerian Tax System
There are fundamental features that taxes in the Nigerian Tax System must exhibit.
Accordingly, any tax that substantially violates these fundamental features should not be part
of the tax system of Nigeria (Mashi, 2012).
Simplicity, Certainty and Clarity Taxpayers should understand and trust the tax system,
and this can only be achieved if the Nigerian Tax Policy keeps all taxes simple, creates
certainty through considerable restrictions on the need for discretionary judgments‟ and
produces clarity by educating the public on the application of relevant tax laws. It is,
therefore, imperative that the Nigerian Tax System should be simple (easy to understand by
all), certain (its laws and administration must be consistent) and clear (stakeholders must
understand the basis of its imposition).
Low Compliance Cost; To enable a high level of compliance, the economic costs of time
required and the expense which a taxpayer may incur during the procedures for compliance
shall be kept to the absolute minimum at all times. Furthermore, taxpayers should be
regarded as clients with the right to be treated respectfully.
Low cost of Administration A key feature of a good tax system is that the cost of
administration must be relatively low when compared to the benefits derived from its
imposition. There must, therefore, be a proper cost-benefit analysis before the imposition of
any taxes and the entire machinery of Tax Administration in Nigeria should be efficient and
cost effective.
Fairness Nigeria’s tax system should be fair and as such observe the objective of horizontal
and vertical equity. Based on the foregoing, there must be overwhelming reasons for granting
tax incentives, and concessions shall be, as much as possible, be general and apply to all
taxpayers.
Flexibility Taxes in Nigeria should be flexible enough to respond to changing
circumstances. Prevailing circumstances should also be considered before the introduction of
new taxes or the review of existing ones.
Economic Efficiency The Nigerian Tax System shall, at all times, strive to minimize the
negative impacts of taxes on economic efficiency by ensuring that the marginal tax rates do
not distort marginal propensity to save and invest (Mashi, 2012).
2.2.3 Reasons for the Imposition of Taxes
The major reason why government imposes tax is to collect revenue to prosecute her
programmed, provision of social goods and services (UNESCO 2010)
According to Todoro (2007) the following are reason why government impose tax
To cover the cost of general administration defense, maintenance of law and order and social
service rendered by the state.
To Raise Revenue: One of the primary aims of taxation is to raise revenue for the
government, in West Africa, taxes both direct and Indirect contribute over 80% of
government revenue. Revenue collected enables the government to meet the cost of general
administration, defense and the provision of social services.
To Reduce Disparity Between Income and Distribution: The distribution of income in any
society is not equal it is through the imposition of tax that such gap can be reduced. The
method used is to impose heavy tax rate on those with higher income and very low tax rate
on the poor. The revenue so collected under the arrangement with then is spend on provision
of social goods and services to be enjoy by all.
To Protect Infant Industries: The newly established industries or infant industries are
usually protected from the well-established once from the advance countries through the
imposition of heavy import duties.
To Correct Balance of Payment Problem: When a country suffers from balance of
payment dimculties due to excess imports over exports, the government taxes imported goods
more heavily than the exported goods. This is aimed at restricting or discouraging imported
goods and encouraging more exports good.
To Check Inflation: Government can raise revenue to prevent inflation income of the
consumers, hence they will be able to buy less if demand fall, the rising price will eventually
fall too.
To Check The Consumption Of Commodities Regards As Harmful Or Luxuries:
Commodities which are considered harmful or luxurious are heavily taxed in order to reduce
their supply in a country e.g. cigarette, beer, petrol etc.
To Achieve Other Economic Goals Of Government: The services of national debt
however small it is, demands that a responsible government should be able to meet her debt
obligations as at when due.
To Reduce Inequality Incomes: Government aim of reducing the widening gap between the
rich and poor by means of a progressive tax than the poor.
To Implement Government Policy: Taxes are imposed sometimes so industry and even
render assistance to areas affected by natural calamities or suffering from an acute
unemployment problem.
2.2.4 Types of taxation
In Nigeria, the Federal Inland Revenue Services has identified nine types of taxes in Nigeria
to include
Company Income Tax
Company income tax is a charge on business profits of companies except such companies are
clearly exempted under the Act. Companies in Nigeria are expected to pay a flat rate of thirty
percent (30%) on their taxable/chargeable profits after adjusting for allowable expenses, nonallowable expenses; non-allowable income and education tax. Howev the Finance Act 2019
introduced a progressive form of company income tax, exempting companies with annual
turnover of less than N25m from company tax and minimum tax; and reducing the tax rate of
medium sized companies (with annual turnover of N25m to N100m) to 20 per cent (Finance
Act, 2019). Thus, only companies with annual turnover in excess of N100m will pay tax at
the rate of 30%. Companies subject to company income tax, tax represents a sacrifice based
on the profits of companies for the purpose of creating revenue for the government (Doki &
Sule, 2015). The company income taxes paid during the years under review were logged as
its measurement scale.
Tertiary Education Tax
Another form of direct tax payable by companies in Nigeria is the tertiary education tax.
Tertiary education tax is tax imposed by the Tertiary Education Trust Fund Act, 2011 on the
assessable profit of all companies registered in Nigeria. The tax is applicable at the rate of
two percent (2%) on the assessable profits of a company registered in Nigeria, other than a
small company as defined under the Companies Income Tax Act, and it is payable annually.
The tertiary education tax imposed is due and payable within 60 days after the FIRS has
served notice of the assessment on a company (CITA, 2004)
The primary responsibility of every government all over the world is to ensure security,
freedom and welfare of its citizen. For instance, Section 16(1b) of the 2011 Constitution of
the Federal Republic of Nigeria states that "the government has the responsibility of ensuring
the maximum welfare, freedom and happiness of its citizens" (Federal Government of
Nigeria, 2011). To effectively carry out its primary function and other subsidiary functions,
governments need adequate funding. Unfortunately, Government responsibilities continue to
increase over time especially in developing country like Nigeria; as a result of growing
population of citizens, and technological development. Agbionu et al. (2017) concluded that
an increase in average education expenditure can increase long-run growth particularly in the
rich countries. Brunela (2018) compared the impact of investment in health with investment
in education and showed that the impact of investment in health has a stronger impact on
economic growth than investment in education. Investment in education is a key driver of
future development. There is empirical evidence that education expenditure is positively
associated with future economic growth (Federici & Parisi, 2015). .
The tax was introduced in 1993 for the purpose of sustaining the educational system
by supporting research and infrastructural development. Education Tax was viewed as a
social obligation placed on all operating entities in ensuring that they contribute towards
developing educational facilities in Nigeria. An education tax rate of 2 percent is imposed on
the assessable profit of all companies incorporated in Nigeria (Ekeocha, Ekeocha, Malaou &
Oduh, 2012). In this study education tax was measured using natural logarithm of education
tax paid during the years under review.
