1.1 Introduction
Tax is the transfer of payments from the private sector and public sector employees to the public sector. It constitutes the principal source of revenue to finance government expenditure and also acts as an instrument of fiscal policy. Nigerian economy as a number one economy in Africa and emerging economy in the world has many problems militating tax revenue mobilization as a source of financing developmental activities.
Federal Inland Revenue Services faces the challenges of widespread tax evasion, which is motivated by a complaint about corruption and poor quality of services. According to IMF Developing countries must be able to raise the revenue required to finance the services demanded by their citizens and the infrastructure that will enable them to move out of poverty. Taxation will play the key role in this revenue mobilization.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitation of the study and Definition of terms.
1.2 Background of Study
In Nigeria, since the late 1980s, taxation has become a major instrument of stabilization. The reasons for the instrumentality are not inconsiderable. First, due to the dominant role of the public sector in major economic activities in Nigeria; this can be traced to several factors, which include the emergence of oil sector and its attendant oil boom of the early 1970s, the need for reconstruction of the devastated areas in Nigeria after the civil war that lasted between 1967 and 1970, the industrialization strategy adopted (import substitution policy) in the economy and the militarization of governance. The second reason for increasing dominance of taxation in the management of the economy is the fall in the international price of oil in the late 1980s.
For many years even before the colonial era, taxation has been in existence in Nigeria.
Taxation is one of the fiscal policies instrument. Here in Nigeria, we have all withnessed different administration and government, the fiscal policy seems to always change, thereby causing flotation in the system. It is generally seen as a compulsory levy by government through its agencies generates income, consumption and capital of its subjects. These levies are made up of personal income, company’s profit and os on. It can be noted that taxation is very vital for the economic development of a country. Its fluctuation will thereby cause an effect in economy.
Every government with good intentions normally focuses a hoe to carry out effective fiscal policies that is a process to check public expenditure and shaping of the tax system in order to centre upon. Any taxation policy that hopes to achieve these above named objectives usually has a general effect in the economy i.e. manufacturing and the consuming sector.
Tax is a major player in every society of the world. The tax system is an opportunity for government to collect additional revenue needed in discharging its pressing obligations. A tax system offers itself as one of the most effective means of mobilizing a nation’s internal resources and it lends itself to creating an environment conducive to the promotion of economic growth.
Nzotta (2007) argues that taxes constitute key sources of revenue to the federation account shared by the federal, state and local governments. This is why Odusola (2006) stated that in Nigeria, the government’s fiscal power is divided into three-tiered tax structure between the federal, state and local governments, each of which has different tax jurisdictions. The system is lopsided and dominated by oil revenue (Azubike, 2009).
One of the major functions of any government especially developing countries such as Nigeria is the provision of infrastructural services such as electricity, pipe-borne water, hospitals, schools, good roads and as well as ensure a rise in per capital income, poverty alleviation, maximize the utility of its citizens, improve their standard of living and so on. For these services to be adequately provided, government should have enough revenue put in place to finance them. The task of financing these enormous responsibilities is one of the major problems facing the government of which it is of great necessity for these services to be provided to citizens of a state. Based on the limited resources of government, there is need to carry the governed (citizens) along via the imposition of tax on all taxable individuals and companies to augment government financial position.
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Effect of Taxation on Manufacturing Consumer Goods Companies.
1.3 Statement of Problem
Investigation revealed that it is really a statement of fact that a manufacturing industries fail to reach their objective as a result of their inability to meet up with their tax payment. The cyclical fluctuations in the country’s economic activities would leads to the periodic increase in the country’s unemployment and inflation rates as well as the external sector disequilibria and these factors are highly conjectured as being able to militate against the growth of any economy.
The study was set up to find the problems that tax have created on manufacturing industries. The researcher also intends to find out the effects of tax on manufacturing companies especially on profit.
1.4 Aim and Objectives of Study
The aim of the study is to investigate the Effect of Taxation on Manufacturing Consumer Goods Companies. In achieving this aim, the following specific objectives were laid out as follows:
- To determine the effect of indirect tax on manufacturing industries in their ability to procure equipments and also raw materials;
- To examine how tax rate affects the rate of investment in Manufacturing Consumer Goods Companies;
- To examine the relevance of taxation on industrial performance in Nigeria; and
- To find out the effort government has done to ensure maximum efficiency in production and no dissatisfaction on the part of the manufacturing industries with respect to taxes.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Does tax rate affect the rate of investment in the Nigeria economy?
- What is the relevance of taxation on industrial performance in Nigeria?
- What is the effect of indirect tax on manufacturing industries in their ability to procure equipments and also raw materials?
- What is the effort government has done to ensure maximum efficiency in production and no dissatisfaction on the part of the manufacturing industries with respect to taxes?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: There is no significant and positive relationship between gross domestic products (GDP) and tax revenue on Manufacturing Consumer Goods Companies.
- H1: There is significant and positive relationship between gross domestic products (GDP) and tax revenue on Manufacturing Consumer Goods Companies.
1.7 Significance of Study
The research will helps to educate manufacturing firms on the importance of taxation with regards to the growth of the economy as it affects the manufacturing firms. It will also highlights on the performance of manufacturing industries on the result they create in the economy.
The study will also stress a way to make the manufacturing industries take appropriate steps to improve their business and creating satisfaction at the same time. The study will also be of help or importance to the following peoples.
- The business community for the purpose of the companies’ income taxes.
- Local and small manufacturing industries
- The government and those responsible for fiscal policies.
- Student and other researchers who wish to expand this study.
This research would contribute to the existing literature by focusing on tax administration in Nigeria with a view to identifying the critical problems that are confronting the tax system so that appropriate measures could be taken to tackle them.
1.8 Scope of Study
The scope of this research is focused on the Effect of Taxation on Manufacturing Consumer Goods Companies using Ikeji Plastic Company Limited Onitsha, Anambra State as a case study.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Definition of Terms
Taxation:
The compulsory contribution to the support of the government levied on persons, income, property, commodity transaction etc. at fixed rates, mostly proportional to the amount on which the contribution is levied.
Infant industry:
A newly established industry
Tax System:
This is a way which government collects tax and utilization of the tax
Manufacturing Firms:
An independent administered unit of the manufacturing industry.
Fairness:
This means a good tax system should be one that allows citizens to pay according to their ability. Taxes paid by the rich and the poor must have a clear difference, the rich should pay more than the poor.
Neutrality:
This means a tax system that is good must be minimal in its effect on the optimum allocation of resources. It should not alter the market mechanism, that is, its effect may fall on demand and supply. It should not as well lead to loss in total output by adversely affecting.
Convenience:
This means the tax payment is a burden at the point of payment, although the payer may accept the fairness of the tax he is paying. To collect tax at the most convenient point and time, reduces losses that may be encountered as a result of evasion and make the whole system simple.
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