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IMPACT OF TAXATION POLICIES ON THE PERFORMANCE OF THE BANKING SECTOR IN THE FCT

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  • NGN 3000

BACKGROUND OF THE STUDY

The desire to build a civilized country with a strong and sound economy is the desire of every country, including Nigeria. Tax payment is the demonstration of such desire, although some income earners see it as a means of exploitation by the government. Tax payment is a voluntarily contribution imposed by the government on personal income earners, companies, investors, exporters, importers etc. Revenue realized from taxation is a major source of revenue to the government of Nigeria, and as such is important tool used in development of Nigeria and her economy. A country‟s tax policies and systems are greatly related with the business ventures in the country. An economy that enacts favourable and progressive tax laws and policies will definitely breed successful and finance healthy business organizations. Once business flourish, the economy flourishes as well, as there is no quicker way of stirring up the matters of economy without help of organizations that move services, goods, money and investments from those with surplus to those with deficit; those with marketable ideas/ output to those who need these ideas and products. In essence, businesses and tax policies greatly depend on one another for survival. If one is greatly affected the other follows suit.

 

The Nigerian tax system has undergone significant changes in recent times. With the help of various studies and research done by tax experts, tax laws are being reviewed with the aim of repelling obsolete provisions and simplifying the main ones. Under current Nigerian laws, taxation is enforced by two tiers of the government, i.e National government and county government with each having its sphere clearly spelt out in taxes andlevies.

Banking sector are generally recognized as important drivers of economic success. They are key ingredient in the „ecology of firms‟ in healthy economy, as job creators, sales generators and source of tax/ fiscal revenue. In Nigeria the importance of banking sector as a creator of jobs, particularly for those with low skills level, is widely recognized. Banks contribute 25% of the country‟s gross domestic product (GDP) and employ about 60% 0f the workforce in the private sector. In agriculture, construction and retail sector Banks employ more than 75% of the total workforce. Over the last few years the performance of commercial banks employment has exceeded the growth in their contribution to the GDP the reason why the Nigerian government has been notably supporting them through financial institutions creditlending.

Regulations and tax policies are reported to be one of the constraints to the expansion of small businesses in Nigeria and internationally. However, these enterprises like any other business Nigeria are liable to different types of taxes and these include cooperate tax, corporation tax capital gain tax, sales tax and customs duties that are paid at different stages of the business. For purposes of this study the emphasis is put on cooperate tax which is levied on the incomes of all Commercial banks.

​​​​​​​STATEMENT OF THE PROBLEM

It is believed that cooperate tax rates that are charged on banks are not accurate since its base on assumptions without assessing the actual turnover of the enterprise, yet at times these enterprises may be making losses. It is alleged that high Cooperate tax rates affect the level of consumption and increase the unit cost. Profit maximization is the major goal of every business. However, this seems not to be a reality as most of them cannot achieve this goal.

Cooperate tax administration plays a pertinent role regarding revenue collection as well as profitability of any business. In an effort for the government to increase its tax base, the tax burden for many firms increases. However, the tax administration system is poor as at times, the tax liability computation is based on estimates, records of many small business firms are incomplete, and some miss out completely leading to tax over charge. In return, this directly affects the growth of the enterprise and may threaten its survival because taxes are paid out of profits. Therefore, failure to have an effective tax administration system adversely affects the profitability of commercial banks.

​​​​​​​OBJECTIVES OF THE STUDY

The study was guided by the following research objectives;

  1. To examine the effect of tax policy on the performance of banking sector in FCT
  2. To examine the challenging facing the management of the bank and the taxt official on the issue of tax policy in related to banking sector in FCT.



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