Withholding Tax
Withholding tax is a tax deducted at source from payments made to a taxable person for the
supply of goods and services. It is not another form of tax, but simply an advance payment of
tax, as the withholding tax deducted at source is off-settable against any subsequent tax
liability that may be due in respect of other income. In certain cases, the withholding tax
deducted at source is the final tax in the hands of the recipients (CITA, 2004; ICAN 2023).
National Information Technology Development Tax
Information Technology (IT) is the automation of processes, controls, and information
production using computers, telecommunications, software and ancillary equipment such as
automated teller machine and debit cards. Communication technology deals with the physical
devices and software that link various computer hardware components and transfer data from
one physical location to another (Lin, 2017). A structured approach in the development of tax
policy can generate positive effects on tax certainty along several channels, for instance by
engaging key participants of the private sector in the consultation, pre- and postreform/change, and by having safeguards to guarantee a good drafting of tax law and
ultimately the clarity of tax legislation. Zwick and Mahon (2017) found a negative
relationship between tax and cash flow of US firms, while Garrison (2018) found a positive
relationship between tax and risky investments.
Value Added Tax (VAT)
This is an indirect Tax levied on goods and services. The VAT system is an invoice-based
and paid at several points through goods or services production lines, it implies that each time
value is added and a sale is made. Every seller in the production chain charges a VAT tax to
the buyer. The amount of tax levied at each sale along the chain is based on the value added
by the latest seller. It is expected to file VAT monthly at the correspondence Tax Office of
the tax payer. The previous month activities i.e Sales or Services rendered should be reported
on or before the 21st of the following month E.G Sales activities for the month of January
must be filled and paid for on or before 21st of February. The Law govern this Tax is (VAT)
Decree 102 of 1993 and Cap VI LFN. It was reviewed to 7.5% from 5% 2019 Finance Acts
Increase the revenue from the Federal, State and local governments; According to Ozigbo
(2022).The major objectives of VAT include: Bring down the country’s overdependence on
fossil fuel as a major foreign exchange earner; Shift taxation to consumption instead of
savings; Encourage export and enhance favourable balance of payment; Redistribute wealth
by maintaining even tax incidence across various value chains of production. But whether
VAT as it is in Nigeria today has played the role of a booster to investment remains a subject
of academic debate
Petroleum Profit Tax (PPT):
The taxation of Petroleum Operations started in Nigeria in 1959, with the enactment of the
Petroleum profits Tax Act. In view of the importance of Petroleum operations as a major
source of revenue for the government (over 80% of the nations annual for
eign exchange earnings), the ownership and the control of all natural petroleum products
(crude oil & gas) wherever student in Nigeria, is vested in the federal Government.
Petroleum operations under this Act, involves Petroleum Exploration, Development,
Production and the sale of Crude Oil and Gas. Activities of Petroleum Companies taxed
under their Act, are regarded as being engaged in the Upsteam operation 40 sector of the oil
and gas Industry. Conversely, companies engaged in petroleum refining, petroleum
marketing and Gas utilization project, are classified as being engaged in the Down stream
operation sector of the oil and gas industry. This letter class is taxed under the companies
income Tax Act cap C21 LFN 2004).
Capital Gain Tax (CGT):
Is a tax on the profit obtained from disposal or exchange of chargeable assets. The rate of
Capital Gains tax is 10% of the profits from the sale of the qualifying assets. It is recognized
in law under the Capital Gains Tax Act Cap C LFN as amended Capital Gains Tax. The
allowable expenses in the cause of disposing the chargeable asset will be deducted from sales
proceed to arrive at the Net Sales Proceeds then deduct the original cost of purchase of the
disposed chargeable asset.
Stamp Duties (SD)
This type of tax is governed by Stamp Duties Act, CAP S8, LFN 2004 (as amended). It is a
tax administered on instrument or written documents, it is primarily tax on transactions which
involve an acquisition of land or buildings. Both Purchaser/transferee has to pay stamp duty
in case of exchange of properties. Stamp duty is chargeable either at fixed rates or ad valorem
(i.e. in proportion to the value of the consideration), depending on the class of instrument or
written document. This type of tax due to companies is assessed and collected by FIRS while
Stamp duties due from individuals are paid to the respective State Government, while
corporate bodies pay theirs
to the Federal Government. A commissioner of Stamp duties
adjudicates on the amount of duty payable on the instrument. It is charged on Share Capital,
Deed of Assignment, Debenture, Bills of Exchange, Proxy Forms, Guarantor Forms etc.
Custom and Excise Duties Management Act CAP C45 LFN 2004:
A major source of revenue for the Federal Government is custom Duty, which is payable, by
importers of specified goods. The tax is charged solely by the federal government and
collected through the Nigerian customs services. Excise duty is levied on a variety of locally
produced goods. It was abolished in 1998 but was partially re-introduced from 1st January,
1999. It is also collected through the Nigerian customs service. The rates vary depending on
the nature/classification of the goods or products. (ICAN, 2009).
2.2.5 Stake holder wealth
Stake holders wealth (domestic investment) is the collective wealth conferred on shareholder
through their investment in a company, also refers to as shareholder equity, it is calculated as
difference between assets and liabilities. Individual shareholder is measures in term of the
number of shares own in a company and the market value of those shares. It also refers to the
amount spent by a company or an economy on total assets, or gross investment, less current
liabilities. Shareholders equity helps to give a sense of how much money a company is
retained on total asset used for operations, such as property, plants, equipment and software
and inventories Subtracting liabilities from this amount or capital expenditure (CAPEX)
(since capital assets lose value over their life because of wear and tear, obsolescence, etc.),
provides a more accurate picture of the investment's actual value. Net cash flow refers to the
difference between a company's cash inflows and outflows in a given period. In the strictest
sense, net cash flow refers to the change in a company's cash balance as detailed on its cash
flow statement (Vaidya, 2018).
Effect of Company Income Tax on Stake holder wealth
Taxes can affect growth through their impacts on factor accumulation and total factor
productivity. With regard to the first channel, taxes can raise the cost of capital and reduce
incentives to invest. To the extent that higher tax rates discourage investment and economic
growth will be adversely affected (Ferede and Dahlby, 2012). The adverse effect of taxes on
entrepreneurship reduces the creation of new ideas and lowers total factor Productivity
(Ferede and Dahlby, 2012). It can be derived that the corporation tax policy can affect
consumption, investment activity and employment to some extent. An appropriate tax system
can lead to the optimal resources allocation and to the increase of economic growth. Most
studies which are in this area however employ only tax rates which have only limited
informative value about actual tax burden (Kotlan et al., 2011).
