The Effects of Corporate Tax on the Profitability of Business Organization
Chapter One
Objective of the Study
The broad objective of the study is to investigate the effect of corporate tax on the profitability of business organizations in Nigeria.
- To examine the effect of return on equity on corporate tax and leverage
- To investigate the impact of return on equity on corporate tax and investment decision
- To explore the effect of return on equity on corporate tax, leverage, and investment decision
CHAPTER TWO
LITERATURE REVIEW
This chapter presents a review of literature on role of budget and budgetary control in public sector. It also gives an insight of the theory being adopted by past researchers in connection to the subject matter.
Conceptual Review
Concept of Taxation
Scholars provide many definitions of taxation. Aguolu (2004) and Nwezeaku (2005) see tax as a burden which every citizen must bear to sustain his or her government for the government to perform certain functions and obligations. Thus, Anyafo (1996), Buhari (2001), Musgrave and Musgrave (2004) define taxation as the compulsory transfer or payment (or occasionally of goods and services) from private individuals, institutions or groups to the government. The National Tax Policy (2012) provides that taxation is basically the process of collecting taxes within a particular location. It is also seen as a pecuniary burden lay upon individuals or property to support government expenditure.
Ojo (2008) views taxation as a concept and the science of imposing tax on citizens. The imposition of taxation is expected to yield income which should be utilized in the provision of amenities, both social and security and creates conditions for the economic well-being of the society. Okon (1997) opines that income tax is a tool of fiscal policy used by government all over the world to influence positively or negatively particular type of economic activities in order to achieve desired objectives. Okon further opines that the primary economic goals of developing countries are to increase the rate of economic growth and hence per capita income, which leads to a higher standard of living. Progressive tax rate can be employed to achieve equitable distribution of resources (Afubero & Okoye, 2014). Adams (2001) further states that taxation is the most important source of revenue for modern governments, typically accounting for ninety percent or more of their income.
Thus, for tax purposes, a corporation is viewed as a separate entity meaning that the corporate entity is subject to taxation on corporate-level events. Abiola, James and Asiweh (2012) view corporation tax as one of the chief levers that any government can use to promote growth and investment in the long run. Aderibigbe and Zachariah (2014) state that faster economic growth is ultimately the mechanism through which a country can reach its full potential and provide opportunities for all of its populace to flourish.
A corporate tax, therefore, can be referred to as a levy placed on the profit of a firm. Albertazzi and Gambacorta (2006) further add that they are taxes against profits earned by businesses during a given taxable period which are generally applied to companies operating earnings after expenses such as cost of goods sold, selling, general and administrative expenses and depreciation have been deducted from revenues. Lederman (2002) stresses that tax incidence must be traced to people, since corporations cannot bear the burden of a tax. If such is the case, then corporations should not be taxed. But then, there are several possible justifications. First, (Myles, 2007) there are valuable benefits, such as limited liability, to incorporation. The corporate tax could be seen as simply a tax on that value. Secondly, corporations are also taxed because they may earn some pure economic profits, profits that are in excess of the return to capital (Lederman, 2002; Myles, 2007). This does not; of course, justify taxing such profits at the corporate level rather than when the individuals owning the corporation receive them. The corporate tax is also seen as a way to soak up foreign tax credits or export taxes to foreigners who own capital. Since individuals who live in other countries cannot be taxed on their income, the corporate tax is a way to get at their income from domestic assets indirectly (Myles, 2007, Johansson, Heady, Arnold, Brys & Vartia, 2008). Lastly, the scholars are also of the view that corporate income tax can serve as a backstop for the personal income tax. Individuals may try to avoid the personal income tax by making it difficult for the government to observe the recipients of corporate income. In this case, it may be more efficient to tax corporations instead. Each of these rationales for the corporate income tax has specific implications for how an efficient corporate tax will be structured (Schwellnus & Arnold, 2008).
CHAPTER THREE
METHODOLOGY
This section provides details on how this study was carried out. It covers a number of sections including research design, population, sample and collection of data, Model Specification and Technique for estimation.
