BENEFITS OF TAX COMPLIANCE TO SMALL BUSINESS TAX PAYER

BY

OSAKUE PAUL SSC0410958

A RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTING, FACULTY OF MANAGEMENT SCIENCES, UNIVERSITY OF BENIN IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE DEGREE OF BACHELOR OF SCIENCE (B.Sc) IN ACCOUNTING

APRIL, 2011

CERTIFICATION

This is to certify that this work was carried out by Osakue Paul in the Department of Accounting, University of Benin in the 2008/2009 section.

__________________________ Engr. K. O. Ogiedu Project Supervisor

__________________________ Prof. Izedonmi I. O. Head of Department

ii

DEDICATION

To God be the Glory, without much ado, I want to sincerely dedicate this piece of my project work to God Almighty who made it rosy for the fruition of this project work. More so, I want to also dedicate this project work to my ever beloved late brother, Mr. Osakue Osamudiamen Matthew, whose gentle soul is resting in bossom of our almighty God, and my parents, Mr. and Mrs. Stephen Osakue who are hale and healthy.

iii

ACKNOWLEDGEMENT

I am sincerely grateful to God Almighty for making it possible for me to get to this height of my educational pursuit, he saw me through the difficult times during and after the fruition of this piece of project work. Without mincing words, I have to acknowledge the following people; firstly, I tremendously thank and appreciate the tender, loving care of my indefatigable and industrious parent, Mr. and Mrs. Stephen Osakue who financially contributed immensely to see that my aims and objectives in the course of my education is a success may their sources of income never go dry. Secondly, my immense appreciation goes to my project supervisor, Engr. K. O. Ogiedu whose contributions to my project work and criticism made my work a huge success. Also my infinite indebtedness goes to my fiance, Evelyn Ehiozuwa. Finally, my infinite indebtedness also goes to my siblings; Mr. Joseph Osakue, Mrs. Matina Ogbebor, Miss Josephine Osakue;

iv

may the loving grace of God continue to bless you all. Also I want to sincerely thank my creator (Messiah) for His abundant blessing blessings showered on me and my family. Words alone cannot express my infinite indebtedness to all my and sundry. May He continue to see us through in all our endeavour in life (Amen).

ABSTRACT

This project work examines the benefits in form of managerial, cash flow and deductible derived by small business entities as a result of complying with their tax obligations in Nigeria. This adopted survey method and data were sourced using questionnaires. The primary data were analysed using descriptive statistics tools in Microsoft Excel and SPSS. The Hypotheses were tested using Chi-Square and Correlation Co-efficient. The study found small business taxpayers recognised that tax compliance activities led to better record keeping as a requirement imposed by tax compliance. This has in-turn compel small businesses to upgrade their accounting systems, typically in the form of computerisation. The tax compliance activities of small have improved their record keeping, improved knowledge of their financial affairs, improved internal and stock control, and inventory and credit management.

vi

LIST OF TABLES Table 4.1: Table 4.2: Table 4.3: Table 4.4: Table 4.5: Table 4.6: Table 4.7: Table 4.8: Distribution and Return of Questionnaire Sex Distribution of Respondents Age Distribution of Respondents Educational Qualification of Respondents Distribution of Business Type Distribution of registered business tax payers Tax Obligation Tax compliance and improvement of accounting

information system Table 4.9: Tax compliance and improvement of internal control

Table 4.10: Benefits of tax compliance in terms of savings in cost Table 4.11: Tax Compliance and business performance

vii

TABLE OF CONTENT

Title page

..

.. .. ..

.. .. .. .. .. .. ..

.. .. .. .. .. .. ..

.. .. .. .. .. .. ..

.. .. .. .. .. .. ..

.. .. .. .. .. .. ..

.. .. .. .. .. .. ..

i ii iii iv-v vi vii viii-x

Certification .. Dedication ..

Acknowledgement .. Abstract .. .. ..

List of Tables

Table of Content ..

CHAPTER ONE-INTRODUCTION 1.0 1.1 1.2 1.3 1.4 1.5 Background of Study .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 1 3 5 6 7 7

Statement of Research problem Objectives of the Research ..

Statement of the Research Hypotheses Scope of the Study .. .. .. .. ..

Significance of the Study ..

viii

CHAPTER TWO-LITERATURE REVIEW 2.1 2.2 2.3 2.4 Introduction .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 9 12 14 19

Nigerian Tax System Small Businesses

Tax Compliance Benefits to Small Businesses

CHAPTER THREE-RESEARCH METHODOLOGY 3.0 3.1 Introduction .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 29 29 30 30 31 31 32 32 33

Research Design ..

3.1.1 Population of the Study .. 3.1.2 Sample Size 3.2 Sources of Data .. .. .. ..

3.2.1 Primary Sources of Data 3.2.2 Secondary Sources of Data 3.3 3.4 Method of Data Analysis Limitation of the Study

CHAPTER FOUR- PRESENTATION AND ANALYSIS OF DATA 4.0 4.1 Introduction .. .. .. .. .. .. .. .. .. .. .. 34 34

Presentation of Result

ix

4.1.1 Demographic Information 4.1.2 Background Information .. 4.1.3 Research Question 4.2 Data Analysis .. .. .. .. ..

.. .. .. ..

.. .. .. .. .. ..

.. .. .. .. .. ..

.. .. .. .. .. ..

35 37 40 46 46 54

4.2.1 Test of Hypotheses 4.3 Research findings ..

CHAPTER FIVE-SUMMARY OF FINDING, CONCLUSION AND RECOMMENDATIONS 5.0 5.1 5.2 5.3 5.4 Introduction .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 57 57 60 60 61

Findings and Discussion .. Conclusion .. .. ..

Recommendations .. .. Future Research .. ..

APPENDIX Appendix 1: References .. .. .. .. .. .. .. .. .. 62 64

Appendix 2: Sample of Questionnaire ..