Effect of National Information Technology Development Tax on Stake holder wealth
Section 12 (2a) of the National Information Technology Development Agency Act, 2007
provides that certain companies are under obligation to pay information technology tax and
such companies include: Telecommunications companies, finance institution, insurance
companies, pension managers, internet service providers and cyber companies. These
companies are expected to pay the tax at the taxable rate of 1% of their gross profit. Unlike
companies income tax where the tax is charged based on the net income or profit (that is
income after deduction of expense or exempted income or deductible income from the gross
or aggregate income), information technology tax is taxable on the gross profit of a company
before any deduction is made. Some has argued that this tax is an additional burden on
companies considering the 30% of companies’ income tax already liable for such could lead
to multiple tax from the same tax base or income. Some also argued that it could lead to tax
evasion and create unnecessary complexity in the administration of tax. It is important to note
that it is not all companies listed above have the liability to pay. To be liable under the Act,
such companies must earn at least an annual profit of 1 million Naira. This caveat tend to
protect such companies which originally would have fallen under the Act but make little
profit on an annual basis.This caveat can also be used as an escape route by companies to
escape tax liability by hidden some profit made by it. The information technology tax is
administered by the Federal Inland Revenue Services (FIRS).Once the tax is collected, it is
put into a trust fund account called the Information technology Development Agency trust
fund. This money is exempted from income tax. The penalty for non-compliance is 2% of the
levy payable. Furthermore, any company, agency or organisation that fails within two months
after a demand note, to pay the levy commits an offence and is liable on conviction to a fine
of not less than 1 million Naira and the chief executive officer of the company, agency or
organisation shall be liable to be prosecuted and punished for the offence in like manner as if
he had himself committed the offence, unless he proves that the act or omission constituting
the offence took place without his knowledge, consent or connivance (Atuma, 2018)
Effect of Withholding Tax on Stake holder wealth
A taxpayer has no option as to whether to pay it or not as the person making the
payment is statutorily required to deduct. Failure to deduct attracts sanctions. Furthermore, it
is an advance payment of income tax and can therefore be utilised as tax credit against
income tax liability of the year to which the income relates and any unutilised withholding
tax may be carried forward and set-off against income tax of future years. The administration
of withholding tax is within the purview of both the Federal Inland Revenue Service and the
State Internal Revenue Service. While the SIRS collects withholding taxes due from
individuals and unincorporated business entities residing in the state during a year of
assessment, the biggest effect of withoding tax will be that investment total returns will
decrease due to the 5% bite that is pay out of the dividend declared, also rational investor
may probably be pushed away from risky investment the FIRS collects withholding tax
from amount due to corporate bodies, military and police officers, external affairs offices.
However, with effect from 2015, the FCT IRS is responsible for collecting withholding tax
from non-residents and residents of Abuja.
Effect of Value Added Tax on Stake holder wealth
The theoretical tax incidence literature argues that if a tax affects the price of an accumulated
factor of production (physical capital, human capital and technology) then this tax is
distortionary. An increase in distortionary taxation discourages the economic activities and
consequently lowers the growth rate of economic output (Mureșan et al., 2014). At the same
time, a high VAT rate limits the possibility of consumption and investment, and it generates
negative effects on the supply and the demand of economic goods produced by economic
agents. The increment of the value-added tax has negative effects on inflation by increasing it
and it has a series of inconvenient consequences on the economy (Mureșan et al., 2014). The
income effect of VAT on aggregate consumption is clearly negative because the rise in the
VAT rate will decrease people’s disposable income. In addition to income effects, a change
in the VAT rate has a substitution effect, which means even if the government reduces the
income tax rate in order to offset the decrease in people’s income due to the rise of the VAT
rate, aggregate consumption will change (Bumpei, 2011). On the contrary, Adereti et al.
(2011) reveals that though a positive correlation exists between VAT revenue and stake
holder wealth, but there is no evidence of causality between the two variables. Owolabi and
Okwu (2011) on the other hand found that valued added tax revenue contributed positively to
the development of the respective sectors
Effect of Personal Income Tax on Stake holder wealth
Akaegbu (2012) has attributed the lapse in poor investment growth and low contribution to
GDP by Nigerian Manufacturing sector to a persistent increase in multiple taxation. He
pointed out that multiple taxation has affected the GDP in the country, which has declined
from 9.5% in 1975 to 6.65% in 1995, 3.421% in 2010. Similarly, manufacturing capacity
utilization declined rapidly from 70.1% in 1980 to 29.29% in 1995, 52.78% was recorded in
2005 but the figure declined to 46.44% in 2010.
Tax Incentives
Tax incentives are instrument for effective stake holder wealths and Foreign Direct
Investment (FDI). Such incentives should be carefully planned so that fiscal incentives would
not entail the risk of distortionary effect (Oloichi, 2014). Any Government company income
tax policy which increases the rate and reduces tax and investment incentives would
drastically reduce investment. On the other hand tax incentives incite investment growth rate.
Apart from the corporate income tax, other taxes such as Valued Added Tax, property tax,
royalty payments, and import tariffs affect investment. Tax incentives include tax holidays,
grants, capital allowance acceleration, enhanced deductions, and special investment
allowance among others (Oloichi, 2014).
2.2.6 Challenges Facing Tax System, in Nigeria
The Nigeria tax system is beset by a myriad of challenges, some of which are highlighted
below (FRN 2002; Ariyo 2007; Ola 2001; Odusola 2002, 2003; study group on tax reform
2003);
Non availability of Tax Statistics:
Taxation has been the oldest governmental activity since the country’s unification is 1914, so
one would expect tax statistics to be readily available. This expectation, however, is
misplaced. With the exception of the states of Delta, Lagos, Kaduna and Katsina and the
Nigeria Customs Services, other agencies of the states and relevant federal tax offices have
serious failures in data management. Moreover, there are no efforts to have the limited data
that are available collated or analyzed on a routine basis, not to mention, having it stored, or
made more easily assessable or retrievable. This situation does not provide much input to
policy process.
Inability to Prioritize Tax Effort:
The political economy of revenue allocation in Nigeria does not prioritize tax efforts. It is,
instead, anchored on such factors as equality of states (40 percent), pollution (30percent)
landmass and terrain (10percent), social development needs (10 percent), and internal
revenue effort (10percent). The approach, discourages a proactive revenue drive, particularly
for internally generated revenue, makes all government tiers heavily reliant on unstable oil
revenues which are affected by the volatility of the international oil markets. Aside from the
national syndrome of ‘cake sharing’, the instability and volatility of oil revenue should have
created an opportunity for improved tax efforts within the provisions on taxation ratified in
the 1999 constitution. Although some state governments have initiated measured to enhance
their tax generation attempts, the outcome has not reflected any level of serious effort.
Poor Tax Administration:
Tax administration and individual agencies suffer from limitations in manpower, money,
tools and machinery to meet to meet the ever increasing challenges and difficulties. In fact,
the negative attitude of most tax collectors toward taxpayers can be linked to poor
remuneration and motivation. Philips (2007) consider the paucity of administrative capacity
as a major impediment to the government in its attempts to raise revenue in Nigeria. As of
March 2003, the federal inland revenue service (FIRS) had 7,660 staff members throughout
the country; of these a mere 12.6 percent, or 645 employees, were tax professionals/officers.
The predominance of support staff in a professionally inclined agency like the FIRS does not
augur well for the country. The situation at the local government level is more precarious.
