TAXATION AND SMALL BUSINESS PROBLEMS AND PROSPECTS IN NIGERIA (A CASE STUDY OF RIVERS STATE)
CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
Small businesses are generally regarded as being critical to economic growth and equitable development in developing economies like Nigeria. They are generally seen as labour intensive, capital saving and capable of helping create jobs. Small businesses are also perceived as the key to Nigeria’s economic growth, poverty alleviation and employment creation. But their below average performance in employment generation over the years has generated a lot of research interests on their challenges and prospects. After Nigeria’s independence in 1960, much emphasis has been laid on the growth of the small business sector as a means of reducing the menace of poverty and unemployment in the country. Since the adoption of the economic reform programme in 1986,
there has been a decisive shi from grandiose, capital intensive and large scale industrial projects based on import substitution to small scale industries with immense potentials for developing domestic linkages for sustainable industrial development. Apart from small businesses potential for self-reliant industrialization using local raw materials, they are in a better position to boost employment, guarantee even distribution of industrial development and facilitate the growth of non-oil exports. Fissaeha(2000), states that small businesses employ 22% of the adult population in developing countries while Fabayo(2006) observed that small firms are major source of employment opportunities for a wide cross-section of the workforce: the young, old part-time
workers and the cyclically unemployed. Kombo Kassie (2009), submitted that “small businesses have contributed greatly to the growth of Kenyan economy, accounting for 12-14% of GDP, through creating employment opportunities, training entrepreneurs, generating income and providing a source of livelihood for the majority of low income households in the country”. Hence, promotion of such enterprises in developing economies like Nigeria will bring about great distribution of income and wealth, economic self-dependence, entrepreneurial development and a host of other positive economic upliing factors. Small businesses are veritable engines for attainment of national objective in terms of employment generation at low investment cost, development of
entrepreneurial capabilities and indigenous technology. They reduce the flow of people from rural to urban areas and can easily be established with minimal skill. They also contribute substantially to the country’s gross domestic product, export earnings and development of employment opportunities. Most small businesses in Nigeria operate as family/sole proprietorship business and are generally classified into commercial, industrial and agricultural categories depending on their activities though commercial small businesses constitute more than 90% of the entire number. There are 1,200 registered small businesses in Nigeria offering various products/services to the general public ( Aderemi 2003).
Because, small businesses can be established with minimal capital/registration/managerial skill, there are in the most vantage position for employment generation and promotion of Nigeria, the high rate of unemployment (28%) in a population of more than 160 millionpersons suggests that these small businesses are experiencing some major challenges that are hindering their performance. (Nnanna Godwin 2005)
The Nigerian Tax System has undergone significant changes in recent times. With the help of various studies and research done by tax experts, tax laws are being reviewed with the aim of repelling obsolete provisions and simplifying the main ones especially as it concerns small and medium scale enterprises in Nigeria. Under current Nigerian law, taxation on small businesses is enforced by the 3 tiers of Government, i.e. Federal, State, and Local Government with each having its sphere clearly spelt out in the Taxes and Levies (approved list for Collection)
As pointed out earlier small businesses are generally recognized as important drivers of economic growth. They are a key ingredient in a healthy economy, as job creators, sales generators and a source of tax/fiscal revenue. This has resulted to the critical examination of taxation on small businesses problems and prospects in Nigeria