CHAPTER ONE INTRODUCTION 1.0 BACKGROUND OF STUDY Small Businesses play an important role in economies of any nation as they generate significant employment and output. Evidence from the Asian Tigers attests to this fact that small firms accounted for much of their growth; creating employment and accelerating efficient utilization of capital. Apart from these stated contributions, small businesses also contribute to the wealth of any nation in their tax obligation and compliance. Tax compliance is a global phenomenon that has been greatly advocated for its enormous benefits to the government and the taxpayers. Taxes are paid both by individuals and businesses. Small business tax compliance is a function of the perceived benefits outweighing the perceived costs. The final Draft of Nigeria Tax Policy submitted to the Federal Executive Council captured several definitions of the concept of tax. Tax has been defined as a monetary charge
1

imposed by the Government on persons, entities, transactions or properties to yield revenue (National Tax Policy, final draft). Taxes are therefore defined as a financial charge or levy imposed upon an individual or legal entity by a State or a component of the State (ibid). A tax is usually a monetary charge on a persons or entitys income, property or transaction and is usually collected by a defined authority at the Federal and State Level. Taxes may be direct or indirect and may be imposed on individual basis, on entities, on assets and on transactional basis. In Nigeria, taxes are imposed on the following: individuals; companies (Corporate Entities),

transactions and assets and obligation include registration in the system; timely filing or lodgement of requisite taxation information; reporting of complete and accurate information (incorporating good record keeping); and payment of taxation obligations on time. Meeting these obligation is referred to obligation is termed tax compliance. Allingham and Sandmo, (1972) tax compliance has been understood in terms of the benefits of successful evasion
2

weighed against the risk of detection and punishment. Tax compliance is associated with cost and benefits to small business, the former is a widely discuss subject in literatures while the former is limited. Tax compliance induct a firm into the formal sector, and allows the firm access to formal credit markets, government procurement, and access to markets including for export. Also tax compliance also provides Cash flow benefits, managerial benefits and tax deductibility benefits to small business. The main quantifiable form of tax compliance benefit is the cash flow advantage which arises when businesses have the use of tax revenues for a period before they must be remitted to tax authorities (Sandford et al., 1989). The thrust of this work is to evaluate the benefits of tax compliance to small business tax payers in Nigeria.

1.1

STATEMENT OF RESEARCH PROBLEM A number of studies have described small business

taxpayers as law abiding, responsible and ethical, taking their tax obligations seriously (Brown, 1985; Cunningham and
3

Lishercon, 1991). Nigeria economy is growing in the number of small businesses as several incentives have been accorded small scale industries to facilitate their development and growth. For many small entrepreneurs in Africa in general and Nigeria in particular, the choice to pay tax or remain in the informal sector is a function of perceived benefits and costs. In the light of this recognition, this study would examine the following questions: i. What positive relationship exists between tax compliance by an organization and improvement in its accounting information system? ii. What positive relationship exists between tax compliance by an organization and improvement to its internal controls? iii. What positive relationship exists between tax compliance by an organization and saving in costs? iv. What positive relationship exists between tax compliance by an organization and its business performance via improved accounting information?
4

1.2

OBJECTIVES OF THE RESEARCH i. To determine positive relationship between tax compliance by an organization and improvement in its accounting information system; ii. To determine the positive relationship between tax compliance by an organization and improvement to its internal controls; iii. To ascertain whether there is positive relationship between tax compliance by an organization and saving in costs; and iv. To determine positive relationship between tax compliance by an organization and its business performance via improved accounting information.

1.3

STATEMENT OF RESEARCH HYPOTHESES Hypotheses are tentative conjectural statement of the

relationship between two or more variable. They provide focus for the study and give greater insight into understanding the problems involved. For the purpose of this research work, the following hypotheses will be tested: H1: There is no positive relationship between tax compliance by an organization and improvement in its accounting information system. H2: There is no positive relationship between tax compliance by an organization and improvement to its internal controls. H3: There is no positive relationship between tax compliance by an organization and saving in costs. H4: There is no positive relationship between tax compliance by an organization and its business performance via improved accounting information.

1.4

SCOPE OF THE STUDY This study is centred on benefits of tax compliance to

small business tax payers. These benefits are managerial benefits, cash flow and deductibility benefits. The scope of study is limited to taxpaying small businesses in Benin City using the definition of National Council on Industries (1991) for microscale, small-scale, and medium-scale enterprises.

1.5 SIGNIFICANCE OF THE STUDY The importance and relevance of taxation in Nigeria is numerous to mention. Taxes are sources of government revenue expended for developmental projects. It also used in redistributing the wealth of the nation. This study will aid Nigerian Revenue Authority in their tax design and administration policies, and very helpful to the accounting practitioners. It will also help educate large number of small business in embracing formalization of their businesses; this will result in higher
7

revenue to government and lower compliance cost of the revenue authority. The study will also fill the existing knowledge gap and increase the stock of literature for other researchers.

CHAPTER TWO LITERATURE REVIEW 2.1 INTRODUCTION Globally, it has been recognized that the small business sector plays an important role in the economic and social development of a country. Also it is a viable source for government revenue through the instrument of taxation. The term taxation has generally been defined as the process of collecting taxes within a particular location. Its intent is to raise revenue to pay for public goods and this has attendant effect on economic growth and income distribution. In developed economies and other world, taxation provides the bulk of government revenue for administration and development. The practice of taxation has long been in existence as recorded in the Holy Bible in (Exodus 30:11-16; Numbers 31:2541; 2 Chronicles 24:16-11; Nehemiah 5:1-4; Matthew 17:34; 22:17 & 19, Mark 12:14 and Romans 13:6-7). Also Taxation has had a long and influential history in the snapping of civilizations
9

throughout the world; great ancient civilizations such as Egypt, Rome, Greece, Persia, Zulu, and Benin taxed their people to achieve a collective greatness. In the Nigerian landscape, taxation has been in existence even before the amalgamation of Nigeria as a political entity in 1914. Several studies have stated that the practice of taxation were rooted the traditional system of the Yorubas, the Binis and the Hausas. Taxation creates a balance between the various economic classes by the redistribution of wealth and income thereby raising generally the quality of life and increasing social cohesion. The principles underlying taxation were enunciated by Adam Smith as long ago as 1776 and till date his four cannons of taxation; namely economic efficiency, equity, transparency and certainty and administration remained valid. Paul and Roland (1990) conceptualize some reasons for taxation and they are summarized as follows: i. Provision of Public goods: this type of good cannot be left to the private market because of its immense benefit to the general public. They stressed further th at public
10

goods provides a non excludable benefit bthat is available to everyone, regardless of who pays for it. Its benefit is also inexhaustible; when one person enjoys it the amount of benefit it provides to others is not diminished. That is, the benefit derived by one person is externalized, in that it becomes available to another person at the same time (Umog, 1997). ii. Encouraging the use of merit goods: Government intervention may also be based on the view that people are not in all cases the best judges of what is good for them. iii. iv. Dealing with externalities Helping the poor. Due to market orientation and its inclination towards the rich, taxes are collected to help the impoverished and provide assistance for old people, the handicapped and the needy. v. Promoting economic stability: The general economic stability in terms of increased and efficient production system and employment index. In contributing to the pool of knowledge, Eton (1998) stated that taxation is used to
11

achieve the protection of home industries through government varied instruments, fight inflation and

encourage healthy balance of payment of the country. Other reason deduced for promoting economic stability include: use of progressive tax and tax relief to encourage investment. For this study, the literature review is structured into the following sub-themes: Nigerian tax laws and Tax Compliance Benefits to small businesses

2.2

NIGERIAN TAX SYSTEMS

Blacks Law Dictionary defined tax as the enforced

proportional contributions from persons and property, levied by the State by virtue of its sovereignty for the support of Government and for all public needs. A country's tax system is a major

determinant of other macroeconomic indexes. It has also been argued that the level of economic development has a very

12

strong impact on a country's tax base (Hinricks, 1966; Musgrave, 1969).

