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Full Project on Impact of Double Taxation on the Performance of Small Scale Businesses


                                                                                            CHAPTER ONE






            In recent  time the  world economy  has  developed tremendously  and this  has  been linked  with  activities  of  Small Scale business or enterprises,  especially in  developing countries. Asmelash  (2002)  describe  small  scale  enterprises  as  an  activities  engaged  by people  who  are  unable  to  secure  paid  jobs  or  start  economic  activities  of  their choice.  These  kinds  of  business  are  family  oriented  and  are  often  manage  or controlled  as  family  business.  It  is  an  accepted  fact  that  small  and  medium  scale  is an  engine  to  economic  growth  of  the  economy. Governments,  and  even policy makers  and  academics,  take  the  survival  of  small  scale  enterprise  very  serious because  of  their  roles  in  economic  development. Many  small  scale  business  promoters  find  it  easy  to  start  the  business  because  of the little  capital  involved.  The  small  scale  business  entrepreneurs,  especially  in  Ilorin metropolis, Kwara State of  Nigeria,  are  confronted  with  diverse problems  which  often  leads  to  liquidation  of  their  businesses.  One  of  the  main challenges  confronting  small  scale  business  promoters  is  the  issue  of  tax.


            According  to  Arnold  and  Mclntyre  (2002),  tax  is  a  compulsory  levy  imposed  by government  on  citizen  income  and  consumption  of  goods  and  services.  Adeniyi and  Adesunloro  (2017)  view  tax  as  an  important  avenue  for  government  to  raise money  in  order  to  finance  her  projects  and  programs. To be able to reasonably generate finances through taxation, government should be more interested in providing the enabling environment for businesses to incubate, harsh, flourish and survive into the nearest foreseeable future. The  fundamental  philosophy of  taxation  is  taking  from  the  citizens  according  to  their  abilities  and  giving  back  to them according to their needs. Double or multiple taxation on the other hand, is the imposition of different types of taxes that could have come under one major tax form on the people by the government. However, within the context of this work, all compulsory payment made by individuals and institutions to the government are regarded as tax. A good tax possesses the following qualities: fairness, convenience, simplicity, and minimum cost of collection and minimum distortions.


            Study carried  out  by the Federal Office  of Statistics shows that  in Nigeria, Small and  Medium  Scale Enterprises make up  97%  of the economy.  (Ariyo, 2005),  Although  smaller  in size, they  are  the most  important enterprises  in the economy  due  to the fact  that when  all the individual effects  are aggregated,  they  surpass  that  of the larger companies.This is an indication that if well supported, small and medium scale enterprises (SMEs) could be very important economic drivers; which is largely due to their innate ability to generate jobs, sales, economic dynamism and other related economic activities needed for a vibrant economy. Thus, it is to the immense advantage of Ilorin to be consciously, systematically and consistently committed to the building and sustainability of a strong and virile SMEs sector. SMEs have been identified as a major contributor to GDP and employment developing economies. For example, their ‘analysis of nine emerging markets has shown that SMEs account for approximately 40 per cent of GDP and 65 per cent of employment. The social  and economic  advantages  of small  and  medium  scale  enterprises  can not  be  overstated.  Panitchpakdi  (2006) sees  small scale business (SMEs) as   a  source  of  employment, competition,  economic  dynamism,  and  innovation  which stimulates  the  entrepreneurial  spirit  and  the  diffusion  of  skills. Because they  enjoy  a wider geographical presence  than big companies, SMEs  also  contribute to  better income distribution.  Over the years,  small  and  medium  scale  enterprises  have  been  an  avenue  for  job  creation  and the empowerment  of  Nigeria’s citizens providing about 50%  of  all  jobs in  Nigeria  and also for local capital  formation. Being highly  innovative,  they  lead to  the utilization  of our natural resources  which in turn  translates  to increasing the country’s wealth through higher  productivity. Small and medium  scale enterprises  have undoubtedly  improved the  standard of living  of so  many  people  especially  those in  the  rural areas  (Ariyo,  2005).  However, the  mortality rate  of these  small firms is very  high. According to  the Small  and Medium Scale Enterprises Development Agency of Nigeria  (SMEDAN) Nigeria,  80%  of  (SMEs) die  before  their 5th  anniversary. Among the factors responsible for these untimely  close-ups  are tax  related issues, ranging from high tax rate, complex filling procedures, double or multiple  taxations  to enormous  tax  burdens etc.  In  many  government  policies,  small  and  medium  scale enterprises  are  usually  viewed  and  treated  in  the same  light as large  corporations. However,  their size and  nature  makes them  unique. Therefore,  in  dealing  with  small  and  medium scale enterprises,  these  unique  qualities  need  to  be  considered.  In  levying  of  taxes  for these enterprises  in  particular, issues  that  need  to  be  considered  are how these tax  policies  can  be  designed to  bolster  the  growth of SMEs and the most effective ways to administer them.


                 The importance of (SMEs) as a mechanism for economic growth and development is often ignored, they  are perceived  as  minute establishments  that  have minimal effect  on  the state of the economy. However, if favorable  environment  is created for these  small scale business  to  grow through  proper regulation,  the  SMEs sector  has  the highest propensity  to transform our  economy. In the same light, taxes  are important for the government as  they  are  the major source  of funds  for government expenditure.  Income  obtained from  taxation  of  individuals  and  businesses  are  used to run governments as  well  as provide  infrastructure  such as  good roads,  water  supply,  and  electricity  which  are essential for the smooth running of  these businesses  that  are mainly  manufacturing companies  and as  such  rely  on these commodities  to survive. According  to  Decree  28  of  1998,  there  are  categories  of  taxes  and  levies  to be collected  by  federal  government,  state  government  and  local  government  in Nigeria.  However, Holban  (2007) posited that  taxation  can contribute  to  development and  to  welfare  through  three sources; It must be  able to  generate sufficient  funds  for financing public  services  and social  transfers  at a high level  of  quality,  it should  offer  incentive for  more  employment  and  for  an  efficient  and  lasting  use  of  natural  resources,  finally  it  should  be able  to reallocate  income. But  in  the  case  of small scale business ( SMEs) tax must be  done  in  such  a  way that  puts their income  and  need  for survival into  consideration. The  tax  policy  must  be  one that  will  not  encourage  small scale business (SMEs) to remain  in  the  informal  sector or  to evade  or avoid tax  payments.  More so, many  small firms  in Africa, including  Nigeria, choose to remain in the informal sector because  the  perceived  benefits  outweigh  the  perceived costs.  Firms  rarely  see  their  tax  contributions  at  work  and the compliance costs  are high, thus discouraging compliance.

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