EFFECTS OF MULTIPLE TAXATION ON THE GROWTH OF SMALL AND MEDIUM ENTREPRISES IN NIGERIA

Abstract

The study examined the effects of multiple taxation on the growth of Small and Medium Enterprises (SMEs) in Nigeria. The aim is to investigate the extent to which multiple taxes affect the operation of SMEs in the country using expansionary rate of these businesses as surrogate for growth. Data for the study were obtained through responses from questionnaire designed on a five (5) point likert scale. Out of 193 questionnaire administered on staff and owners of SMEs on Lokoja-Kogi State, 131 of them were returned representing approximately 68% response rate. The responses were empirically analysed using non-parametric statistics comprising mean score, standard deviation and z-test. The results suggest that multiple taxes have negatively affected the growth of SMEs in Nigeria as many operators of these businesses expressed their unwillingness to venture into new enterprises or expand the existing ones for fear of multiple taxes that continue to take a significant portion of their earnings. The study recommends that government at all level in the country should address the issue of multiple taxes on SMEs by restricting to collecting only those taxes within their tax jurisdiction as stipulated by law. Further, provision should be made in Nigeria. Tax laws for stiff penalties against any tier of government, tax officials and tax agencies using orthodox, unfriendly and illegal means to enforce multiple taxes on operators of SMEs in Nigeria.

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Journal of Taxation and Economic Development ISSN 1118-6017 Vol. 18(2) September 2019, Pp. 1-8
The Official Publication of the Chartered Institute of Taxation of Nigeria
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Journal of Taxation and Economic Development ISSN 1118-6017 Vol. 18(2) September 2019, Pp. 1-8
The Official Publication of the Chartered Institute of Taxation of Nigeria
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EFFECTS OF MULTIPLE TAXATION ON THE GROWTH OF SMALL AND
MEDIUM ENTREPRISES IN NIGERIA
Sani Alfred Ilemona, PhD.
Department of Accounting and Business Administration
Federal University, Kashere. Gombe State. Nigeria.
Corresponding Author: saniilemona@gmail.com; +2348036374387
Sunday Nwite, PhD
Department of Accounting
Ebonyi State University, Abakaliki, Nigeria
Godwin Emanuel Oyedokun, PhD
Department of Accounting
Faculty of Administration
Nasarawa State University, Keffi, Nigeria
godwinoye@yahoo.com, +2348033737184
Abstract
The study examined the effects of multiple taxation on the growth of Small and Medium
Enterprises (SMEs) in Nigeria. The aim is to investigate the extent to which multiple taxes
affect the operation of SMEs in the country using expansionary rate of these businesses as
surrogate for growth. Data for the study were obtained through responses from questionnaire
designed on a five (5) point likert scale. Out of 193 questionnaire administered on staff and
owners of SMEs on Lokoja – Kogi State, 131 of them were returned representing approximately
68% response rate. The responses were empirically analysed using non-parametric statistics
comprising mean score, standard deviation and z-test. The results suggest that multiple taxes
have negatively affected the growth of SMEs in Nigeria as many operators of these businesses
expressed their unwillingness to venture into new enterprises or expand the existing ones for
fear of multiple taxes that continue to take a significant portion of their earnings. The study
recommends that government at all level in the country should address the issue of multiple
taxes on SMEs by restricting to collecting only those taxes within their tax jurisdiction as
stipulated by law. Further, provision should be made in Nigeria. Tax laws for stiff penalties
against any tier of government, tax officials and tax agencies using orthodox, unfriendly and
illegal means to enforce multiple taxes on operators of SMEs in Nigeria.
Keywords: Multiple taxes, Small and Medium Enterprises, Expansionary rate, Tax laws,
Government.
Introduction
The rationale for imposing taxes in any nation stems from government numerous
responsibilities and her desire to stimulate growth of economic activities in specific sectors.
Taxation, apart from being the major source to finance government’s responsibilities citizens,
it is also a means of ensuring that certain economic policies of government such as creation of
friendly environment for private business/enterprises are brought into fruition. As economic
regulator, taxation is a potent tool for promotion economic welfare through creation of tax
friendly economy conducive for businesses to survive and grow (Osita, 2011).