In Nigeria, taxes are imposed on individuals in form of Personal Income Tax, Development Levy; on Companies in form of Companies Income Tax, Petroleum Profits Tax, Education Tax and Technology Tax; on Transactions in form of Value Added Tax, Capital Gains Tax, Stamp Duty, Excise Duty, Import Duty and Export; and on Assets- this includes taxes, such as property tax and other such taxes imposed on land or landed property. Personal Income Tax (PIT) was enacted in 1961. It governs the taxation of individuals, and trustees, executors, partnership,

communities, and families. It has experienced a lot of amendments. The current law guiding the taxation of personal incomes is the Personal Income Tax Act (Cap P8 LFN 2004), (www.firs.gov.ng). PIT is a tax that is imposed on individuals who are either in employment or are running their own small businesses under a business name or partnership. The employers of labor are deemed to be agents of the tax authority for the purposes of remitting taxes deducted from salaries due to employees.

13

Value Added Tax (VAT) another type of tax paid by small businesses was used to replace the sale tax decree of 1986-1988 is managed by the federal Inland Revenue (FIR). Value Added Tax (VAT) was introduced by decree number 102 of 1993 by the federal military government of Nigeria. The value added tax decree took effect form 1st January 1994 under decree at a flat rate of 5%, it is levied on goods and services such as import, as well as professional and banking services.

2.3

SMALL BUSINESS There is no universally accepted definition of small

businesses comprising of Small and Medium Enterprises (SMEs) across the globe. Definitions in each country reflect the relative development of the prospective economies. According to Holmes and Gibson (2001), a wide range of definitions of small business are currently in use throughout government agencies and among academics. These definitions involve a variety of criteria based on the number of employees, turnover or net assets.
14

Beyene, (2002), in the USA, the small business administration defines small business as any business with less than 500 employees. In Nigeria, the definition of Small and Medium Scale Enterprises has varied over the years across various institutions. The National Council on Industrial Standards in 1992, defined small and Medium Scale Enterprises (SMEs) as enterprises with total cost (including working capital but excluding cost of land) above 31 million but not exceeding

N150 million, with a labour size of between 11 and 100 employees. Small and Medium Industries Equity Investment Scheme (SMIEIS) Revised Guidelines for Operation of the Scheme defined a small and medium enterprise as any enterprise with a maximum asset base of N500 million (excluding land and working capital), and with no lower or upper limit of staff. Olorunshola, (2003), before 1992, different government agencies in the Nigeria adopted different definitions for SMEs, reflecting differences in the policy focus of the agencies. In 1992, the National Council on Industries streamlined these
15

different definitions so as to remove confusion and ambiguities, with a proviso that the official definition is subject to review every four years. According to Udechukwu (2003), the 13th meeting of the National Council on Industry, held in July 2003, adopted the following definitions for micro-, small-, and mediumscale enterprises: Firm Type Labour Size Total Cost excluding Working Capital but including land cost Total Cost including working capital but excluding land cost is not more than N1,500,000 N50 million

micro/cottage Maximum of 10 employees small scale Between 11 industry and 100 employees Medium labour size scale exceeds 100 employees but is not more than 300 employees

Lies between N50 million and N200 million.

Central Bank of Nigerias (2004) defined Small and Medium Scale Enterprises as any enterprises with a maximum asset base of N200 million, excluding land and working capital,
16

with the number of staff employed by the enterprise not less than 10 and not exceeding 300. According to World Bank (2004), there are various criteria of size that might be used to define an SME (turnover, number of employees, capital base, profits, extent of imports and export), and various definitions have indeed been developed for application in a range of countries. They defined small business as follows: Micro 10 or fewer employees, assets no more than USD100,000 Small 10 to 50 employees, turnover and assets between US$100, 000 and US$ 3 million Medium 50 to 300 employees; turnover and assets between US$3 to 15 million.

Across the globe, SMEs are regarded as economic catalysts and the bedrock of all industrialized societies as they feature prominently in economic transformation of any nation.
17

They play a vital role in the mobilization of domestic product, harnessing of local raw materials, employment generation, and poverty reduction through sustainable livelihoods and

enhancement in personal income, technological development and export diversification. In literature, it has been asserted that small and medium scale enterprises contribute significantly to improve living standards, local capital formation and high levels of productivity and capability. Many economists also contend that small firms offer a range of advantages over larger entities because of their flexibility, their closeness to customers and their important sub-contracting function (Scott 1991). In recognition of the pivotal role of SME, several governments have supported the growth of small business, and the growth has been phenomenal. For example, while the number of private SMEs recorded in China rose from zero in the early 1980s to around 40 million now (Hall, 2007). The increased focus on SMEs also reflects a growing emphasis on their potentially critical role in fostering innovation,

18

employment and growth, and also providing government revenue in form of taxes.

2.4

TAX

COMPLIANCE

BENEFITS

TO

SMALL

BUSINESSES A number of studies have described small business taxpayers as law abiding, responsible and ethical, taking their tax obligations seriously (Brown, 1985; Cunningham and Lishercon, 1991). In Nigeria tax system, taxpayers obligations were enumerated as follows: i. ii. iii. Register for tax payment Determine the amount of tax payable Pay correctly and on time all taxes due or with held on payments made including tax penalties: iv. File a return in respect of taxes payable

19

v.

Keep and producer on demand all books of accounts records, documents and return necessary for the ascertainment of tax liability.

vi.

Answer all queries and latent to notice or summons served by the tax authorities.

vii.

Co-operate with and allow tax officers full access to premises, office or residence to search or remove anything required for investigating tax chargeable or bringing up a case in the law court.

viii.

Give information of any other person or company specified in a notice by the tax authorities.

ix.

Pay to the tax authorities all or part of any amount of money due to a company or person who has defaulted in his tax obligation. If the tax authorities so direct.

x.

Have a representative or tax officer designate to answer all questions of tax payment (complains income tax).

xi.

Do any other thing as may be required by the tax authorities for a smooth administration of a tax policy.
20

These tax obligations are also ascribed to business enterprises, meeting them is simply referred to as tax compliance. Tax compliance is the act or process of subjecting oneself, ones incomes and business or expenditure to the demands of the tax law. The original assumptions about tax compliance were rooted in standard analyses of maximization of expected income, taking into account the risks and penalties associated with non-compliance (Allingham and Sandmo, 1972). Roth et. al (1989) defined Tax compliance as compliance with tax reporting requirements, namely that the taxpayer files all required tax returns at the proper time and that the returns accurately report tax liability in accordance with the tax laws, regulations and court decisions applicable at the time the return is filed. Manuwa (1996) defined tax compliance as the act or process of subjecting oneself, ones income, business, asset or expenditure to the demand of the tax law. Generally, tax compliance means voluntary compliance of tax laws by taxpayers without any effort or action by tax administration.

