WELCOME TO KENTERPRO:
TAX COMPLIANCE AND BUSINESS OF SMALL AND MEDIUM SCALE ENTERPRISES (A CASE STUDY OF SMALL SCALE ENTERPRISES IN PLATEAU STATE)

TABLE OF CONTENT

Title Page                                                                                                                                i

Declaration                                                                                                                              ii

Approval Page                                                                                                                        iii

Dedication                                                                                                                              iv

Acknowledgement                                                                                                                  v

Table of Content                                                                                                                     vi

List of tables                                                                                                                           ix Abstract                                                                                                                              xii

CHAPTER ONE

INTRODUCTION

• Background to the study 1
• Statement of The Problem 4
• objective of the study                                                                                                   6
• Research questions                                                             6
• Statement of hypothesis 7
• Significant of the study 7
• Scope of the study 8

CHAPTER TWO

REVIEW OF RELEVANT LITERATURE

2.1 Conceptual definitions                                                                                                      9

2.1.1 Small and medium scale enterprise                                                                               9

2.1.2 Characteristics of small and medium enterprises                                                          11

2.1.3 Small and medium enterprises business success                                                           14

2.1.4 Tax compliance                                                                                                              16 2.1.5 Small and medium enterprises tax compliance                                                                17

2.1.6 Small and medium enterprises tax non-compliance                                                      19

2.17 Small and medium enterprises tax burden                                                                     21

2.2 Theoretical review                                                                                                            23

2.2.1 Theory of individual choice                                                                                           23

2.2.2 Economic deterrence theory                                                                                          24

2.2.3 Social influences behavior theory                                                                                 25

2.2.4 Fiscal exchange theory                                                                                                  25

2.3 Empirical review                                                                                                               27

2.3.1 Implication of tax compliance on income management of small and

medium enterprises                                                                                                     27

2.3.2 Fairness in tax assessment and its impact on their business success                             28

2.3.3 Tax burden and its effect on business income of small and

medium enterprises                                                                                                     30 2.3.4 Research gaps                                                                                                                 31

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Research design                                                                                                                32

3.2 Population of the study                                                                                                     32

3.3 Sample size and sampling technique                                                                                32

3.4 Instrument of data collection                                                                                            33

3.5 Procedure for data collection                                                                                            34

3.7 Method of data analysis                                                                                                    34

CHAPTER FOUR

DATA ANALYSIS

4.1 Descriptive and characteristics of respondents                                                                35

4.2 Contributory factor for implication of tax compliance on income

management of small scale enterprise                                                                        36 4.2.1 there is no significant relationship between the implications of tax

compliance on income management of small scale enterprises                                 36

4.2.2 Contributory factor for fairness in tax assessment and its impact on

businesses success of small and medium enterprises                                                 40 4.2.2 Fairness in tax assessment has no significant impact on business

success of small scale business                                                                                   40 4.2.3 Contributory factor for tax burden has no significant effect on income

business of small scale enterprises                                                                             44

4.2.4 Tax Burden has no Significant Effect on Income Business

of small Scale Enterprises                                                                                           44

4.3 ANOVA analysis                                                                                                              48

4.4 Discussion of findings                                                                                                      50

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary of findings                                                                                                        53 5.2 Conclusion                                                                                                                        54

5.3. Recommendations                                                                                                           55

5.4. Limitations of the study                                                                                                  55

References                                                                                                                              57

Appendices                                                                                                                             60

ABSTRACT

Tax is the important stream of government’s development projects. However, tax compliance and business success is poor. Therefore, this study investigated “tax compliance and business success of small and medium enterprises in plateau State”. The study used the population of three hundred and fifty (350) small-scale enterprises that are tax compliant in plateau state. The study sampled one-hundred (100) small-scale enterprises that are up-to-date information in respect to their tax. The study used stratified sampling technique and data were collected via questionnaires. The data was analyzed using mean with criteria level of µ=3.50 acceptance region and Analysis of variance (ANOVA) with the significance level of α=0.05 of certainty. Findings show that high rate of taxation, multiple taxes on sales tax and tax audit are the most crucial factors that hinder tax compliance and business success of small-scale enterprises in plateau state. The research concluded that there is no direct significant relationship between tax compliance and business success of small-scale enterprises. Hence, the research recommended that tax education, good tax administration and convince of taxpayers should be improved upon for better strategies for tax compliance and business success.

CHAPTER ONE

INTRODUCTION

• BACKGROUND TO THE STUDY

Most large companies have their roots in small and medium enterprises suggesting that the future large corporations are the Small and Medium Enterprises (SMEs) of today that must be nurtured to ensure their growth. Thus, SMEs are generally perceived to be the seedbed for indigenous entrepreneurship and generate all the small investments, which would otherwise not have taken place (Aryeetey & Ahene, 2004).