Research Design
This research work will utilize a descriptive research design which is ex-post facto nature, relying on secondary data obtained after the occurrence of the event which the researcher has no control over. This study will employ the consumer goods sector to be the business organization which the study will use for the area of industry. The inferential and descriptive statistics will be relied on to examine the effect of corporate tax on business organization profitability. Descriptive statistics will help to describe and understand the characteristics of the variables used in the study while inferential statistics will assist in establishing a causal relationship between the variables of study namely: Corporate Tax proxy and Profitability proxy. This work will use panel data (time series and cross sectional) covering five years (5) from 2014-2018 which will be gathered from the financial statement (Comprehensive income statement and statement of financial position) of the selected consumer goods in Manufacturing Sectors.
Population, Sample and Collection of Data.
The target population of this study consist of all twenty-one (21) manufacturing (consumer goods sector) firms quoted on the Nigeria Stock Exchange (NSE).The sample size consist of five (5) viable manufacturing (consumer goods sector) companies, which have available and quality data for the time period (convenience sampling technique).The data for the study will be gathered from the financial statement of the firm and other various publication related to the topic. The manufacturing (consumer goods sector) include the following; Cadbury Nig Plc, Dangote Flour Mill, Guinness Nig Plc, Honeywell Flour Mill, Nestle Nig Plc,
CHAPTER FOUR
RESULTS AND DISCUSION
Introduction
This chapter entails the descriptive statistics of variables used in this study to explain the individual behavior of each variables and how they are distributed. It also presents the pooled, fixed and random effects of the models. It will use the Hausman Test to determine the right model to draw interpretation from.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Summary
The study investigated into the effect of corporate tax on the profitability of business organization in Nigeria. The specific objective is to examine the effect of return on equity on corporate tax, leverage and investment decision. The corporate tax managers, strategic level management and Federal Inland Revenue Service will benefit from the findings of the study.
The study employed the descriptive research design which is ex-post facto in nature. The panel data (Secondary data) covering five years (5) from 2014-2018.The study will employ the pooled regression technique.
The relevant theories employed in the study include; The cost of service theory, Benefit Received Theory, Ex-post Appropriation Theory. The concept include concept on taxation and profitability.
The study revealed that corporate tax has a positive significant effect on return on equity. Leverage ratio has a negative significant effect on return on equity and investment decision has a negative insignificant effect on return on equity.
Conclusion
Recommendation
The study therefore recommends that;
- The corporate tax should well monitored knowing that the large chunk the profit of the organization should not used in meeting tax expenses
- The leverage ratio in the organization is very germane to improve the performance of the organization
- The investment decision on equipment and machinery does not really have effect on the profitability status of the organization.
References
- Abdul-Wahab, N.S., and Holland, K. (2012) Tax planning, corporate governance and equity value. The British Accounting Review, 44, 1-14.
- Abiola, O., James, A. & Asiweh, M. (2012). ‘Impact of tax Administration on Government  Revenue in a developing economy: A case study of Nigeria.’ International Journal of  Business and Social Science, 3(8), 67-78.
- Adams, C. (2001). ‘For Good and Evil; The impact of Taxes on the Course of Civilization,’ U. S.  A; Madison Publishers.
- Adegbie, F.F. and Fakile, A.S. (2011). The impact of tax evasion on Federal Government of  Nigeria revenue generation. ICAN Journal of Accounting and Finance, 1(3), 74 – 83.
- Aderibigbe, T. J. & Zachariah, P. (2014). ‘The impact of tax accounting on economic development of Nigeria: collection and remittances perspectives.’ Scholarly Journal of Business Administration, 4(3), 60-66.
- Afubero, D. & Okoye, E. (2014). ‘The Impact of Taxation on Revenue Generation in Nigeria: A  Study of Federal Capital Territory and Selected States.’ International Journal of Public  Administration and Management Research (IJPAMR), 2(2), 32-43.
- Aguolu, O. (2004). ‘Taxation and Tax Management in Nigeria,’ 3 Edition, Enugu; Meridan Associates.
- Albertazzi, U. & Gambacorta, L. (2006). ‘Bank Profitability and Taxation’. Banca d’Italia,  Economic Research Department January 20, 2006.
- Aloys, A., George, K. & Thomas, G. (2015). ‘Determinants of the Performance of Firms Listed  At the Nairobi Securities Exchange’. Research Journal of Finance and Accounting,  6(12), 43-56.
