CHAPTER ONE
INTRODUCTIONS
1.1 BACKGROUND OF THE STUDY
As a developing country, small and medium scale enterprises (SMEs) permeate the Nigerian economy as a pivotal sub-sector, contributing its quota in the nation’s socioeconomic development process. The SMEs was introduced into the development landscape of most developed nations as early as the late 1940s with the primary aim of improving trade and industrialization (Organization for Economic Cooperation and Development (OECD), 2004). For Nigeria in particular, Nwankwo, Ewuim and Asoya (2012) traced the historical background of SMEs back to 1946 when the essential paper No. 24 of 1945 on “A Ten Year Plan of Development and Welfare of Nigeria” was presented.
For Nigeria, the Nigerian Council of Industry define SMEs as those enterprises with a total capital employed not less than N1.5 million, but not exceeding N200 million, including working capital, but exceeding cost of land and/or with a staff strength of not less than 10 and not more than 300 (Ohachosim, Onwuchekwa &Ifeanyi, 2012). Nwankwo et al (2012) report that Nigeria’s economy is dominated by SMEs in all its sectors, as available statistics from the Federal Office of Statistics show that 97% of all businesses in Nigeria employs less than 100 employees, implying that 97% of all businesses in Nigeria, are “small businesses”. In view of their preponderance in the Nigerian economy, the taxation of the SMEs sub-sector in Nigeria primarily constitutes a source potentially huge tax revenue critically needed by the Nigerian government.
Ogbonna and Appah (2012) asserts that a functional tax system constitutes one of the means through which revenue for providing critically needed infrastructure are harnessed by the government. While the relevance of taxation remains undisputed, between imposing a tax and getting people to pay, the assurance of people paying and people’s attitude towards tax payment are critical determining factors of the functionality of the tax system. For Nigeria, Akintoye and Tashie (2013) report that willingness to pay tax remains a key taxation challenge in Nigeria.
The taxation of SMEs formally became a global economic concern, following the proceedings of the 2007 International Tax Dialogue (ITD) Global Conference on Taxation of Small and Medium Scale Enterprises, where all participating countries irrespective of size or level of economic development expressed serious concerns over taxation of SMEs in their respective countries (Carter, 2013).