21

The subject of tax compliance has been viewed with feelings in the literatures, some researchers posited that tax compliance is cost inclined and others argued that is rewarding and beneficial. Sandford et. al (1989) asserted in their work that the effect of complying with tax may not always be detrimental as individuals who complete their tax return and file the necessary information, may, at the same time, be encouraged to engage in more efficient management of their financial affairs. They further stressed that these benefits are likely to be more significant in the case of businesses as compliance with the tax system will force the business owner to introduce a more efficient financial information system. Benefits of tax compliance are in three folds as documented in accounting literatures; they include managerial, cash flow and Tax deductibility benefits. Sandford et. al (1989) recognised cash flow benefits and managerial benefits as offsets to compliance costs. Several studies on managerial benefits of tax have been undertaken; prominent among them is the Sandford VAT study that introduced concept of managerial
22

benefits

and

attempted

to

quantify

managerial

benefits

(Sandford et. al, 1981). The term was coined due to the attendant benefit and resultant financial management efficiency due to businesses in complying with tax obligations. Managerial benefits provide a basis for improved business or individual decision making. A cursory look at the obligations of taxpayers enumerated above indicates information demand, and the required information is only available through adequate record keeping by small business. Lignier (2009) managerial benefits may be derived by business taxpayers as a result of record keeping requirements imposed by tax compliance obligations. In literature, it has been asserted that record keeping result in improved information system. Accounting information system is a computer-based system that Nicoloau (2000) defines as a system that increases the control and enhances the corporation also defines inside the

organization.

Boochholdt

(1999)

accounting

information systems as systems that operate functions of data gathering, processing, categorizing and reporting financial
23

events with the aim of providing relevant information for the purpose of score keeping, attention directing and decisionmaking. Evans, Carlon and Massey (2005) asserted that the improved information system arises as a result of the necessity to have a complete accounting system where all transactions are recorded. From literature, VAT/GST compliance, for

instance, requires taxpayers to keep a record of their sales and purchases. According to Rametse and Pope (2002) following the introduction of GST, 45 per cent of small businesses in Western Australia stated that they would upgrade or purchase a computer because of the introduction of GST. This technological change was likely to generate benefits for the business managers in the form of up-to-date, easily available financial information (Pope & Rametse 2000; Pope 2003). Technological development and the place value of computer have enhanced information and record management. Small businesses have adopted the use of computers and special software to meet the information demand of various IRS. The use of computer
24

technology has translated into managerial benefits to small businesses as it enhances speed, timeliness, effectiveness and efficiency in the area of information processing. Researchers who carried out a case study of Australian SMEs over three financial years (2001-2003) after the introduction of GST, reported numerous instances where business taxpayers were deriving managerial benefits from the use of computerised record keeping (Tran-Nam, Glover & Wilkin 2004). In Tran-Nam and Glover (2004), evidence of managerial benefits derived as result of the adoption of computerised accounting system by small business was found by a case study which investigated the costs and benefits of the introduction of GST in Australian small businesses; participants in the case study reported that adopting a CAS allowed them to have up-to-date records from which they could retrieve information at the touch of a button. Roberts and Wood (2001), effectiveness benefits can also arise because the use of technology allows owner/managers to perform new activities that contribute more to the value of the business than the old activities they replace.
25

Record keeping requirement of tax provides business payers with other benefits; Sandford et al (1981) argued that tax compliance might encourage taxpayers to prepare accounts internally and that in doing so, they would be saving on external accountant fees and audit fees. Sandford, (1981) stated that business taxpayers who keep quality records will, as a direct or indirect consequence, save on their overall tax compliance costs. Evans, Carlon & Massey (2005) identified a second potential source of cost savings in the form of a reduction in other compliance costs. They will save directly because better records will make tax compliance tasks easier and consequently less costly. In 2005, professional accountants surveyed in Australia, reported that good record keeping also gave SMEs better access to credit and reduced their exposure to tax audit (Evans, Carlon & Massey 2005). Sandford et, al (1992), additional empirical evidence on the perception of managerial benefits by business taxpayers is available from research on tax compliance costs undertaken in
26

New Zealand and Australia in the 1990s. Nearly 50 per cent business owners surveyed in New Zealand in 1991 agreed that their purchase records were better kept as a result of complying with GST obligations, and 31 per cent said that there was useful cash collected. Sandford et. al (1981) asserted that more stringent record keeping might lead to improved stock control. Cash flow benefit is another major benefit of tax compliance in tax literature. It help companies derive monetary benefits from interest savings or earnings due to timing of advance tax installments and, the time interval between withholding of taxes for employees or non-employees and deposit of withheld taxes in the government treasury. Cash flow benefits arises when income is not taxed and remitted at the point at which it is received, and taxpayers have the use of the tax revenue for a period before the tax is paid to the tax authority and the lawful delay in the remittance of tax revenues collected by businesses on behalf of the government (e.g. PAYE or sales tax). Sandford et al. (1981), the idea of cash flow benefits as an

27

offsetting benefit of tax compliance to business taxpayers was first popularized by Sandford and others in the early 1980s. Tax deductibility benefits represent a transfer within the economy, which does not reduce the social compliance costs. Deductible expenses typically include fees paid to professional tax advisers and these deductible expenses reduce taxpayers tax liabilities. The benefits of the tax deductibility of compliance activities to taxpayers were considered in some detail in an early study by Johnston (1963). The income tax systems in most developed countries recognize some tax compliance cost activities as a source of legitimate tax deductible expenses.

28

CHAPTER THREE RESEARCH METHODOLOGY 3.0 INTRODUCTION The objectives of this research is to determine perceptions of small businesses in respect of the benefits of compliance and to determine if small businesses are deriving any benefit as a result of complying with their tax obligations. Research methodology that express the ways that data will be obtained and analysed including the hypothesis for this work is structured into research design, sources of data and method of data analysis

3.1

RESEARCH DESIGN This is the framework of the study; it will guide the

researcher in the collection and analysis of data. Population of study and Sample size of the study

29

3.1.1 POPULATION OF THE STUDY The population of the study is the group about whom the researcher will be able to draw conclusion from since the geographical location of this study is Benin City in Edo State, the target population of this research study therefore is small businesses with less than 20 employees operating in Benin City. 3.1.2 SAMPLE SIZE The study has been restricted to the study of small businesses operating in Benin City, Edo State. This is so because there are no authoritative figures of the size and shape of this sector in Nigeria. Also due to the large numerical number of small business operating in Nigeria, few number of small business will be used in the study during the research process. This is because from their entire population, sample will be selected which will in turn represent the entire population in order to give room for manageability. A sample of 200 small businesses will be selected using simple random sampling for the research study. The process involves
30

collecting the names of small business with registered addresses operating in Benin City by moving from one street to the other from their various signboards. This data is then summed up and the samples are drawn using simple random sampling (lottery method). Questionnaires are then administered the sample drawn. A screening question was inserted in the survey instrument would allow the identification of any business with more than 20 employees.