Anecdotal evidence shows that staffs are not provided with regular training to keep them
abreast of developments in taxrelated matters. This makes the administration of taxes in
terms of total coverage and accurate assessment very weak.
Multiplicity of Tax:
A major problem facing the country is the multiplicity of taxes. Individuals and corporate
bodies complain about the ripple effects associated with the duplication of tax, this problem
arose from the states’ complaints about the mismatch between their fiscal responsibilities and
fiscal powers or jurisdiction. To compensate, some states took the initiative of levying certain
taxes, which has led to arbitrariness, harassment and even closure of businesses. To rectify
this embarrassing situation, the taxes and Levies Act of 1998 was enacted. Lagos state is a
good example of efforts to offset the inequitable distribution of VAT proceeds: it imposed
certain taxes and proposed a re-introduction of the sales tax. To control multiple taxation, the
join tax board started to publish a list of approved taxes and levies and to declare an other
unspecified taxes illegal. This has created a degree of harmony, and checked the hitherto
rampant taxation that had made the business environment in Nigeria so harsh.
Corruption
It has become increasingly understood that without the imposition of fundamental and
complementary changes, tax reforms would not have a long lasting impact. as noted. “In
many cases, political corruption is at least as serious as corruption of the tax bureaucracy.
Low salaries for tax officials, political protection of prominent tax evaders, poor monitoring
of junior officials, high tax rates, high levels of discretion for the tax official, and poor
information, generally are some of the Africa, Asia and Latin America” (Bowles 2008:). At
what point are the policy makers, bureaucracies, and taxpayers ready to make fundamental
changes towards reducing corrupt practices is a question to which there is no prior or easy
answer. As noted earlier, globalization has increased the urgency for such fundamental
changes, but it is the internal dynamics of each society that will determine whether the
needed changes will be made. Measures to reduce corrupt practices are needed on a variety of
fronts, and they need to be applied on an ongoing basis over a long period of time. (the world
bank, 2007).
It is also essential to distinguish between an ideal tax system and tax reform. The
latter involves improving the exiting trade-offs between revenue generation equity,
efficiency, and tax administration and compliance. This assumes the existence of a robust tax
system and entrenched practices. Thus, strategies that address difficulties embedded in the
political economy of the country, and that address economic literacy and political and
leadership skill in particular, are essential in fundamentally tackling the causes of corrupt tax
practices(Odusola 2003)
Complexity of Tax Laws
Tax laws in Nigeria are complex and difficult for the common taxpayer to understand, and
some cases are problematic even for literate officials. In addition to lack of understanding,
many taxpayers are unaware of the existence of certain taxes. This coupled with the lack of
information, laziness of the tax officials, uncooperative taxpayers and the habit of quick fix;
solutions –encourages the use of ‘the best judgement approach. This may be a manifestation
of the poor tax education and weak fulfillment by tax authorities of their responsibilities with
regard to public awareness.
Unpopularity of The Tax System: Tax paying company has made collection system quite
unpopular by using available loopholes, some taxpayers are of the view that rates are
extorting and the timing is inconvenient for taxpayer;
Inefficient Collection Machinery: One of the major problem income tax collections in
Nigeria is an inefficient tax collection machinery non Specification of tax laws are all
contributing to the ineffective and science system of correcting company income tax in
Nigeria;
Tax Avoidance: Tax avoidance has been clearly described as a means of arranging ones
affair in such a way to reduce tax liability without is breaking the law, tax avoidance involve
a great and careful planninga sometimes making use of any loopholes in the tax legislation to
avoid payment too much tax can invest;
Tax Evasion: Tax evasion unlike tax avoidance is an act outright illegal act of the taxpayer
perpetrated with the aims of avoiding tax liability of individual or company. It is a serious
societal problem that calls for urgent measure to slim the trend. Onadapo, (2008) says that 15
to 25% of the tax evaders are limited liability companies when this is quantified in terms of
revenue loss; it than becomes clean now serious at this crime is in part is commissioner of
taxation. It is perhaps inevitable in an acquaintance society that taxation is regarded as a
burden which those are subject to it will seek to escape by any lawful means that may be
found.
2.3 Theoretical Review
Earlier researchers who conducted research studies on the subject matter had used different
theories to explaining the relationship between various forms of taxation and stakeholders.
These theories include but not limited to Laffer Curve theory stakeholders’ theory, agency
theory, Sacrifice t heory, Optimal Taxation Theory, ability to pay theory, signaling theory,
bird-in-the-hand theory. This study focused on benefit received theory and stakeholders’
theory. This study examines the originators of these theories, the philosophy underpinning
the theories, assumptions and their relevance to the study.
2.3.1 Laffer Curve Theory
The theory of Laffer curve was propounded by Arthur Laffer in the year 1979. It shows the
relationship between tax rates and tax revenue collected by government. The Laffer curve
illustrates the concept of taxable income elasticity. That is taxable income will change in
response to changes in the rate of taxation. It postulates that no tax revenue will be raised at
the extreme tax rates of 0% and 100% and that there must be at least one rate which
maximizes government tax revenue. The curve suggest that as taxes increase from zero level,
tax revenue collected by the government also increases. It also shows that tax rate increasing
after a certain point, would cause people not to work as hard (or reduced level of investment)
thereby reducing tax revenue and investment. If tax rates reached 100% (the far right of the
curve) then all people would choose not to work or invest because everything they earned
would go to the government.
2.3.2 Stakeholder Theory
The stakeholder’s theory holds that corporations serve a broader purpose than just
maximizing the wealth of shareholders. It is therefore considered an extension of agency
theory given the need to take care of stakeholders key to the achievement of a firms
objectives through improved customer relations, employee motivation and supplier stability.
The theory articulated by Freeman (2005) directs how managers operate and emphasizes the
need to have corporate acountability to groups or individuals that interact with a firm and that
affect or are affected by the achievement of the firm’s objectives. Freeman et al. (2004)
indicates that the theory encourages managers to articulate the shared sense of the value they
create, and what brings its core stakeholders together. This propels the firm forward and
allows it to generate outstanding performance, determined both in terms of its purpose and
service to its stakeholders.
Consequently, organizations are expected to take into account the interests interest
groups linked to it through social, environmental and ethical considerations (Donaldson and
Preston, 2005; Freeman et al., 2004). However, one of the key concerns in corporate
governance is to identify the relevant stakeholders. According to Freeman et al. (2004), a
stakeholder is any group of individuals who can affect or be affected by the activities of the
firm, in achieving its objectives. Clarkson (1994) argues that any stakeholder is relevant if
they have invested in a firm and their investment is open to risk from the activities of the
organization. Wheeler and Sillanpaa (2007) identified stakeholder as varied groups
comprising of investors, managers, employees, customers, business partners, local
communities, civil society, the natural environment, future generations and non-human
species.
