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CHAPTER ONE

INTRODUCTION

Background to the Study

Revenue accrues to the government through diverse sources which include grants, foreign aid, government’s direct investment in commercial ventures, and taxation. Taxation may not be the most important source of revenue to the government in terms of the magnitude of revenue derivable from it but it is the most important source given its consistency and certainty. Taxation is therefore a compulsory levy by the government through its various agencies on the incomes, capital, or consumption of its subjects. These levies are made on personal income such as interests, dividends, business profits, commissions, and salaries (Anuebunwa 2010).

Taxation tends to influence the decision of businesses at all levels, it affects their financing decision, investment decision and dividend decision. High taxes can influence business decisions in several ways: they can reduce the number of business births by discouraging those who might otherwise form new businesses. They can also slow down the rate at which small businesses are able to grow by making it difficult for them to finance a rapid expansion, they can weaken the desire and the ability of small businesses to survive as independent enterprises by making the gains from a merger look more attractive than the income to be derived from continued operation.

Statement of the Problem

According to Roche (2015), Corporate taxation is of great concern on investors’ decisions and hence in economic growth and employment. Depending on the nature of tax, taxation may have a positive or negative effect on business decisions. A high marginal tax rate will be a disincentive for business while a lower one will have incentive to work. Roche (2015) further affirms this by noting that complex taxation deters foreign investors, curbs entrepreneurship, drives out local investors and results in deadweight losses due to tax avoidance costs and tax compliance costs. Friendly taxation however, stimulates entrepreneurship, encourage local and foreign investors organization. Tax which is a form of liability is a broad area in management, and financial account, and it is handled with care as the financial position of every business organization will definitely be affected based on how tax matters are managed. The ability of an organization to effectively and efficiently employ various techniques to avoid and reduce tax burden is imperative.

Objectives of the study

The main aim of this study is to examine the impact of taxation on business decisions. To achieve this objective, the following are the specific objectives:

1.) To understand the role of taxation in business decision making.

2.) To examine the relationship between taxation and business decision.

Research Questions

1.) Is there any relationship between taxation and business decisions?

2.) To what extent does taxation have influence on business decisions?

3.) What is the impact of taxation on business decisions in Nigeria?

Significance of the study

The study will be useful to financial managers in companies especially in formulating policies that will enhance efficiency in decision making for the organization and increase the profitability level of the organization. The study will also be useful to other manufacturing companies having taxation difficulties. Findings and recommendations from this study will be of great benefits to these manufacturing firms, as the recommendations if implemented will go a long way in guaranteeing a sustainable and sound organization. The study when carried out will also be of great benefit to student researchers who are working on taxation.

Scope of the study

This study covers the effect of taxation on decisions of companies. It takes a look at how businesses make their decisions on the basis of taxation.

Research Hypotheses

1.) There is no significant relationship between Taxation and business decision.

2.) There is a significant relationship between Taxation and business decision.

Limitations of the study

The main limitation of this study is the time factor. Given the broad scope of this study, the time is limited in carrying out research into some businesses to discover how tax has affected their business decisions. Also, the constraint of gathering data is a limitation.

Definition of Terms

Tax: The refers to the compulsory levy imposed on citizens in order to generate revenue for the government.

Business: This refers to a company that trade goods and services.

Business Decision: This can be regarded as the cognitive process resulting in the selection of a course of action to be implemented in the daily management of a business.

Company income tax: This Tax is payable for each year of assessment of the profits of any company at a rate of 30%. These include profits accruing in, derived form brought into or received from a trade, business or investment.

Policy: Can be referred to as general plan of action to be adopted by an organization.

Taxation policy: This is the general plan of action on the pattern of arriving at a taxable amount that is considerable both to the management and shareholders or investors of the companies.

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