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PROJECT TOPIC: EFFECT OF TAXATION ON BUSINESS AND INVESTMENT DECISION

 EFFECT OF TAXATION ON BUSINESS AND INVESTMENT DECISION

 

Abstract

This study “Effect of Taxation on Business and Investment Decision” is undertaken to investigate the effect of company income tax on business and investment decision of companies in Nigeria. The main objective of this study is to bring into focus the importance of effective and efficient tax planning. The researcher employed descriptive statistics method and percentage in the analysis of data. The study revealed that there exist statistical significance relationship between taxation and business and investment decision. The study concludes that taxation is indispensable in all modern business organizations. Therefore, the study recommends that optimum rate of tax that will be beneficial to the government on one hand and the firms on the other hand should be charged in order to bridge the negative effects of taxation.

 

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

Public expenditure is one of the fundamental functions or roles of every responsible government. Therefore, in meeting this financial obligation, the need to explore various sources of revenue to the government becomes imperative. To this end, one of the oldest and till modern days known source of revenue to the government is tax beside others. Taxation therefore in this context can be defined as a “non punitive yet compulsory levy imposed by government on the properties and income of individuals, incorporated and unincorporated business entities (Ola, 2001).

Taxation serves as a major source of revenue to government for financing its expenditures. Despite the fact that its be seen as a process of transferring income from the private sector to the public sector for the provision of public goods. It also serves as a major fiscal policy tool through which government manage and control the economy in the area of balance of payment, income distribution, protection of infant industries and discouragement of the consumption of harmful goods in the economy.

It is the responsibility of the government through its appropriate authority to impose tax on the properties, individual and organisation in order to generate revenue. Due to the various mixed effects of taxation, every tax imposed on organization or tax payer is continuously interpreted in terms of its special applicability and effect on the various transaction of the organization. The dynamic nature of the field of taxation occasioned by new court rulings and amendments has been a determining influence on the outcome of the various economics decisions undertaken by business entities. On the part of government, there have been tougher measures instituted to control the adverse economic trend in the economy.

 EFFECT OF TAXATION ON BUSINESS AND INVESTMENT DECISION

These measures are designed to generate revenue, stabilize prices and achieve other economic goals. Undoubtedly, these rules have significant impact on business and investment decision. Every rational decision of the organization undertakes should be based on the profit after tax consideration. Once an investor decides on the type of investment he intends to commit his financial resources into, the tax impact of such choice should be one of the basic criteria. Where the tax is negligible the organization should afford to make decision without regards to income taxes but with the current high corporation tax rate at 30%, it becomes absolutely necessary that tax implication of every business decisions be understood before implementation. This is because they “Double Taxation” (Tax on profit and dividend) on corporation have a reducing effect on the residual profit made by the corporation.

Statement of Problem

It is believed that there is a relationship between the performance of organization’s investment and imposition of tax on the organisation. Therefore, the imposition of company income tax said to impact on business and investment decision in various ways. However, the direction of the effects of taxation for instance whether positive or negative on business and investment decision is not clearly defined. In view of this, the research seeks to investigate the validity of this theoretical underpinning of the effects of taxation on business and investment decisions in Nigeria economy.

 

EFFECT OF TAXATION ON BUSINESS AND INVESTMENT DECISION

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