The stakeholder theory is relevant in corporate governance studies as it directs
managerial behavior in corporate entities. It recognizes stakeholders as a mechanism to
ensure efficient operation of a company. Freeman (2004) argues that the managers react to
pressures put forth by stakeholders as it gives them legitimacy and relevance. The current
governance approaches also underscore the economic value created by people who come
together and cooperate to improve firm performance. Managers must therefore develop
relationships and inspire their stakeholders to give their best to enhance the value the firm.
Consequently many firms have developed governance practices highly consistent with the
stakeholder theory. The stakeholder theory like the resource dependency theory, proposes the
representation of the various interest groups on the organization’s board in order to attract
crucial resources from the environment. According to Turnbull (2007), they are considered
instrumental to corporate success as their participation in corporate decision-making can
enhance returns, efficiency and corporate value. The involvement of stake holders also
ensures consensus building and to avoid conflicts in a firm (IFC, 2009). The involvement of
stakeholders in corporate management is therefore expected to contribute positively to firm
performance. However, the key limitations of the stakeholder theory in corporate governance
studies is to identify the relevant stakeholders who have legitimate interests on the firm and
can be affected by company’s policies and operations. The theory has also been criticized for
putting too much burden on managers by making them accountable to many stakeholders
without specific guidelines for solving problems resulting from conflicting interests.
2.3.3 Agency Theory
Agency theory is the basis used to understand corporate governance. Agency theory
concerns the contractual relationship between members in the company. Jensen and
Meckling (2006) explain that agency relationships occur when one or more people
(principal) employ other people (agents) to provide a service and then delegate decisionmaking authority.
Michelson et al (2005) define agency as a relationship based on an agreement
between two parties, in which management (agent) agrees to act on behalf of the other
party, namely the owner (principal). The owner will delegate responsibility to
management, and management agrees to act on orders or authorization given by the owner.
Agency theory indicates that there are differences in interests between internal and
external parties which can lead to misuse of financial statements.
One of the causes of agency problems is the presence of asymmetric information,
namely adverse selection and moral hazard. Adverse selection is a condition in which the
principal cannot know whether a decision made by the agent is really based on the
information he has obtained, or it occurs as a negligence in his duties. Moral hazard is a
problem that arises if the agent does not carry out the things agreed upon in the work
contract. The relationship between agency theory and this study is that there is a difference
in interests between the tax authorities and the company which will lead to noncompliance by taxpayers or company management which has an impact on the company to
do tax avoidance. In the practice of implementing tax revenue, one of the parties that makes a
big contribution is the company. However, the government's goal of maximizing tax revenue
is contrary to the company's goals as taxpayers.
2.3.4 The Sacrifice Theory:
A look at Makinya (2000) attempts to specify the economic burden that a taxpayer suffers in
relation to payment of taxes and what in virtue of his payment of taxes and how much of his
remains in the aftermath for purpose of his own subsistence. This theory supports the fact are
taxes borne by taxpayers and it is a clear demonstration of philanthropy to the nation.
2.3.5 The Optimal Taxation Theory:
According to Mankiw, Weinzieri and Yagan (2009), the standard theory of optimal taxation
posits that a tax system is selected to satisfy the social welfare need in comparison to a set of
constraints. The work of Mirrlees (1971) produced the second wave of optimal tax models by
designing an approach wherein the expected formal planner’s anxiety is resolved sufficiently
with the unseen heterogeneity of taxpayers. The interpretation from Mirrlees’ framework is
that an imperfect information exists between the taxpayer and social planner. Babatunde,
Ibukun and Oyeyemi (2017) discussed the optimum taxation rate where tax proceeds are
maximized for socio-economic development had been the focus of the various theories
advancing the course of taxation.
2.3.6 The Functional Theory of Labour:
In the words of Waititu, Kihara and Senaji (2017), according to this theory, it is obligatory
upon the employers to render welfare care to the employees. Emphasizing further on this
theory, Waititu et al. (2017) remarked that a better training given to the human personality is
the necessary goal for industrial welfare, which, according to this principle, has the intention
to reserve the negative effects of the industrial system.
2.3.7 Signaling Theory
According to Hartono (2014), information published as an announcement will provide a
signal for investors in making investment decisions. When the information is announced,
market players will first interpret and analyze the information as a good signal (good news)
or a bad signal (bad news).If the announcement of this information is considered a good
signal, investors will be interested in trading shares, thus the market will react as reflected
by changes in the volume of stock trading (Suwardjono,2010).
One type of information released by a company that can be a signal for parties outside
the company is an annual report. Information disclosed in annual reports can be in the form of
accounting information, namely information relating to financial reports or information that is
not related to financial statements.
2.3.8 The Bird-in-the-hand theory
Ahmed and Javid (2009), arguing against the dividend irrelevant hypothesis by Miller and
Modigliani (M and M) (1961), used the bird-in-the-hand theory to asserts that dividends are
relevant and that investors will prefer firms that distribute dividends, which drive up the
firm’s share prices. He used the Gordon and Lintner (1996) equation that return (k) is equal
to dividend yield plus capital gains, and assumed that k would decrease as a company’s payout increased. If a corporation raises its pay-out ratio, investors are worried that the
company's potential capital gains will dissipate as the remaining profits that the company
reinvests in the sector will be lower (Akbar and Baig, 2010). Gordon and Linter (1996)
argued that investors value dividends more than capital gains when taking decisions on
shares. The bird-in-the-hand may sound right, as it is taken from the old adage, "The bird-inthe-hand is worth two in the bush." Here, "the bird in the hand" refers to dividends, and "the
bush" refers to capital gains
2.3.9 Ability to Pay Theory
The origin of ability to pay theory could be traced to Arthur Cecil Pigou (1924). The Ability
to Pay Theory of Taxation is the most common and mostly accepted principle which
emphasizes equity or justice in taxation. The theory states that the citizens of a country
should pay taxes to the government in accordance with their ability to pay. According to this
theory, it is reasonable and just that taxes should be levied on the basis of the taxable capacity
of an individual. In other words, taxes should be based on the amount earned by the tax
payers (Richardson 2008). For instance, if the taxable capacity of a person A is greater than
the person B, the former should be asked to pay more taxes than the latter. According to
Torgler (2007) the theory of ability to pay does not consider the amount of these services
which the taxpayers actually use of enjoy. For example, all tax payers contribute to public
schools even if their kids are there or not. Therefore, this theory would be use to link the
relationship between corporate taxes and employees return.
2.3.10 Diffusion Theory of Taxation
According to Sule, (1986) diffusion theory of taxation, tax is levied under perfect
competition; it gets automatically equitably diffused or absorbed throughout the community.
Advocates of this theory, describe that when a tax is imposed on a commodity by state, it
passes on to consumers automatically. Every individual bears burden of tax according to his
ability to bear it. Assuming a specific tax is imposed on cloth, manufacturer can raises prices
of commodity by the amount of tax and consumers buy commodity according to their
capacity and thus share burden of tax. In the words of Mansfield: It is true that a tax laid on
any place is like a pebble falling into a lake and making circles till one circle produces and
gives motion to another.