3.2

SOURCES OF DATA

3.2.1 PRIMARY SOURCES OF DATA The primary sources of data will involve mainly the questionnaires personally administered by the researcher. The questionnaire will be used to gather data on general matters relating to the processes about tax compliance and tax benefits. The questionnaire will be administered to the representative of the selected small business.

31

3.2.2 SECONDARY SOURCES OF DATA There will also be the use of secondary data. Secondary data are data which has been gathered by a different entity for their own specific use. It was obtained from Edo State Revenue Board.

3.3

METHOD OF DATA ANALYSIS

The data from the research is analysed using chi-square and spearman rank correlation. Chi-square as a statistical tool enables researchers to establish a relationship if there is any between two categorical or nominal variables. Spearman rank correlation defines the degree of relationship which exists between two or more variables. The data pertaining to the various hypotheses were entered into Microsoft 2007 for analysis using the correlation tool.

32

3.4

LIMITATION OF THE STUDY This study has some limitations which include: time,

finance, and the confidential nature of some individual as regard their operations pose a major problem within my survey area. These factors limited this research work.

33

CHAPTER FOUR PRESENTATION AND ANALYSIS OF DATA 4.0 Introduction This chapter presents the description, analysis and interpretation of the data obtained from the questionnaire used for this study. The results are used to provide answers to the research questions of the study. 4.1 Presentation of Result Table 4.1: Distribution and Return of Questionnaire Questionnaires Distributed Returned Unreturned Number 200 188 12 Percentage 100% 94% 6%

Source: Researchers field work

In course of this research, two hundred questionnaires were administered to organizations drawn from the population. One hundred and eighty-eight were returned while twelve were

34

not returned, this represent 94% and 6% of the distributed questionnaires respectively.

4.1.1 DEMOGRAPHIC INFORMATION Table 4.2: Sex Distribution of Respondents

Cumulative Frequency Valid Male Female Total 163 25 188 Percent 86.7 13.3 100.0 Valid Percent 86.7 13.3 100.0 Percent 86.7 100.0

Source: Researchers field work

Table 4.2 shows that respondents were male dominant. The male sex accounted for 86.7% of the respondents while 13.3% of the respondents were females.

35

Table 4.3: Age Distribution of Respondents

Cumulative Frequency Valid Under 30 yrs 30-39yrs 40-49yrs Total 38 125 25 188 Percent 20.2 66.5 13.3 100.0 Valid Percent 20.2 66.5 13.3 100.0 Percent 20.2 86.7 100.0

Source: Researchers field work

Table 4.3 shows 125 respondents were within age bracket 30 39 years of age and this accounted for 65.5% of the returned questionnaires while 38 respondents (20.2%) were under 30 years of age. Also 25 respondents were within the age bracket of 40 49 years of age. Table 4.4: Educational Qualification of Respondents
Cumulative Frequency Valid Primary SSCE/GCE/WAEC NCE/OND B.Sc/HND Others Total 13 25 50 75 25 188 Percent 6.9 13.3 26.6 39.9 13.3 100.0 Valid Percent 6.9 13.3 26.6 39.9 13.3 100.0 Percent 6.9 20.2 46.8 86.7 100.0

Source: Researchers field work

36

Table 4.4 shows the educational status of the respondents. 13 representing 6.9% have primary/secondary school education, 25 respondents representing 13.3% have secondary education while 26.6%, 39.9% have NCE/OND and B.Sc/HND

respectively. Majority of the respondents are highly educated.

4.1.2 BACKGROUND INFORMATION Table 4.5: Distribution of Business Type

Cumulative Frequency Valid Missing Total sole proprietorship System 175 13 188 Percent 93.1 6.9 100.0 Valid Percent 100.0 Percent 100.0

Source: Researchers field work

Table 4.5 reveals the distribution of business type, 175 of the 188 returned questionnaires indicated they operate soleproprietor business entity. This figure translate to 93.1%

37

Table 4.6: Distribution of registered business tax payers

Response Question Yes Is your company registered for tax? Do you regularly pay your tax? 63 175 No 125 nil Yes 33.51% 93.1% No 66.49% Percentage

Source: Researchers field work In Table 4.6, 63 businesses are registered to pay tax and 125 businesses are not registered to pay tax. This value translates 33.51% and 66.49% respectively. Also 175

respondents indicated their businesses pay their tax regularly, this account for 93.1% of the total returned questionnaires.

Table 4.7: Tax Obligation

Cumulative Frequency Valid Income tax PAYE Total 175 13 188 Percent 93.1 6.9 100.0 Valid Percent 93.1 6.9 100.0 Percent 93.1 100.0

Source: Researchers field work

In Table 4.7, 175 businesses representing 93.1% pay Income Tax while 13 businesses representing 6.9% is saddle with Pay

38

As You Earn (PAYE). These are the two tax obligations small businesses are saddled with.

39

4.1.3 RESEARCH QUESTION Research Question 1: What positive relationship exists between tax compliance by an organization and improvement in its accounting information system? Table 4.8: Tax compliance and improvement of accounting information system
Tax Compliance and Accounting Information System Complying with tax obligations has help to improve my accounting information system Complying with record keeping task of tax compliance has helped our business to develop Accounting Information System Tax compliance obligations have enabled my organization to acquire computerized accounting system Acquisition of computerized accounting system has improved our Accounting Information System 1 2 3 4 5 mean

13

12

38

87

13

163

3.46

13

50

38

87

188

3.72

25

38

12

100

13

188

3.20

50

13

25

100

188

3.60

Source: Researchers field work

40

Table 4.8 show the benefit of tax compliance in terms of improvement in accounting information system of small business taxpayers. All the items in the table were accepted by the decision mean range of 3.00 and above. All the items in the table have mean value greater than 3.00. In item 1, 100 businesses agreed that complying with tax obligations has helped to improve their accounting information system while 25 disagreed. To items 2, 3 and 4 a close observation revealed 125, 113 and 125 respondents agreed respectively while 63 each disagreed. There was a general improvement in accounting information following tax compliance by businesses.

