THE EFFECT OF MULTIPLE TAXATION ON SMALL AND MEDIUM SCALE ENTERPRISE IN AKWA IBOM STATE
CHAPTER ONE
INTRODUCTION
1.1Â Â Â Background of the Study
Taxation can simply be seen as a system of compulsory transfer of payment of money from private individuals, institutions or groups to the government. It may be levied upon wealth or income in the form of sub-charge on prices. Taxes therefore are a proportion of the produce of land; labour, of a country placed at the disposal of the government.
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. At times some of the taxes are christened (fist time) levies. However, within the context of this work, all compulsory payment made by individuals and institution to the government are regarded as taxes. Taxes generally provide basis for government revenue, which help them in carrying out their functions, this is why Ojo (2003) defined tax as a means by which government appropriate part of private sector’s income and expenditure as its revenue for purpose of meeting recurrent expenditure and creating public capital formation towards the development and growth of goods and services of the economy.
A good tax possesses the following qualities: fairness, convenience, simplicity, and minimum cost of collection and minimum distortion. Musgrave (2000) noted that taxes should be chosen so as to minimize interference with economic decision in otherwise efficient markets. Imposition of excess burden should be minimized. Again, a good tax system should permit efficient and non arbitrary administration and it should be understandable to the taxpayer.
Taxes therefore are known to play important role in the process of development of an economy. This is the role of providing finance for government expenditure. There are three main objective of taxation. These include; raising of revenue for the government, regulating the economy and the economic activities, and controlling of income and employment. A tax although may be imposed for the above purposes it has effect on the behavior of the taxpayer and some variable within his income and his consumption function.
Small scale enterprises have so many definitions due to different criteria employed by different people and institution in defining it. There is no single uniformly accepted definition of a small scale firm. Firms differ in their level of capitalization, sales and employment. Hence, definitions which employ measure of size (number of employees, turnover, profitability, net worth etc). When applied to one sector could lead to all firms being classified as small, while the same size definition when applied to a different sector could lead to a different result.
However, the following are some definitions of small scale enterprise; World Bank Document (Report number 7114 ) of 1998 on Nigeria defined small and medium scale enterprises as one whose total fixed asset (excluding land) plus cost of investment do not exceed ten million naira constant 1985 price. Mead (1994) defined small scale enterprises as a firm with less than 50 employees and at least half the output is sold.
Bolton committee (2000) formulated on economic definition of small scale enterprises as a firm that meet the following criteria;
- It has a relatively small share of their market shares
- It is managed by owners in a personalized way and not through the medium of a formalized management structure
- It is independent, in the sense of not forming part of a large enterprise.
Central Bank of Nigeria (2002) defined SMSES as a firm with capital outlay of not more than two hundred million naira. National Council of Industries (2003) defined small scale enterprises as a project with capital investment of over 1.5 million naira but not more than fifty million naira and / or work force of between 11 to 100 workers. But a definition of SMSEs, which has employed wider acceptance, is the one given by the united state committee for Economic Development. It defined SMSEs as any enterprises that is characterize by at least, two of the following features; 1. Management is dependent – usually managers are the owners. 2. Capital is supplied and ownership is held by an individual or small group; 3. Area is localized; while workers and the owners are of one home or community, market need not be local; and 4. The size of the firm is small relatively to the industry.
In fact, the concept, small scale enterprise more often is called small and medium scale enterprise is relatively dynamic, hence, there is no universal definition of SMSES. To this effect, small and medium scale enterprises within the context of this work is any business organization which has a working capital of between 150 thousand naira to 10 million naira, excluding land and employ fewer than fifty full-time workers.
Akwa Ibom was created in September 1987. It is one of the newly created states in the country projecting from 2006 population census as the state that has the population of about 1.2 million people and has a land mass approximately square kilometer. The state has 31 Local Government Area. Politically has 3 senatorial district, namely, Uyo, Ikot Ekpene, and Eket senatorial district.
Economically, the basic occupation of the people is trading and mostly the rural dwellers engage mostly in farm work which mostly is subsistent. Modern industrial establishment are few and are concentrated in uyo the capital city of the state and environ due to the fact that the state is economically a growing state. There exist many SMSES in the state. Most of these SMSES farming to extractive to processing to eateries and service oriented enterprises some of these enterprises include , block industry, poultry farming ,etc. however, the state has great potential for mineral exploitation.
1.2Â Â Â Statement of the Problem
Government in order to meet up with her responsibilities of providing social infrastructures and other development project for her citizens imposes taxes on her citizens. This done by the different tiers of government (federal, state, and local) with respect to their fiscal power (tax power). However, the rate at which the government concern increases their existing taxes should be a thing of concern to the economic agent.
While the Federal government is clamoring for a stable general price level, increase rate of growth in the GDP, increased employment opportunity, through the establishment of small scale enterprises; the state and the local government are busy introducing new taxes and increasing the rate of the existing taxes.
In Akwa Ibom state, the following taxes or levies are being paid by small scale enterprises: personal income tax, sanitation fee, business premises tax, market toll, business registration fee, hawkers permit and other forms of permits, haulage fee, fire service fee, development fee, advert fee etc. Some of these taxes are being unnecessarily split into many kinds of taxes to the detriment of the entrepreneurs.
Government agent sometimes justify the collection of these collection of these taxes by arguing that the infrastructure provided by government with tax revenue, in no little measure contribute to the increase productivity of the SMSES. SMSES operators on the other hand, argue that the government is not providing any infrastructure to attract the numbers of levies being impose on them.
Many advanced industrial economies of the world attained advanced industrial development because they started their industrial development with programme in the small scale enterprises. SMSEs contribute to the long-run industrial growth by producing and increasing number of firms that grow up and out of the small scale sector. Why is it that in Nigeria and particularly Akwa Ibom state this trend is not being observed? Rather than growing most SMSEs are at the threshold of the extinction.
Government is to be catalyst that provides the enabling environment for SMSEs to thrive. Taxes should be adopted as instrument for promoting economic growth and not otherwise.
Knowing fully well that effect of taxation refers to changes in the economy consequent upon tax imposition, one then ask , What type of has multiple taxation brought to SMSEs in Akwa Ibom state? How desirable or undesirable is multiple taxation SMSEs. This then becomes the concern of this research work.
1.3 Research Question
In order to achieve the purpose of this study the following question were formulated:
- Does the multiplicity of taxes by the lower tiers of government enhance or constraint the operational capacities of SMEs?
- Does multiple taxation really contribute to the increased productivity of the SMEs or do they hamper the growth and development of SMEs as claimed by SMEs entrepreneurs?
- Does multiple taxation negatively affect the re-investment rate of small scale business?
1.4 Objective of the Study
The objective of this study was to examine the effect of multiple taxation on small scale enterprises specifically, the study aims at the following:
To find out the effect of multiple taxation on the growth and
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