2.3.11 Free Cash Flow Theory (FCF)
Free Cash Flow theory was propounded by Jensen in 2006. Free cash flow (FCF) represents
the cash that a company is able to generate after required investment to maintain or expand
its asset base. It is a measurement of a company's financial performance and health. Free cash
flow (FCF) is the cash flows available to all investors in a company, including common
stockholders. FCF provides a useful valuation technique that can derive the value of a firm or
the value of a firm's common equity. FCF measures the level of cash available to a company's
investors net of all required investments in working capital and fixed capital, or capital
expenditures (CAPEX), for a period. FCF or FCFF is an important measure because it allows
a company to pursue opportunities that enhance shareholder value (Amahalu & Ezechukwu,
2017). Excess cash can expand production, develop new products, make acquisitions, pay
dividends and reduce debt. As free cash flow increases, balance sheet strength rises.
However, it is important to note that negative free cash flow is not a bad indicator in itself. If
free cash flow is negative, it could be a sign that a company is making significant
investments. If these investments earn a high return, the strategy has the potential to add
value in the long run
2.3.12 Benefit theory:
According to this theory, the state should levy taxes on individuals according to the benefit
conferred on them. The more benefits a person derives from the activities of the state, the
more he should pay to the government. This principle has been subjected to severe criticism
on the following grounds: Firstly, if the state maintains a certain connection between the
benefits conferred and the benefits derived. It will be against the basic principle of the tax. A
tax, as we know, is compulsory contribution made to the public authority’s to meet the
expenses of the government and the provisions of general benefit. There is no direct quid pro
quo in the case of a tax. Secondly, most of the expenditure incurred by the slate is for the
general benefit of its citizens, it is not possible to estimate the benefit enjoyed by a particular
individual every year. Thirdly, if we apply this principle in practice, then the poor will have
to pay the heaviest taxes, because they benefit more from the services of the state. If we get
more from the poor by way of taxes, it is against the principle of justice?
2.4 Empirical Review
Raza et al. (2011) examined the effect of corporate income tax and firm size on investment in
Pakistan. The study used panel financial data on annual basis for the period of six years from
sample manufacturing Companies. The data were analyzed using multiple regression
analysis. The result concluded that there is a negative relationship between Corporate Income
Tax and Investment, while firm size and investment reveal a positive relationship with each
other.
Ezejiofor et al. (2015) seek to assess whether tax as a fiscal tool affect the performance of the
selected manufacturing companies in Nigeria. Descriptive method was adopted and data were
collected through the use of six years financial accounts of the selected companies. The
hypothesis formulated for the study was tested with the ANOVA using the Statistical
Package for Social Sciences (SPSS)version 20.0. It was found that Taxation as a fiscal policy
instrument has a significant effect on the performance of Nigeria manufacturing companies.
Edame and Okoi (2014) examine the impact of Taxation on investment and economic growth
in Nigeria from 1980-2010. The ordinary least square method of multiple regression analysis
was used. The data was sourced from the Central Company of Nigeria statistical bulletin and
National Bureau of statistics. The result of the analysis showed that the parameter estimates
of Corporate Income Tax (CIT) and Personal Income (PIT) appears with negative signs. This
means that there is an inverse relationship. Implication of the result is that a one percent (1%)
increase in (CIT) will result in decrease in the level of investment in Nigeria. Consequently
an increase in PIT will result in decrease in the level of investment. Therefore it shows that
taxation is negatively related to the level of investment and the output of goods and services
(GDP) and is positively related to Government Expenditure in Nigeria.
Asogwa and Okeke (2013) examined the impact of Value added tax on Investment. Data
from the Central Company of Nigeria Statistical Bulletin (CBN) were analyzed using
multiple regression analysis. The result show that value added tax has significant effect on
investment growth in Nigeria. The sign of VAT does not conform to prior expectation of the
model.
Oloichi (2014) examined the effect of Company Income Tax (CIT) on investment decision of
companies liable under the company income tax act in Nigeria. Questionnaire was designed
to collect data from 180 companies in the south west zone. Findings revealed that company
income tax has influence on the rate of return on investment and Investment Evaluation
criteria; Tax incentives motivate investment. Tax was considered to be very important when
compared with other factors affecting investment decision. Therefore tax policy should aim at
fostering economic growth.
Njuru et al. (2013) investigated the impact of taxation on private investment in Kenya. Vector
auto-regression techniques was used to achieve study objectives. Time series research design
was used covering the period 2004-2010. The study found that VAT, Income tax and
establishment of Kenya Revenue Autonomy (K.R.A) had negative impact on private
investment, while excise tax, import tax amnesty impact positively on private investment.
The study concluded that appropriate tax system and progressive tax reforms are necessary to
ensure that private investors are given enabling environment to establish.
Talpos and Vancu (2009) investigate the effects of Company income tax burden on
investment decision. The study estimated a pool data econometric model with dependent
variables as Gross fixed capital formation per capita and as an independent variable, the
average tax burden of corporation tax. The samples contain time series for the 2000-2007
periods for all the 27 EU member states. Data were collected from Eurostat statistical data
base. The Ordinary Least Square (OLS) method was used to estimate the model. Result
showed that corporate income taxation has a negative impact for some developing former
transition countries. For average and above average countries, the result showed a direct
connection between Gross fixed capital formations, corporate income tax burden with
taxation being a less significant determinant of investment.
Yan and Lu (2013) examined the effect of Value added tax transformation on Non-current
assets investment based on the data of Jiang Su listed companies.The data collected were
analyzed using econometric regression analysis. In overall the transformation of Value added
tax has a positive effect on management and development of Jiangs listed companies.
Funke (2002) examines the effect of Estonia 2000 income tax reforms on taxation and
investment. The study concludes that there is 6% increase in the equipment capital stock over
the long run as a result of the tax reform.
Schwellenus and Arnold (2008) examined the effects of corporate income taxes on two of the
min drivers of growth, productivity and investment of firms in European EDC member
countries over the time period of 1996-2004, through stratified sampling. This is found to be
true across firms of different size and age classes except for young and small firms. The
result suggests that corporate income tax reduce investment through an increase in the user
cost of capital. This may partly explain the negative productivity effects of corporate income
taxes if new capital goods embody technology change.
2.5 Summary of Knowledge Gaps
The Literature review, several researchers seem to concur that there is a relationship between
taxation and stake holder wealth. These conclusions were confirmed after empirical evidence
was obtained from the research. However there seems to be very few studies done with
regard to analysis on the effect of Taxation on the shareholders wealth. Firstly, some studies
focused on different variables like communication, technology and regulation but did not
address variables of this study. Secondly, some studies focused on different sectors like,
Insurance Companies, Higher Institutions Learning and financial institutions in Nigeria.