41

Research Question 2: What positive relationship exists between tax compliance by an organization and improvement to its internal controls? Table 4.9: Tax compliance and improvement of internal control
Tax compliance and improvement in internal control 1 Complying with tax obligations has help to improve my business internal controls Tax compliance encourages taxpayers to prepare their accounts internally. Our internal control have improved with adoption of our tax Accounting Information System Record keeping task of tax compliance lead to improved stock control. Improved internal control in our business has improved our inventory management Improved internal control in our business has improved our cash flow monitoring. 1 2 3 4 5 Mean

12

38

25

38

75

188

3.67

13

75

87

13

188

3.06

12

13

12

38

113

188

4.21

12

63

13

75

25

188

3.20

25

25

125

13

188

3.40

12

25

25

113

13

188

3.48

Source: Researchers field work

42

In Table 4.9, all the items has a mean value greater than 3.00 and respondents all indicated that tax compliance results in improvement in internal control of businesses.

43

Research Question 3: What positive relationship exists between tax compliance by an organization and saving in costs?

Table 4.10: Benefits of tax compliance in terms of savings in cost

Tax compliance and saving in cost. 1 Complying with tax obligations has help to increase my cash flow from taxes and reduce tax cost Book keeping requirement of Tax compliance reduces cost on accountants and audit fee Tax compliance minimizes operating cost Tax compliance enabled our organization to prepare our account internally. Record keeping task of tax compliance had stopped our business from hiring external accountant. Record keeping task of tax compliance have lead to savings on accountant time. 1 0 2 13 3 25 4 63 5 87 188 mean 4.19

63

25

63

37

188

2.93

3 4

0 0

50 13

13 13

50 75

75 87

188 188

3.80 4.26

13

13

25

12

125

188

4.19

13

13

75

87

188

4.19

Source: Researchers field work In Table 4.10, item 2 have a mean value of 2.93 which is less than the decision mean value of 3.00. It reveals that respondents did not accept that accept that book keeping
44

requirement of tax compliance reduces cost on accountant and audit fee. All other items in the table have mean value greater than 3.00

Research Question 4: What positive relationship exists between tax compliance by an organization and its business performance via improved accounting information? Table 4.11: Tax Compliance and business performance
Tax compliance and business performance 1 Complying with tax obligations has help to improve the knowledge of my business financial position Complying with tax obligations has help to improve my knowledge of business profitability Complying with tax obligations has help to improve credit management in my business 1 12 2 63 3 0 4 63 5 50 188 Mean 3.40

38

38

25

87

188

2.86

13

25

25

100

25

188

3.53

Source: Researchers field work

45

Table 4.11 captures the responses of respondent on business performance resulting from improved accounting system. Respondents response in term item 2 has a mean value less than 3.00 while items 1 and 3 have a mean value greater than 3.00. Respondents agreed to that complying with tax obligations has helped to improve the knowledge of business financial position and improve credit management.

4.2

Data Analysis

4.2.1 Hypotheses Testing Data used for analysis in testing the various hypotheses was obtained from Table 4.8, 4.9, 4.10 and 4.11 respectively. The strongly disagree and disagree were summed up and taken as disagreed while strongly agree and agree were summed up as agreed. Undecided were taken as a unity

46

Hypothesis 1: H0: There is no positive relationship between tax compliance by an organization and improvement in its accounting information system.
Agree 1 2 3 4 Total 100 (115.75) 125 (115.75) 113 (115.75) 125 (115.75) 463 Disagree 25 (53.5) 63 (53.5) 63 (53.5) 63 (53.5) 214 Undecided 38 (12.5) 0 (12.5) 12 (12.5) 0 (12.5) 50 No response 25 (6.25) 0 (6.25) 0 (6.25) 0 (6.25) 25 Total 188 188 188 188 752

Expected values in bracket X2 = _(o-e)2 / e X2 = 175.9698 X2tabulated = 16.92; df = 9, P=0.05. We reject the null hypothesis at 0.05 level of significance and accept the alternative hypothesis that there is a positive

47

relationship between tax compliance by an organization and improvement in its accounting information system.

Correlation Co-efficient Analysis of Table 4.8

accounting record information keeping accountinginformation recordkeeping CAS CASimprovedAccounting informationsystem 1.00 0.88 0.91 0.84 1.00 0.94 0.97 1.00 0.94 1.00 CAS CASimproved Accounting information system

There is possible relation between all the questions that addresses the first hypothesis. There is positive relationship between record keeping and accounting information, record keeping and acquisition of Computer Accounting System, acquisition of Accounting Information System and improvement in Accounting Information system etc.

48

Hypothesis 2, H0: There is no positive relationship between tax compliance by an organization and improvement to its internal controls.
Agree 1 2 3 4 5 6 113 (121.3) 100 (121.3) 151 (121.3) 100 (121.3) 138 (121.3) 126 (121.3) Disagree 50 (54.17) 88 (54.17) 25 (54.17) 75 (54.17) 50 (54.17) 37 (54.17) 325 Undecided Total 25 (12.5) 0 (12.5) 12 (12.5) 13 (12.5) 0 (12.5) 25 (12.5) 75 188 188 188 188 188 188 752

Total 728

X2 = _(o-e)2 / e X2cal = 118.77 X2tabulated = 18.31; df = 10, P=0.05. We reject the null hypothesis at 5% level of significance as X2cal is greater than X2tabulated and then accept the alternative hypothesis that there is a positive relationship between tax
49

compliance by an organization and improvement to its internal controls.

Correlation Co-efficient Analysis of Table 4.9

Internal Acct 1.00 0.77 0.96 0.73 0.80 Stock Inventory control Mangt. cash flow

BizI.C InternalAcct AIS Stockcontrol Inventory Mangt. cashflow

BizI.C 1.00 0.38 0.72 0.40 0.78 0.69

AIS

1.00 0.82 0.90 0.94

1.00 0.76 0.83 1.00 0.93

1.00

There is positive relationship with between tax compliance by an organization and improvement to its internal controls.

50

Hypothesis 3: H0: There no positive relationship between tax compliance by an organization and saving in costs.
Agree 1 2 3 4 5 6 150 (139.33) 100 (139.33) 125 (139.33) 162 (139.33) 137 (139.33) 162 (139.33) Disagree 13 (33.83) 88 (33.83) 50 (33.83) 13 (33.83) 26 (33.83) 13 (33.83) 203 Undecided Total 25 (14.83) 0 (14.83) 13 (14.83) 13 (14.83) 25 (14.83) 13 (14.83) 89 188 188 188 188 188 188 752

Total 836

X2 = _(o-e)2 / e X2 = 185.0019 X2tabulated = 18.31; df = 10, P=0.05. We reject the null hypothesis at 0.05 level of significance and accept the alternative hypothesis that there is a positive

51

relationship between tax compliance by an organization and savings in cost.