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It is the desire of nations developed or developing for private enterprises to thrive. In Nigeria,
private businesses in the category of Small and Medium Enterprises (SMEs) has been playing
a crucial role in job creation and poverty alleviation contributing significantly to the country’s
Gross Domestic product (GDP). The socio-economic contribution of SMEs to the growth of
the country cannot be overemphasized as the sector has been the major some of employment,
innovation and wealth creation (Faloyin, 2015).
Entrepreneurship through SMEs have been key in economic growth of the nation mainly
responsible for engineering initiatives in the area of capital formation,
manufacturing/production service delivery, telecommunication, agriculture and so on. The
sector has been the major driver of growth in the economy hence government through various
forms of tax reliefs, credits, exemptions, allowances, holidays encouraged private businesses a
contained in the compendium if investment incentives of Nigeria 2017 complied by Nigeria
Investment Promotion Commission (NIPC) and Federal Inland Revenue Service (FIRS). The
aim of the incentives is to spur private businesses for growth, wealth creation and poverty
reduction in the society in line with what obtains in many advanced countries of the world as
countries such as USA and China use government fiscal policy of taxation to stimulate
microeconomic growth.
Omah (2016) observed that one of the viable fiscal policy tool used in encouraging
entrepreneurship/private business initiative, growth and taxation is taxation and generous tax
policies. Collaborating Omah (2016), Momoh (2017) stated that in China, U.K, U.S and Japan,
low tax rates devoid of multiplicity and generous tax holidays for new businesses have
triggered growth of private businesses in these countries.
Encouraging growth of SMEs in developing nations of sub-Saharan Africa like Nigeria is
critical to national needs. Taxation is a powerful tool in the hand of government which can be
designed to trigger private investment in line with national need and priorities. In Nigeria,
national needs such as employment creation, poverty reduction, industrialization and self-
reliance are of paramount. These can be largely achieved through SMEs. Therefore
encouraging growth of SMEs in Nigeria is sacrosanct for improved growth rating of the
countries among community of nations.
It is in recognition of critical role of SMEs in the economy of Nigeria that government has been
offering incentives to provide the operation of the sector in the country. Unfortunately however,
the growth of these businesses is quite discouraging as many of them do not survive two (2) to
three (3) years after, their establishment (Lawal & Aduku, 2016). Momoh (2017) observed that
over 75% of SMEs in Nigeria die in infancy not surviving beyond their 4th anniversary due to
myriad of challenge that cannot be remedied by the operations in the sector. Identifying one of
these key challenges, Kaigama (2016) discovered that multiple tax imposed on SMEs is a major
factor responsible for the abrupt folding up of these businesses in Nigeria as these illegal taxes
continue to take a large sunk of their earnings (Kaigama, 2016). Collaborating Abiola (2012)
that multiple taxes continue to major issue faced by SMEs as similar types of taxes are imposed
by deferent tiers of government in fragrant disobedience to tax laws relations to taxes that are
to be collected by each level of government in Nigeria.
The worrisome aspect of multiple taxation is the embarrassing nature of its enforcement and
the use of orthodox collection procedure such as mounting of roadblocks, forceful closure of
shops of trades in market places and unpleasant handling of persons and businesses that are not
able to pay.
Many of these SMEs are not only burdened by the huge sums of multiple taxes but also the
forceful method of collection (Lawal & Aduku, 2016). The issue of multiple taxes on SMEs in