But not on Manufacturing Companies Thirdly some studies adopted different research
methodologies like cross sectional and longitudinal research designs but not descriptive
research design. In all, the seems to have few studies on the effect of taxation on
profitability of firms and in specific term manufacturing company Therefore, This study is
an attempt to fill this gap in knowledge
CHAPTER THREE
METHODOLOGY
3.0 Introduction
This chapter is devoted to the methodology applied in carrying out the research. The
procedures to be used in gathering data and statistical tools for analyzing the data will be
explained. The following are covered in this chapter:
3.1 Research Design
The objective is to establish the relationship between corporate income tax and profitability;
the research adopted the explanatory (casual) research method to identify the relationship
between the two variables. A panel data study design which combines cross-sectional and
time series data of selected variables of the firms was used.
3.2 Population of the Study
A population is defined as a group of units with similar characteristics or behaviors
the full set of cases from which a sample is taken (Saunders et al., 2009). Further
distinction is made between target population and accessible population. The target
population refers to a set of cases about which the researcher would make generalizations.
While the accessible population refers to one that meets the criteria and would be available
for a study. In this study, the target population which was readily accessible is the entire staff
component of the selected companies in kwara state as tabulated below:
Table 3.1: Population Size of the Study
s/n
Companies
Population in person
1
OLAM
2
TUYIL PHAMACEUTICAL
3
7UP BOTTLING
4
KAM WIRE STEEL IND.
5
LUBCON OIL
Total
Source: Survey Data (2023)
3.3 Sample size and Techniques
A sample is defined by Cooper and Schindler (2006) as the representative of the
entire population. Kothari (2006) concurs that a representative sample more than half of the
total population is justifiable to make objective conclusions on the problem under
investigation. The researcher derived a sample size of 91 from a population of 1152 which
was statistically derived using Yaro Yamane formula shown below.
Yaro Yamane Formula:
S
=
N
1 + N (E) 2
Table 3.2: Determination of sample size for each Company:
Company
Number of staff
Details
Sample size
OLAM
TUYIL
PHAMACEUTICAL
7UP BOTTLING
KAM
WIRE
STEEL
IND.
LUBCON OIL
Total
Source: Survey Data ( 2023)
3.4 Method of Data Analysis
In this study, the researcher uses percentage method to analyze the questionnaire. It
indicates the percentage of the respondent who chooses a particular option. In the test of
hypothesis, Chi-square was used for testing the null and alternative hypothesis.
3.5 Validity and Reliability of Research Instrument
The research instrument which is questionnaire was comprised of carefully drafted
questions that are related to the study and was written in simple, clear and unambiguous
English. The validity of the instrument is necessary to ensures that it is being drafted in an
acceptable manner. To make the questions a validity instrument, a draft was given to the
project supervisor who glance through it before it was eventually approved for administer.
3.6 Data Collection Instruments
The instruments for the data collection will be questionnaire. A self-structured questionnaire
will be developed for the purpose of collecting the main data for the study. The instrument
will be mainly related to the factors that determined the analysis of the effect of taxation on
stakeholder wealth in a manufacturing company. The study will use quantitative as discussed
below.
Questionnaire
Johnson and Christensen (2012) define a questionnaire as a “self-report data-collection
instrument that each research participant fills out as part of a research study”. Questionnaire
as a document containing questions and other types of items designed to solicit information
appropriate for analysis (Babbie, 2014). Bless, Higson-Smith, and Sithole (2013) explains
that questionnaires, is a data collection method that is preferred because it can be used to
collect a lot of information within a short period and offers confidentiality. Structured and
unstructured questions will be used to collect primary data from staff in the selected
manufacturing company. Structured questionnaire comprised of closed-ended items where
respondents will be provided with options to choose from. Also, open-ended items will be
provided where the respondents will be provided with spaces for recording their responses.
The study will use a four-point Likert scale for items of the questionnaire. The questionnaire
will be in sections, section “A” will be comprised of background information and section
“B” will capture variables for each of the specific objectives.
3.7 Data Analysis
Primary data collected from the respondents will be subjected to both qualitative and
quantitative analysis. Primary data solicited using questionnaires will be clean, code and
entered into the Statistical Package for Social Sciences later changed to Statistical Product
and Service Solutions (IBM: SPSS) version 25 software for quantitative analysis. Openended questions responses captured in the questionnaires will be coded to allow for
quantitative analyses. In addition, the quantitative analysis focused on each specific
objectives of the study in an attempt to answer the research questions while Thematic
Content Analysis (TCA) will be used to analyse the qualitative data generated from
interview.
3.8 Model Specification
The specification of the econometric model adopted in this study, builds on theoretical
propositions. The model used in this study is specified as follows;
SHW = F (CIT, WHT, VAT, NITDT, GDP)
Put in linear form, the above model becomes;
SHW = 0 + 1 CIT + 2 WHT + 3 VAT +4 NITDT 4 GDP + U
Where:
SHW = Stake holder wealth of company i in period t; CITit = Company Income Tax of
company i in period t; of company i in period t; WHT it = Withoding Tax of company i in
period t; of company i in period t; VATit = Value added Tax of company i in period t; of
company i in period t NITDT it = National information technology development tax of
company i in period t; of company i in period GDPit = Gross domestic product of company i
in period t μi,t= component of unobserved error term of company i in period t; β0= constant
term; β1 β2 and β3 = are slope to be estimated of company i in period t; ί= company
identifier (8 companys); t= time variable (2018, 2019, 2023) – (five Years).
Methods of Analysis
The above model designed to test the effect of taxation on stake holder wealth was analyzed
using the ordinary least square technique (OLS). The E- view statistical tool was used to
carry out the analysis which includes, the descriptive statistics that shows the properties of
the variables used, including their mean, minimum, maximum values, standard deviation etc.
The cointegration test measured the long run relationship of the variables while the model
estimation shows the impact of the independent variables on the dependent variable which is
stake holder wealth.
3.9 Measurement of Variable
The dependent variable of this study is stake holder wealth and is measured by investment
and and growth ratio such as earning per share (Eps), Dividends per share (Dps), Price
earning (P/E) and or market value (i.e the price that the stock is trades in the market place) of
the firm common stock. Also the independent variable of this study is taxation. However, the
amount of tax revenue to be generate is influence by macroscopic factor as indicated by
regression estimate. It is measure by total amount of annual growth rate of GDP, FDI, foreign
debt, foreign aids, inflation, and exchange rate are the key macroscopic variables that that
determined tax revenue in Nigeria (source; google search).
3.10. Ethical Considerations
Ethical issues in research include confidentiality, honesty, permission to voluntarily partake
in research (Basire, 2011). Participation in the research is voluntary. The researcher obtained
an ethical clearance from the appropriate authority will be sought before administering the
instruments. Also, the respondent’s information provided in the questionnaire will be
guaranteed top most confidentiality. It will be made clear to the respondents that the data to
be gathered is for academic purposes and not for personal gains. In addition, the effort will
also be made by going by the copyright act in the reviewed literature. To reach a reliable and
logical conclusion, the researcher will approach every aspect of the research with caution,
objectivity, truthfulness, and fairness. This study will be duly referenced to avoid plagiarism
which could result in serious ethical concerns. Researcher will abide by the rules and ethics
of the Alhikmah university Ilorin
APPENDIX 1
Department of Accounting
Alhikmah University Ilorin,
Kwara State. Nigeria.
