CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
Over the years there has being an increased interest and focus amongst policy makers and regulators on the banking sector, this is because of the pivotal role the banking sector plays as catalyst of development and growth in a nation’s economy. According to Albertazzi and Gambacorta (2014) the banking sector plays a crucial role in the process resource allocation, circulation and mobility of capital, and any form of distortion in its functioning is likely to result in an economy-wide effects. Furthermore Komolov (2015) noted that banks being accumulators of capital flows in the economy play a central role in public budget revenue formation. Corporate organizations all over the world pay taxes known as company income tax. In other words, company income tax (corporation tax) is the tax that is charged on the chargeable profits of corporate organizations. In Nigeria for example, company income tax is being administered at the Federal level by a body known as Federal Board of Internal Revenue (FBIR), and is equally legislated by the Companies Income Tax ACT (CITA). Corporate tax is levied at a flat rate for each category of entities but may be subjected to a number of rebates, allowances or exemptions. The rate of tax differs in different countries around the world e.g. in Nigeria it is 30% in Organization of Economic Corporation and Development (OECD) countries it is 25%, in China 25% and USA 35 %. As companies play a crucial role in any nation’s economic growth, so also does not corporate tax. In Norway Corporate income tax contributes about 12.4% to its entire GDP. It is also important to note that with the recent fall in oil prices, there have been necessitated calls in Nigeria for a more effective and efficient tax system to mitigate the effects. Thus, emphasizing the continuous importance and relevance of tax to socio-economic growth and development. However the growing body of research relating to banking sector has focused majorly on bank regulations and supervision, the corporate governance structure within the bank and the effect of monetary policy indicators on the banking sector, very little attention has being given to relationship that subsists between the banking sector and taxation (which is cornerstone of government fiscal policy). Caminal (2013), argues that although the intersection between financial intermediation and taxation, which is the taxation of financial intermediation (banks) may appear at first sight to be a narrow topic only attracting the attention of specialists, such impression are in actuality misguided as banks play a crucial role in the allocation of resources and the growth process, and cannot be treated as just another industry.
