BACKGROUND OF THE STUDY
The justification for taxation in every country arises from the government’s multiple obligations and the desire to support economic development in certain areas. Taxation is a way of ensuring that specific economic goals of the government, such as the establishment of a hospitable environment for private business/enterprises, are carried out, in addition to being the primary source of funding for the government’s duties to people. Taxation, as an economic regulator, is a powerful instrument for promoting economic welfare by creating a tax-friendly environment that allows firms to thrive and thrive (Osita, 2011).
The objective of rich and emerging countries is for private firms to prosper. Small and medium enterprises (SMEs) in Nigeria have played a critical role in employment development and poverty reduction, adding considerably to the country’s Gross Domestic Product (GDP). The importance of SMEs to the country’s economic progress cannot be overstated, as the sector has been a key source of employment, innovation, and wealth creation (Faloyin, 2015). Small and medium-sized enterprises (SMEs) have played a critical role in the nation’s economic development, primarily via engineering projects in the areas of capital creation, manufacturing/production service delivery, telecommunications, agriculture, and so on. The sector has been a major driver of economic growth, so the government has encouraged private businesses through various tax reliefs, credits, exemptions, allowances, and holidays, as detailed in the Nigeria Investment Promotion Commission’s (NIPC) and Federal Inland Revenue Service’s (FIRS) compendium of investment incentives for 2017. The goal of the incentives is to encourage private firms to develop, create wealth, and reduce poverty in society, similar to what happens in many advanced nations throughout the globe, where governments like the United States and China employ government fiscal policy to support microeconomic development. Taxes and favorable tax policies, according to Omah (2016), are a feasible fiscal policy instrument for fostering entrepreneurship/private enterprise initiative, growth, and taxation.
Momoh (2017), as cited in Omah (2016), noted that low tax rates with no multiplicity and large tax breaks for new enterprises have fueled the expansion of private firms in China, the United Kingdom, the United States, and Japan. Encouragement of SMEs’ development in emerging countries in Sub-Saharan Africa, such as Nigeria, is vital for national requirements. Taxation is a significant instrument in the hands of the government that may be used to stimulate private investment in accordance with national needs and goals. National needs such as job development, poverty reduction, industrialization, and self-sufficiency are vital in Nigeria. Small and medium-sized enterprises (SMEs) can help with a lot of this.
As a result, boosting the development of SMEs in Nigeria is critical for the country’s overall growth rating in the community of nations. The government has been providing incentives to facilitate the functioning of the sector in Nigeria in acknowledgment of the essential role of SMEs in the country’s economy. Unfortunately, the development of these firms is depressing, as many of them fail within two (2) to three (3) years after their inception (Lawal & Aduku, 2016). According to Momoh (2017), over 75% of SMEs in Nigeria perish in their infancy, not making it through their fourth anniversary, owing to a slew of challenges that can’t be solved by the sector’s operations. Raigama (2016), revealed that various taxes placed on SMEs is a significant element responsible for the sudden closure of these enterprises in Nigeria, since these unlawful taxes continue to take a huge percentage of their revenue (Kaigama, 2016). Multiple taxes continue to be a big concern for SMEs as comparable kinds of taxes are imposed by different levels of government in flagrant disobedience to tax rules relating to taxes that are to be collected by each level of government in Nigeria.
STATEMENT OF THE PROBLEM
SMEs face the problem of high tax rates, double taxation, complex tax regulations, and a lack of proper enlightenment, despite the general perception that tax is an important source of funds for economic development and provision of social services. Not to mention the other challenges that SMEs face in other developing countries such as Nigeria, such as a lack of capital, poor technical and managerial skills, environmental consequences, and government regulations that are most affecting the operation of SMEs in Nigeria, particularly the issue of multiple taxation, which is eating deeply into the revenues generated by these SMEs for their operations. As a result, the number of Small and Medium-Sized Enterprises (SME) has decreased. Thus, this study seeks analyse the effects of excessive taxes on small scale enterprise in Nigeria; a study of selected SSE’s in Port-Harcourt.
OBJECTIVE OF THE STUDY
The main objective of this research is to analyse the effects of excessive taxes on small scale enterprise in Nigeria; a study of selected SSE’s in Port-Harcourt. Thus, the following objectives;
1. To explain how Small Medium Enterprises function in the economy of Port-Harcourt.
2. To investigate the effects of excessive taxation on the performance of SSE’s Port-Harcourt.
3. To investigate the effects of excessive taxes on the growth of SSE’s in Port-Harcourt.
These questions guide this research;
1. How do Small Medium Enterprises function in the economy of Port-Harcourt?
2. What are the effects of excessive taxation on the performance of SSE’s?
3. What are the effects of excessive taxes on the growth of SSE’s in Port-Harcourt?
SIGNIFICANCE OF THE STUDY
This study will be helpful in creating awareness to the governing bodies overseeing taxation in Port-Harcourt in understanding the effects of excessively taxing Small Medium Enterprises. The study will also be beneficial to other researchers who want to delve deeper into this study or undertake the research from different perspective.
SCOPE OF THE STUDY
This study only covers the effects of excessive taxation on the performance and the growth of Small Medium Enterprises. It will also take a look at how SSE’s function in the economy of Port Harcourt.
LIMITATION OF THE STUDY
During the course of this research, the only limitation faced by the researcher was insufficient time to carry out the research in full length.
DEFINITION OF TERMS
1. TAXATION: The means by which a government or the taxing authority imposes or levies a tax on its citizens and business entities.
2. SMALL MEDIUM ENTERPRISE: Refers to businesses whose personnel numbers fall below certain limits.