Dear correspondents,
REQUEST TO COMPLETE A QUESTIONNAIRE
I am conducting a research survey on the effect of taxation on stake holder wealth a study of
selected company in kwara state. This project is in partial fulfillment of the requirement of
the award of Master (M.sc) degree in Accounting. I will be grateful if you provide answer
to these questions for me.
The research is purely academic exercise and you are assured that all information given to me
will be treated confidentially.
Thanks, for your cooperation.
Yours faithfully.
Appendix 2: Questionnaire
SECTION A: DEMOGRAPHIC CHARACTERISTICS
1. What position do you hold in your Department?.....................................................
2. What is your Gender?
a) Male
b) Female
( )
( )
3. How long have you worked in the company?
a) 1- 5year
( )
b) 6-10 year
( )
c) 11-15 years
( )
d) 15 years and above
( )
4. What is your highest Qualification?
a) Degree
( )
b) Masters
( )
c) PhD
( )
Appendix 3:
PART B: : EFFECT OF TAXATION ON STAKE HOLDER WEALTH
OF SELECTED COMPANY IN KWARA STATE
Company income tax
Indicate the extent to which you agree with the following statements with regard to effect of
company income tax on stake holder wealth ? Where; 4= Great extent) 3= some extent) 2=
Small Extent) 1= Not at All
S/N
Effect of company income tax on stake holder wealth
1
It is a charge against the company income thereby affect
the share holder dividends.
2
Taxes can affect growth through their impacts on factor
accumulation and total factor productivity.
3
taxes can raise the cost of capital and reduce incentives to
invest.
4
Higher tax rates discourage investment and economic
growth
5
The adverse effect of taxes on stake holder wealth
reduces the creation of new ideas and lowers total factor
of Production
6
.corporate tax affect consumption, investment and
employment.
7
An appropriate tax system can lead to the optimal
4
3
2
1
resources allocation and to the increase of economic
growth.
8
Llimited informative are value about actual tax burden
Types of tax
Indicate the extent to which you agree with the following statements with regard to types of
taxation levy on stake holder wealth ? Where; 3= Yes) 2= No)) 1= No idea
S/N
What are the types of tax revenue generated from stake
holder wealth
1
Company income tax
2
Personal income tax
3
Withoding tax
4
National information and technology development tax
5
Value added tax
6
Petroleum profit tax
7
Capital Gain tax
8
Stamp duties
9
Custom and excise duty management
10
Tenement rate
3
2
1
Value added tax
Indicate the extent to which you agree with the following statements with regard to degree of
effect of education tax on stake holder wealth ? Where; 4= 100%) 3= 75%) 2=25%) 1= Not
at All
S/N
What degree of effect value added tax has on stake
holder wealth
4
3
2
1
1
An
increase
in
distortionary
taxation
discourages the economic activities and
consequently lowers the growth rate of
economic output
2
High VAT rate limits the possibility of
consumption and investment,
3
It generates negative effects on the supply and
the demand of economic goods produced by
economic agents.
4
The increment of the value-added tax has
negative effects on inflation by increasing it
and
it
has
a
series
of
inconvenient
consequences on the stake holder wealth
6
The income effect of VAT on aggregate
consumption is clearly negative on stake
holder wealth because the rise in the VAT
rate will decrease people’s disposable income.
77
a change in the VAT rate has a substitution
effect on stake holder wealthme
Withoding tax
Indicate the extent to which you agree with the following statements with regard to
withoding tax on stake holder wealth ? Where; 4= Great extent) 3= some extent) 2=Small
Extent) 1= Not at All
S/N
Effect of withoding tax on stake holder wealth
1
A taxpayer has no option as to whether to pay it or not
as the person making the payment is statutorily required
to deduct and Failure to deduct attracts sanctions. ,
2
It is an advance payment of income tax
3
Withoding tax utilised as tax credit against income tax
liability of the year to which the income relates
4
Unutilized withholding tax may be carried forward to
set-off against income tax of future years.
5
Withoding tax decrease investment total returns to the
5% bite that is pay out of the dividend declared
6
Rational investor may probably be pushed away from
risky investment
7
withholding tax deducted at source is off-settable
against any subsequent tax liability that may be due in
respect of other income
8
It is not easy to avoid as 5% payment is dedected from
4
3
2
1
source
Purpose of tax
Indicate the extent to which you agree with the following statements with regard to the
purpose of tax on stake holder wealth ? Where; 4= Strongly Agree, 3=Agree, 2 = Disagree, 1
=Strongly Disagree
S/N
Purpose of taxation
1
To Raise Revenue:
2
To Reduce Disparity Between Income and
Distribution::.
To Protect Infant Industries
3
To Correct Balance of Payment Problem:.
4
To Check Inflation:
5
To Check The Consumption Of Commodities
Regards As Harmful Or Luxuries:.
6
To Achieve Other Economic Goals Of
Government:
7
To Reduce Inequality Incomes:.
4
3
2
1
8
2
To Implement Government Policy:
National Information Technology Development Tax
Indicate the extent to which you agree with the following statements with regard to
information and technology tax on stake holder wealth ? Where; 4= Great extent) 3= some
extent) 2=Small Extent) 1= Not at All
Effect
of
National
Information 4
Technology Development Tax
tax on stake holder wealth
1
Information technology tax is taxable on
the gross profit of a company before any
deduction is made. (Allowab espenses)
2
It is an additional burden on companies
considering the 30% of companies’
income tax already liable for such could
lead to multiple tax from the same tax
base or income.
3
Tax could lead to tax evasion and create
unnecessary
complexity
in
the
administration of tax.
The penalty for non-compliance is 2% of
the levy payable.
4
Any company that fails within two
months after a demand note, to pay the
levy commits an offence and is liable on
conviction to a fine of not less than 1
61
3
2
1
million Naira
5
A
structured
approach
in
the
development of tax policy can generate
positive effects on tax certainty along
several channels
7
Information technology tax is taxable on
the gross profit of a company before any
deduction is made.
8
It is an additional burden on companies
considering the 30% of companies’
income tax already liable for such could
lead to multiple tax from the same tax
base or income.
62
Challenges of taxation
63
Indicate the extent to which you agree with the following statements with regard to the
issues and challenges of tax on stake holder wealth ? Where; 4= Strongly Agree, 3=Agree, 2 =
Disagree, 1 =Strongly Disagree
S/N Challenges encounter by tax payer
1
Non availability of Tax Statistics:
2
Inability to Prioritize Tax Effort:
4
Poor Tax Administration:
5
Multiplicity of Tax:
6
Corruption
7
Complexity of Tax Laws
8
Unpopularity of The Tax System:;
9
Inefficient Collection Machinery:
10
Tax Avoidance:
Tax evation
64
4
3
2
1