Therefore, in the developing economy like that of Nigeria needs to further the development of its private sector by creating environment favorable to the growth of SMEs strengthen the factors that lead to business success, and addressing problems that threating the existence and advancement of small and medium enterprises (Chu, Kara, & Benzing, 2008). So that they can adequately play the role expected of them in the economic transformation. Such roles include mobilization of domestic savings for investment, appreciable contribution to gross domestic products increase in harnessing local raw materials, employment generation and significant contribution to poverty reduction effort through sustainable livelihoods and enhancement in export diversification (Smatrakaleve, 2006).

            However, it is a well-known fact that revenue generated from the taxation of individual and small business enterprises are important stream of income to the government. In a developing economy like that of Nigeria struggling to remain afloat, it is even much important. Tax revenue is the source of funds used for development projects such as provision of infrastructure like good roads, stable power supply, pipe borne water supply etc. All of which combine to create an enabling environment for businesses to thrive and in turn the economy at large- to grow. Small and Medium Enterprises being profit generating establishments are also expected to pay their dues. The important question however is “how much tax should government levied on SMEs”. Small and medium enterprises are volatile establishments that need special treatment. Putting their nature into consideration, every little resource at their disposal can make a world of difference in the business profile (Ojochogwu & Stephen, 2012). It was from this reason that the researcher’s interest was motivated towards formulating the research topic.

Furthermore, a considerable number of Nigerian’s SMEs choose to remain in an informal sector of the economies because they feel the cost of compliance is too high. And those who made attempt to comply do so because they are coerced by the tax authority. Since the individual SME pays a very small amount of tax compared to what the larger establishment would pay, tax authorities tend to focus on larger corporations meanwhile neglecting the SMEs. This means a good number of SMEs get away without complying with their tax obligations. Hence, revenue that would have being invested in development projects. This therefore needs to be corrected. Small and medium enterprises if faced with high compliance costs, they may result to tax avoidance. The fact that notwithstanding, SMEs have not become competitive enough to increase their share of output even though they form three-fifths of the number of manufacturing firms, and larger manufacturing companies rely on them for their supplies (Dzadzra, 2011). With such a massive contribution to the economy of Nigeria, when SMEs are properly taxed they would equally make a massive contribution to revenue generation. Studies have shown that more than half of the tax revenue in most developing countries tends to remain uncollected (International Tax Dialogue, 2007).

Tax noncompliance of SMES is normally motivated by the perception of the small and medium enterprises that the tax burden is too high. Tax noncompliance undermines the system of taxation equity and efficiency, and impedes sustained economic development. This situation requires solutions that reduce the compliance burden, increase tax revenue and avoid unintended distortions. Ensuring tax compliance is difficulty for SMEs, which have a relatively high compliance burden and therefore have a stronger incentive to evade. In addition, it is costly to audit the SME population. Adjustment of the tax system is not easy or straightforward. Relaxing reporting requirements for financial accounts or relaxing auditing requirements (to reduce compliance costs) may also reduce compliance. A lower statutory burden may feed the perception that taxes on employment are too high. One unintended consequence of reforms might be the creation of SMEs with the primary goal to avoid tax (Aires, 2007).

Small and medium enterprises taxpayers under Nigeria taxation system are subject to high compliance costs burden. Reducing the compliance costs and tax rate increases the small enterprises profit margin. It also increases the government’s tax revenue, since the simplified provision for micro enterprises historically reduce the size of the economic shadow and number of non-complying registered taxpayers (Vasak, 2008).

In Nigeria, SMEs have to operate in an overbearing regulation environment with the plethora of regulatory agencies; multiple taxes cumbersome importation procedures and high port charges that constantly exact serious burden on their operations. Many SMEs have to do with a very large numbers of agencies in greater costs. SMEs in Nigeria consist of many parts or member that are different from each other and these difference in size and structure may in turn carrying differing obligations for record-keeping that affect costs to the enterprises of complying with (and to the revenue authority of administrations) alternative tax obligation (Emmanuel & Kennedy, 2014).

In trying to figure out what success means to SMEs, many literatures have been reviewed but none of them categorically gives true definition of small and medium enterprises’ success. Some commentators talked about the importance of personal involvement, responsibility, quality of life and lifestyle While others identify personal satisfaction independence, flexibility and reputation and others made mention of customer retention and customers’ satisfaction.

Indeed, no study has to date been conducted to systematically explore and validate what success really means to SME entrepreneurs. Yet, establishing a valid measure of success is essential to identify the critical success factors for SMEs. Hence, determining what SME entrepreneurs define as success became one of the aims of the study. Many measures have been suggested in terms of earnings, firm size and growth, and number of employees. The perception of what constitutes success may also be dependent on nationality. One study found that several elements like financial status, lifestyle and social factors were much more important in comparing business success of SMEs (Islam, Khan, Obaidullah&Alam, 2011).

