EFFECTS OF MULTIPLE TAXATION ON GROWTH AND PROFITABILITY OF SMALL SCALE ENTERPRISES IN NIGERIA
CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
Fiscal policy measures in Africa have been largely driven by the need to promote such macroeconomic objectives as raising revenue to finance rapid economic growth of their economies, generating employment, maintaining price level and exchange rates stability and balance of payments equilibrium. To achieve these objectives one of the ways of dealing with taxation problems is to deal with harmful taxes practices. The two harmful practices that readily come to mind is tax evasion and avoidance. A decline in price of oil in recent years has led to a decrease in the funds available for distribution to the Federal Government and to the State Governments. The need for state and local governments to generate adequate revenue from internal sources has therefore become a matter of extreme urgency and importance. This need underscores the eagerness on the part of state and local governments and even the federal government to look for new sources of revenue or to become aggressive and innovative in the mode of collecting revenue from existing sources (Aimurie, 2012). Aguolu (2004) states that though taxation may not be the most important source of revenue to the government in terms of the magnitude of revenue derivable from taxation, however, taxation is the most important source of revenue to the government, from the point of view of certainty, and consistency of taxation. Aguolu (2004) further mentioned that taxation is hence the most important source of revenue to the government. Owing to the inherent power of the government to impose taxes,
the government is assured at all times of its tax revenue no matter the circumstances. Tax evasion in general refers to illegal practices to escape from taxation. To this end, taxable income, profits liable to tax or other taxable activities are concealed, the amount and/or the source of income are misrepresented, or tax reducing factors such as deductions, exemptions or credits are deliberately overstated (see Alm and Vazquez, 2001 and Chiumya, 2006). Tax evasion can occur as an isolated incident within activities that are – in other aspects – legal.
Or tax evasion occurs in the informal economy where the whole activity takes place in an informal manner – this means the business is not only evading tax payments but is also not registered as formal enterprise at all.
Tax avoidance, in contrast, takes place within the legal context of the tax system that is individuals or firms take advantage of the tax code and exploit “loopholes”, i.e. engage in activities that are legal but run counter to the purpose of the tax law. Usually, tax avoidance encompasses special activities with the sole purpose to reduce tax liabilities. An example for tax avoidance is strategic tax planning where financial affairs are arranged such in order to minimize tax liabilities by e.g. using tax deductions and taking advantage of tax credits.
Tax evasion and its sister tax avoidance are key fundamental problems of tax administration in a developing country like Nigeria. All forms oaxes in Nigeria are to some extent avoided or evaded because the administrative machinery to ensure effectiveness is weak. As a result of the diversities and complexity in human nature and activities, no tax, law can capture everything hence; loophole will exist and can only be reducedor eliminated through policy reforms.