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Nigeria is more in the local and state government in desperate bid of these tiers of government
to expand their revenue bases without recourse to their stated tax revenue jurisdiction (Momoh,
2017).
LITERATURE REVIEW
Conceptual Clarification
The following are key concepts in the study and are clarified as follows:
SMEs: The definition of SMEs varies according to the context, author and the country where
these businesses operate. In Britain for instance, SMEs are defined as those enterprises with
annual turnover of 2million pound or less with fewer than 200 paid employees (Ekpeyone &
Nyong, 1992). In Japan SMEs are seen as those businesses with 100million yen paid up capital
and 300employees (Ekpeyong & Nyang, 1992). In Nigeria, SMEs are defined as those
entrepreneurship business with small number of employees of between 1-100 for small sized
businesses and up to 500 or more for medium sized companies (CBN report, various issues).
SMEs in Nigeria are broadly defined as business with turnover of less than N100million per
annum and/or less than 300 employees and having capital investment not exceeding N2million
(excluding the cost of land) or a minimum of N5million naira (CBN reports).
Multiple Tax: Multiple Tax or Multiplicity of Taxes (MT) refers to unlawful and compulsory
payment collected mostly by local and state government without legal backing (Abiola, 2012).
It is a situation where a tax payer is forced by two (2) or more levels of government to pay
either the same or similar taxes in desperate bid to increase their revenue base (Folayin, 2015).
Abiola (2016) viewed MT as a situation where the same level of government imposes two or
more taxes on the same base. Adum (2018) described MT as a case where profit or wealth of
an individual or corporate body is taxed more than once.
Growth: Growth in business is a process of improving some measure of an enterprise’s success
largely through cost minimization and profit maximization (Fasch, K. U, 2013). A growing
enterprise is any enterprise that generates significant cash flow earnings which increase at
significantly faster rates than the overll economy (Kaigama, 2016). A growing enterprise tend
to have profitable reinvestment and expansionary opportunity from its own retained earnings
(Famolola, 2014). Lawal and Aduku (2016) described business growth as that stage where a
business reaches the point of expansion and seeks additional options to generate more profits.
Kaigama (2016) describes business growth as a function of so many exogenous and
endogenous factors of which taxation is one – exogenous.
Empirical Review
Segun and Osazee (2018) did a study on the effect of multiple tax regimes on sustainable
development among small scale enterprises in Lagos state: A study of Lagos Island local
government. The aim of the study was to determine the influence of multiple tax determine the
influence of multiple tax burden on business performance of small scale enterprises particularly
in Lagos Island. Using primary source, data were collected from small business owners within
Lagos Island Local government. The data were analysed using simple percentage of inferential
statistics. It was discovered that there is significant relationship between MT burden and
business performance of small scale enterprises. The study recommended that government
should establish an institution to manage the issue of MT in Nigeria.
Ocheni and Gemade (2015) conducted a study on the effect of multiple taxation on the
performance of SMEs in Benue state. The aim of the study was to examine the effect of multiple
taxation on SMEs survival. Data for the study were collected from a sample of 74 respondents

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into small and medium scale business in Benue state using questionnaire. Responses were
analysed using simple percentages of non-parametric statistics. Findings suggest that multiple
taxation has negative effects on survival of SMEs. The study recommended that government
should come up with uniform tax policies that will aid development of SMEs in Nigeria.
Onwe (2006) investigated the effects of multiple taxation on small scale enterprises in Ebonyi
state. The aim of the study was to examine the impact of multiple taxation on investment
decision of operators. Using primary source, data were collected from a sample of operators of
small scale business in Ebonyi state. The obtained data were analysed descriptively using
God’sman and Kruskal’s Gama of non-parametric measures. It was discovered that 60% of the
respondents complained that tax expenditure takes between 50-60% of their turnover and that
negative association exist between multiple taxation and growth of Small Scale Enterprises
(SSEs). The study recommended introduction of simplified taxation for SSEs.
Oseni (2014) studied multiple taxation as a bane of business development in Nigeria. The aim
of the study was to examine the appropriateness of multiple taxes in developing nations like
Nigeria given the ambiguous legislation that contain list of fees and taxes to be collected by all
tiers of government in Nigeria. The study used content analysis method to highlight challenges
that are peculiar to the country introducing taxes that are not backed by laws. The study
recommended use of police to arrest those involved in collecting taxes outside the ones in tax
laws of Nigeria.
Ebere, Eunice and Chimaobi (2016) conducted a study on effect of multiple taxation on
investment in small and medium enterprises in Enugu State. The aim of the study was to
examine the effect of multiple taxation on investments in SMEs. Using primary source through
questionnaire distribution, data were obtained from a sample of 80 respondents. Obtained
responses were analysed with the use of simple percentages. It was found that multiple taxation
has negative effects on SMEs investments. The study recommended that government should
evolve a tax policy that would encourage investment in SMEs.
Chukwuemeka (2017) conducted a study on multiple taxation and the operations of business
enterprises in Aba metropolis. The aim of the study was to examine the effect of taxation on
businesses particularly in Aba. Structured questionnaires were used to obtain data from selected
private business operators in Aba metropolis. Analysis of the data was done using simple
percentages. The findings suggest among others that multiple taxation has discouraged the
springing up of new businesses enterprise in Aba metropolis.
This study was carried out on SMEs operating in Lokoja, Kogi State to either confirm or dispute
findings of previous studies on related issue conducted elsewhere in Nigeria. This therefore
formed a basis for a valid conclusion and recommendation of this study on the issue of multiple
taxation on SMEs in the country which has become a naughty economic problem on SMEs yet
to be properly addressed by successive government in Nigeria.
Theoretical framework
The study is anchored on Laffer curve theory of taxation propounded by Arthur Laffer in 1979
cited in Afuberoh & Okoye (2014). The curve illustrates a theoretical relationship between
rates of taxation and the resulting levels of government revenue. With emphasis on taxable
income elasticity. The theory assumes that no tax revenue is raised at the extreme tax rates of
0% and 100%, government collect zero (0) revenue due to changes in behaviour of tax payers
in response to the tax rate either losing their incentive to do business or finding numerous ways
to evade tax just like 0% tax rate where no revenue is raised.

