1.1 BACKGROUND OF THE STUDY
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.