Correlation Co-efficient Analysis of Table 4.9

reduce accountant operating taxcost &auditfee cost Int. acct Ext. accountant accountant time

reducetax cost accountant &auditfee operating cost internal acct external accountant accountant time

1.00 0.83 0.88 0.96 0.89 0.94 1.00 0.90 0.79 0.74 0.72 1.00 0.82 0.88 0.77 1.00 0.87 0.99 1.00 0.87 1.00

There is positive relationship between tax compliance by an organization and saving in cost.

52

Hypothesis 4 H5: There is no positive relationship between tax compliance by an organization and its business performance via improved accounting information.
Agree 1 2 3 Total 113 (112.67) 100 (112.67) 125 (112.67) 338 Disagree 75 (53.25) 88 (53.25) 50 (53.25) 213 Undecided 0 (2.17) 0 (2.17) 13 (2.17) 13 Total 188 188 188 564

X2 = _(o-e)2 / e X2 = 93.03 X2tabulated = 9.49; df = 4, P=0.05. We reject the null hypothesis at 0.05 level of significance and accept the alternative hypothesis that there is a positive relationship between tax compliance by an organization and its business performance via improved accounting information.

53

Correlation Co-efficient Analysis of Table 4.10

BizFin.Position Bizprofitability credit management BizFin. Position 1.00 0.93 0.85 Biz profitability 1.00 0.87 1.00 credit mangt

There is a positive relationship between tax compliance by an organization and its business performance via improved accounting information system. Complying with tax obligations has help to improve my knowledge of business profitability and complying with tax obligations has help to improve credit management in my business

4.3 RESEARCH FINDINGS From the 175 respondents that pay their tax regularly, 100 respondents indicated that complying with tax obligations has help to improve their accounting information system, 125 indicated that complying with record keeping task of tax compliance has helped their business to develop Accounting
54

Information System, 113 indicated Tax compliance obligations have enabled their organization to acquire computerized accounting system And 125 respondents indicated acquisition of computerized accounting system has improved their Accounting Information System. This is evident in the positive mean value of these questions. The questions that continued hypothesis two, 113 respondents indicated that complying with tax obligations has help to improve their business internal controls, 100 respondents indicated that Tax compliance encourages taxpayers to prepare their accounts internally, 151 respondents indicated that their internal control have improved with adoption of our tax Accounting Information System, 100 respondents indicated Record keeping task of tax compliance lead to improved stock control, 138 respondents indicated improved internal control in their business has improved their inventory management and 126 respondents indicated that improved internal control in their business has improved their cash flow monitoring.
55

The respondents all identified improvements to record keeping system via Accounting Information System,

improvements to cash flow monitoring, improvements to stock control, improvements to credit management, savings on accountant costs and better knowledge of financial affairs as benefits of tax compliance. The result of this research is in concord with result previous researches on benefits of tax compliance in small businesses such as Lignier (2009), he concluded in his work that large majority of small business taxpayers believed that, as a result of tax compliance requirements their record keeping had improved, and that they had a better knowledge of their financial affairs.

56

CHAPTER FIVE SUMMARY OF FINDING, CONCLUSION AND RECOMMENDATIONS 5.0 INTRODUCTION The chapter synthesizes the preceding four chapters and concludes the project. Discussion is structured into summary of the findings, conclusion and recommendation.

5.1

FINDINGS AND DISCUSSION The thrust of this study is benefits of tax compliance to

small business taxpayers in Nigeria. To undertake the study, this work was structured into five chapters; chapter one articulated the study background, statement of research problem, research questions, objectives of the research, research hypothesis, scope, and significance of study. Chapter two reviewed relevant literatures while Chapter three presented the research

methodology and Chapter four presented the results obtained from the study.
57

This study has five objectives; to determine positive relationship between tax compliance by an organization and improvement in its accounting information system, to determine the positive relationship between tax compliance by an organization and improvement to its internal controls, to ascertain whether there is positive relationship between tax compliance by an organization and saving in costs, and to determine positive relationship between tax compliance by an organization and its business performance via improved accounting information. Sandfords prediction in the past that GST in Australia or VAT, its British equivalent was likely to generate significant managerial benefits for small businesses, because it compels owner-managers to keep detailed and up-to-date records of their transactions is also true from the result of this research. It was observed that tax benefits occur because the more stringent record keeping practices imposed by tax compliance obligations will lead to a better knowledge of financial affairs by business taxpayers; therefore a better knowledge of financial affairs
58

appeared

to

be

associated

with

compliance

with

tax

requirements. It was observed that the use of computers and the increased level of AIS sophistication brought about by tax compliance would lead to an improvement in the variety and the quality of the information produced by these systems. The result shows that record keeping requirement of tax compliance has resulted in improved accounting information system of small business taxpayers. This observation is in line with the assertion of Lignier (2009); managerial benefits may be derived by business taxpayers as a result of record keeping requirements imposed by tax compliance obligations. From the research it was observed that tax compliance has resulted in improved information system, internal control, cost saving and there is positive relationship between tax compliance of small businesses and its improvement in its accounting information system, internal controls, saving in costs and business performance via improved accounting information.

59

5.2 CONCLUSION There is an extensive debate concerning benefits of tax compliance by small business taxpayers. It was gathered that recording keeping is a basic requirement of tax compliance and this requirement have improved the Accounting Information System and internal control mechanism of small businesses. In literature it has been asserted that businesses that have to keep records for taxation purposes generally have a greater report output than businesses with no tax obligations. This would indicate that while most businesses maintain core accounting functions to allow the monitoring of key business indicators, the system often remains very informal in the absence of tax imposed record keeping requirements.

5.3 RECOMMENDATION Based on the research findings, I therefore recommend that the following factor should be taken into consideration;

60

i. Record keeping activities should be intensity in small businesses as this will improve their accounting system and internal control. ii. Tax compliance obligation of recording keeping should be made everyone affair to adequately reap the benefits of stock management, improved credit management, and saving in cost. iii. Small businesses should registered with tax authorities to able to subject their business to various tax obligations and hence reap its benefits

5.4

FUTURE RESEARCH Future research could proceed in a number of directions.

