THE IMPACT OF TAXATION ON FIRM PERFORMANCE IN THE SERVICE INDUSTRY IN NIGERIA
ABSTRACT
The purpose of this study was to examine the impact of taxation on firm performance using the service industry in Nigeria. The objectives of the study were the examine the impact of deferred tax asset, deferred tax liabilities, company income tax, firm size and firm age on firm performance. The study employed secondary data collected from some selected quoted financial firms in the Nigerian Stock Exchange for the periods 2010 to 2014 for the empirical analyses. White heteroskedasticity regression was used to test the formulated hypotheses. The study also conducts descriptive statistics, correlation matrix, variance inflation factor to test for multicollinearity and diagnostic test.
The empirical findings revealed that deferred tax asset (DTA) had significant negative impact on firm performance at 5% level of significance. Deferred tax liabilities (DTL) had an insignificant negative impact on firm performance even at 10% level of significance. Company income tax (CITAX) had an insignificant negative impact on firm performance even at 10% level of significance. The interaction between firm size (SIZE) and firm age (FAGE) as a control variables employed in the study had an insignificant negative impact on firm performance even at 10% level of significance.
The study recommended that the presence of deferred tax asset would significantly lead to a decrease in firm performance of the financial service sector of the quoted companies in Nigeria. The study therefore suggested that further empirical work should be conducted in the area of taxation and firm performance in Nigeria quoted by incorporating other potential variables that might contribute to firm performance.
CHAPTER ONE
INTRODUCTION
1.1    Background to the Study
     Fiscal measures have been drawn to provide for deductions and allowances in the determination of taxable income of the service sector in Nigeria. The service industries must be considered by the government, to be beneficial to the country’s economy and in the interest of the public. The issue of tax regulations cannot be over-emphasized, as most transactions with any Ministry, department, or government agency cannot be concluded without evidence of tax clearance that is a tax clearance certificate certifying that all taxes due for the three preceding years of assessment (Aransiola, 2013). Therefore, corporate tax is a tax that must be paid by a service industries based on the amount of profit generated. The Nigerian tax system has been employed to achieve various economic objectives at notable periods and this has basically been structured as a tool for revenue collection which was the legacy from the pre-independence government based on 1948 British tax laws. Over time however, it has been observed that the Nigerian tax system has inherent problems in its structure.
    According to Kaldor (1963), those who believe that insufficient growth and investment is mainly a consequence of a lack of resources are chiefly concerned with increasing the resources available for investment through additional taxation. The availability and mobilization of revenue is the fundamental factor on which an economic development is sustained and managed. Ogbonna & Ebimobowei (2012) examined the impact of tax reforms and economic growth of Nigeria using relevant descriptive statistics and econometric analysis. they found that the various tax reforms is positively and significantly related to economic growth and that tax reforms granger cause economic growth. This means that tax reforms improves the revenue generating machinery of government to undertake socially desirable expenditure that will translate to economic growth in real output and per capita basis. Meanwhile, a tax system is one of the most effective means of mobilizing resources for any given country and creating an environment conducive to the promotion of business organizations that would enhance economic growth. Tax is a compulsory levy imposed on a subject or upon his property by the government to provide security, social amenities and create conditions for the economic wellbeing of the society (Appah & Oyandonghan, 2011).
1.2    Statement of Research problem
The Nigerian tax system has undergone significant changes in recent times. The tax laws are being reviewed with the aim of repelling obsolete provisions and simplifying the current trend in tax laws for easy assessment by corporate bodies. Odusola (2006) reports that the Nigerian tax system is concentrated on petroleum and trade taxes while direct and broad-based indirect taxes like the value-added (VAT) are neglected. In addition, the tax system lacks the potential of diversifying the revenue portfolio for the country as to safeguard against the volatility of crude oil prices in order to promote fiscal sustainability and economic viability of taxation at the three tiers of government. However, tax revenue mobilization as a source of financing developmental activities in less developed economies has been a difficult issue primarily because of various forms of resistance, such as evasion, avoidance corrupt practices from corporate organizations. These activities are considered as sabotaging the economy and are readily presented as reasons for the underdevelopment of the country. Government collects taxes in order to provide an efficient and steadily expanding non-revenue yielding services, such as infrastructure, education, health, communications system etc, employment opportunities and essential public services (such as the maintenance of laws and order) irrespective of the prevailing ideology or the political system of a particular nation. The very act of taxation has profoundly beneficial effects in fostering better and more accountable government (Tax Justice Network (TJN), 2012). The question now is to what extent has the Nigerian tax policies contributed to the firm performance of the service industry and economic development. In order to fill this gap, this study seeks to find answers to the following research questions:
(i)       What is the relationship between deferred tax asset and firm performance of the service sector in Nigeria?
(ii)       What is the relationship between company income tax and firm performance of the service sector in Nigeria?
(iii)       What is the relationship between deferred tax liabilities and firm performance of the service sector in Nigeria?
1.3    Objectives of the Study
    The broad objective of this study is to provide empirical evidence on the impact of taxation on firm performance using the service industry in Nigeria. The specific objectives will include:
(i)          To evaluate the impact of deferred tax asset and firm performance of the service sector in Nigeria.
(ii)          To investigate the relationship between company income tax and firm performance of the service sector in Nigeria.
(iii)    To examine the relationship between deferred tax liabilities and firm performance of the service sector in Nigeria.
1.4    Scope of the Study
    This study will focus on some selected quoted financial firms in Nigeria Stock Exchange within the period of 2010 to 2014. The choice of this period is due to the non-availability of annual financial accounts for some quoted companies for the year 2015.  This study will use twenty (20) quoted financial companies that are relevant and consistently maintain annual financial reports for the periods that will form the sample size of our study.
1.5    Statement of Hypothesis
           In line with the research problems and objectives, the following null hypotheses are formulated to be tested.
H0 1: There is no significant relationship between deferred tax asset and firm performance     of the service sector in Nigeria.
 H0 2: There is no significant relationship between company income tax and firm      performance of the service sector in Nigeria.
H0 3: There is no significant relationship between deferred tax liabilities and firm     performance     of the service sector in Nigeria.
1.6    Significance of the Study
    Policy makers and management of quoted financial company will find the study a useful tool in the design, implementation and administration of tax system in Nigeria. Information from this study may assist government and the market regulatory authorities in policy formulation and control measures that could reposition the growth of the economy in Nigeria. It would add to existing research work in this direction.
1.7    Limitation of the Study
           In conducting this research work, the researcher will encountered some constraints; an extensive effort was made to develop an accurate model for capturing taxation and economic development in service industry in Nigeria. Also research materials were of limited supply due to the practicality of the study and the cost involved in sourcing for the available materials as well as other necessary information was very high within the reach of the student researcher.
References
Aransiola, S.Y (2013). Corporate Tax and Investment Decision in Quote Manufacturing     Industries in Nigeria. Open Journal of Industrial and Business Management, 1 (1), 1-9.
Kaldor, N (1963). The role of taxation in economic development, Seminar on the Programming     of economic development, United Nations Educational Scientific and Cultural     organization, UNESCO/SS/PED/11
Odusola. A ( 2006). Tax policy reforms in Nigeria. World Institute for Development Economics     Research. Research, 3.
Ogbonna G.N & Ebimobowei, A (2012). Impact of tax reforms and economic growth of Nigeria:     A time series analysis. Current Research Journal of Social Sciences 4(1), 62-68.
Tax Justice Network (TJN) (2012): Aid, Tax and Finance for Development.

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