1.2 STATEMENT OF THE PROBLEM

Over the years, emphasis of the researchers have been on tax compliance of Small and medium enterprises. Literatures reviewed were much more concern with the tax compliance and noncompliance of the small and medium enterprises without single emphasis on SMEs business success which according to Ojochogwu& Stephen (2012), in their study, they believe that high tax rates and complex filing procedures are the most crucial factors causing non-compliance of SMEs. Other factors according to them are multiple taxation and lack of proper enlightenment affects tax compliance among the SMEs.

However, in trying to address the issue of tax non-compliance in plateau state, government of plateau state in its effort to see that small and medium scale business enterprises in the state adequately comply with their tax obligation adopted the new system of tax collection through the introduction of Tax Identification Number (TIN) by mandating shop owners, bakeries, companies and many more small business owners in the state to register and obtain their TIN number for proper compliance and documentation the rate of mass tax non-compliance have reduced.

However, the question that is rubbing the mind of the researcher is that, with all the taxes collected by the government from individual and small and medium scale businesses if the government provides those infrastructure needed by individuals and SMEs for smooth running of their business, which brings about business success and economic growth at large. The challenges confronting is that small and medium enterprises have many things which government should have provided in terms of infrastructure but some of those amenities are not accessible by them. However, small business owners end up providing power, water, roads in some cases, even common security by themselves (Uche, 2019). Therefore the researcher wants examine the effectiveness of the of their business performance after complying with tax obligations and providing those basic amenities themselves.

The effort put forward by SMEs to give assurance to their existence; there are still problems, which the research wants to investigate such like the compliance on income management of small and medium enterprises.

Another problem is that if government has been fair in tax assessment of the SMEs to give them hope in terms of long existence

Finally, the amount of tax been levied on income of  small business earners both in the production and distribution sectors is alarming that most entrepreneurs complain of tax compliance burden and how they can cope with their businesses.

1.3 OBJECTIVE OF THE STUDY

The general objective of this study is to assess the tax compliance and business success of SMEs in plateau state. Specific objectives include:

1. To ascertain the implication of tax compliance on income management of SMEs in plateau state.
2. To determine whether fairness in tax assessment of SMEs have significant impact on their business success.
3. To assess the effect of tax burden on business income of SMEs in plateau state.

1.4 RESEARCH QUESTION

The research question provides a framework and guideline through which substantive knowledge of the research study can be understood. Arising from the above, the research questions include:

1. What is the implication of tax compliance on income management of SMEs in plateau state?
2. Does fairness in tax assessment of SMEs have significant impact on their business success?
3. What is the effect of tax burden on business income of SMEs in plateau state?

1.5 STATEMENT OF HYPOTHESIS

In order to achieve the objectives stated in the study, the following research hypotheses are formulated and presented in the null form:

Ho1 – There is no significant relationship between implications of tax compliance on income management of SMEs.

Ho2- Fairness in tax assessment of SMEs has no significant impact on the business      success SMEs.

Ho3- Tax burden has no significant effect on business income of SMEs.

1.6 SIGNIFICANT OF THE STUDY

            The main significant of the project study  is under scored by its focuses on tax compliance and business success of which stand as one of the major challenges of our nation’s tax system, as well as SMEs sub-sector as relevance sector of the economy. The study will provide an insight into factors responsible to nearby absence of comprehensive and coherent tax policy for the Nigeria SMEs and developing country in the world that may lay their hands on this research study.

            The result of the project research will be helpful to the state Internal Board of Revenue providing them with insight to the characteristics of taxpayers, knowledge of tax compliance and compliance behavior of SMEs. However, it will assist state Board of Internal Revenue Services to accomplish the goal of Statistical Analysis System (SAS).

            Thirdly, the relevant of the study is further reinforced for the death of scholarly and empirical literature on tax compliance in Nigeria especially studies focusing on the tax compliance and business success of SMEs.

            The research study will be useful to students who are into research for further study, the existing prospective entrepreneurs will find the study important because it will help the to ask question where necessary to the tax authority and as well as anybody who is interested to have knowledge of such.

1.7 SCOPE OF THE STUDY

            The essential point of the study is to investigate the tax compliance and business success of small and medium enterprises in plateau state, Nigeria. The small and medium scale enterprises are based on the definition and classification of the term. That is the age of the respondents; annual income, educational background and the type of enterprise operated were analyzed.

            The scope of the study cover some selected registered small and medium scale enterprises in Plateau state that have up to date information about their tax obligation as the representative sample study. The sample was draw from the management ownership cadre of establishments who are into; agricultural production, business services, manufacturing companies, food services, financial services, engineering companies and construction companies.