First, more extensive studies are needed to cover a wider crosssection of small businesses across businesses in Nigeria. Such a large scale study will produce data on benefits of tax compliance by small business taxpayers. Second, tax benefits to small business have not been studied in Nigeria; therefore, the forms of tax benefits require further attention.
61

REFERENCES Allingham, M. G. and Sandmo, A. (1972) Income Tax Evasion: A Theoretical Analysis, Journal of Public Economics, 1: 323-38. Armington, C. and Marjorie, O., (1982) Small Business How Many Jobs? Brookings Review. I-1, pg 14-17. Beyene, A. (2002); Enhancing the Competitiveness and Productivity of Small and Medium Scale Enterprises SMEs in Africa: An Analysis of Differential Roles of National Governments Through Improved Support Services. Africa Development Vol. XXVII Birch, D. L., (1979), The Job Generation Process. M.I.T. Program on Neighborhood and Regional Change: Cambridge, MA. Boockholdt, J. (1999), Accounting Information Systems Transaction Processing and Control. New York, The MacGraw-Hill companies Brown, D. (1985) Business Ethics: Is Small Better?, Policy Studies Journal, 13(4): 766-75. Cunningham J. B. and Lischeron, J. (1991) Defining Entrepreneruship, Journal of Small Business Management, 29(1). Hall, C., (2007), When the Dragon Awakes: Internationalization of SMEs in China and Implications for Europe, CESifo Forum, Vol. 8, No. 2, pp.29-34. Jackson, B., and Milliron, V., (1986) Tax Compliance Research: Findings, Problems, and Prospects Journal of Accounting Literature, 5: 125. Johnston, K. S.,(1963), Corporations Federal Income Tax Compliance Costs: A Study of Small, Medium-size, and
62

Large Corporations. Bureau of Business Research Monograph No. 110. Columbus: Ohio State University. Nicolaou, A., (2000) A Contingency Model of Perceived Effectiveness in Accounting Information Systems: Organizational Coordination and Control Effects. International Journal of Accounting Information Systems, Vol. 1, pp. 91-105 Richardson, M., and Sawyer, A., (2001) A Taxonomy of the Tax Compliance Literature: Further Findings, Problems and Prospects 16 Australian Tax Forum 137. Roberts, M., and Wood, M., (2001), The Strategic Use of Computerised Information Systems by a Mico Enterprise. 15(1/2) Logistics Information Management 115. Roth, J., Scholz J. and Witte, A., (1989) Taxpayer Compliance: An Agenda for Research pg 21. Sandford, C. (ed.), (1995) Taxation Compliance Costs: Measurement and Policy, Fiscal Publications, Bath. Sandford, C., and Hasseldine, J., (1992) The Compliance Costs of Business Taxes in New Zealand. Institute of Policy Studies, 96-97. Sandford, C., Godwin, M., and Hardwick, P., (1989) Administrative and Compliance Costs of Taxation. Fiscal Publications, 118. Sandford, C., Godwin, M., Hardwick, P., and Butterworth, M., (1981) Costs & Benefits of VAT. Heinemann, 94. Sandford, C., Michael G., Peter H., and Butterworth, M. I. (1981) Costs and Benefits of VAT. London: Heinemann Tran-Nam, B., and Glover, J. (2004) The GST recurrent compliance costs/ benefits of small business in Australia: A case study approach, 10(4) New Zealand Journal of Taxation Law and Policy, 344.
63

DEPARTMENT OF ACCOUNTING FACULTY OF MANAGEMENT SCIENCES UNIVERSITY OF BENIN BENIN CITY Dear Respondents, I am a final year student of Department of Accounting of the University of Benin. I am conducting a research investigation on benefits of tax compliance to small business tax payer. Please, assist me to fill this

attached questionnaire. Any information supplied by you will be treated with utmost confidentiality and will be used for the stated academic purpose only.

Thank you.

64

DEPARTMENT OF ACCOUNTING FACULTY OF MANAGEMENT SCIENCES UNIVERSITY OF BENIN BENIN CITY QUESTIONNAIRE ON BENEFITS OF TAX COMPLIANCE TO SMALL BUSINESS TAX PAYER. Small businesses are subject to numerous regulations such as tax obligation which they are expected to fulfill; meeting these various tax obligations constitutes Tax compliance. Business taxpayers derived benefits imposed by tax compliance activities and these benefits include managerial benefits in the form of improved financial information and improved managerial decision making, cash flow benefits and deductibility benefits. INSTRUCTION: Read the questionnaire carefully, and tick ( ) your choices of answer appropriately; where necessary give other relevant information.

Part A: Background information 1. 2. Sex: Female ( ) Male ( ) ) 30-99 ( ) 60 or over ( 40-49 ( ) )

Age: under 30 ( 50-59 ( )

3.

Educational Qualification: SSCE/GCE/WAEC ( )

Primary ( ) NCEOND ( )

B.Sc/HND ( Other (please

state):___________________________ 4. How old is this business? 6-10 years ( 20 years ( ) 1-2 years ( ) 3- 5 years ( ) ) More than 10 years and up to

5. This business is run as a: ( ) Sole proprietor ( ) Partnership ( ) Company ( ) Trust ( ) Multiple legal entities (e.g. a company and a trust, or several companies) 6. Is your company registered for tax? Yes ( ) No ( )

65

7. 8. Tax (

Do you regularly pay your tax?

Yes (

No ( ) Income )

Please indicate the tax obligations of your business? ) Pay As You Earn (PAYE) ( ) VAT (

Others____________________

Part B: Below is a list of statement about benefits of tax compliance to small businesses. Please use the scale below to answer the following questions ticking the appropriate box. Strongly Disagree Disagree Neither agree nor disagree Agree Strongly Agree = = = = = 1 2 3 4 5 1 1. 2. 3. Complying with tax obligations has benefits that compensate some of the tax costs Complying with tax obligations has help to improve my business record keeping Complying with tax obligations has help to improve the knowledge of my business financial position Complying with tax obligations has help to improve my knowledge of business profitability Complying with tax obligations has help to increase my cash flow from taxes and reduce tax cost Complying with tax obligations has help to improve my accounting information system Complying with tax obligations has help to improve my business internal controls Complying with tax obligations has help to improve credit management in my business Complying with tax obligations has help to improve my stock control (inventory) 2 3 4 5

4. 5.

6. 7. 8. 9.

66

10 . 11 . 12 .

13 . 14 . 15 . 16 . 17

18 . 19 . 20 . 21 . 22

ACCOUNTING INFORMATION SYSTEM Complying with record keeping task of tax compliance has helped our business to develop Accounting Information System Tax compliance obligations have enabled my organization to acquire computerized accounting system Acquisition of computerized accounting system has improved our Accounting Information System INTERNAL CONTROLS Tax compliance encourages taxpayers to prepare their accounts internally. Our internal control have improved with adoption of our tax Accounting Information System Record keeping task of tax compliance lead to improved stock control. Improved stock control in our business has improved our inventory management Improved internal control in our business has improved our cash flow monitoring. SAVING IN COSTS Book keeping requirement of Tax compliance reduces cost on accountants and audit fee Tax compliance minimizes operating cost Tax compliance enabled our organization to prepare our account internally. Record keeping task of tax compliance had stopped our business from hiring external accountant. Record keeping task of tax compliance have lead to savings on accountant time.

Thank you for your co-operation.

67