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The theory further explained the two effects of taxation namely: the arithmetic and economic
effects of tax rates on revenue. The two effects have opposite results on revenue in case of
decrease or increase in tax rates. According to the arithmetic effect, if tax rates are lowered, tax
revenue will be lowered by the amount of the decrease in the rate. That is the amount of the tax
revenue is a function of income available for taxation multiplied by the tax rate. Thus Revenue
R is equal to t x B where t is the tax rate and B is the taxable base (R = t x B). The economic
effect however recognised the positive impact that lower tax rate has on work, output,
employment and entrepreneurship growth. At a high tax rate with multiple imposition, negative
economic effect like tax evasion and disinvestment will dominate arithmetic effect leading to
decline in tax revenue (Lawal & Aduku, 2016).
Methodology
Survey research design was adopted in this study. Data for the study were primarily obtained
through questionnaire designed to reflect five (5) point Likert scale. The questionnaires were
administered to 193 respondents made up of owners and staff of ten (10) randomly selected
SMEs in Lokoja, Kogi state. Out of the distributed questionnaire, 131 of them were properly
filled and returned representing a response rate of 68%.
Data Analysis
The responses were empirically analysed using mean () scores, standard deviation and z-value
statistical test.
Validity of the Instrument
Validity of the instrument was done by giving copies of the questionnaire to senior academics
for review and their suggestions were incorporated in the final draft. Also, the instrument was
subjected to reliability test using test-retest method. The method is to establish the consistency
of the responses from the questionnaire administered on two occasions to the same respondents
(Hyginus, Nicholas & Isaac, 2017).
Results
Table 1: Effects of Multiple Tax on Growth of SMEs
S/n
Responses
SA
A
UND
D
SD
Mean
Std
z-value
Nature of Effects
1.
Due to multiples taxes SMEs have not been
able to expand their businesses
135
252
39
44
6
3.63
0.0598
0.0259
2.
Multiple taxes imposed on SMEs is one of the
major factors responsible for low profit and
low expansionary rate of SMEs
270
208
21
8
4
3.90
0.306
0.0341
3.
Low rate of expansion and profit contraction
due to multiple taxes on SMEs is a factor
responsible for high rate of employment in
the society
140
264
45
22
6
3.64
0.374
0.1286
4.
Multiple taxes imposed especially by local
and state government authorities on SMEs
operators is a key factor responsible for
unwillingness of SMEs operators to establish
business or expand existing ones.
145
232
60
46
01
3.69
0.068
0.050

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5.
Multiple taxes and the unfriendly collection
method by both state and local government
authorities negatively affect intercity
commerce and expansion of SMEs in Nigeria
150
280
60
12
5
3.87
0.047
0.340
6.
Slow business activity due to multiple taxes
on SMEs hinders economic growth reflected
in low GDP growth rate of Nigeria
205
232
51
22
4
3.92
0.061
0.065
7.
Taxes such as reuse collection tax, market
taxes levies collected by both local and state
government authorities are detrimental to
growth of business
190
244
39
28
5
3.86
0.051
0.0713
8.
Poor and corrupt attitude of tax officials and
unfriendly orthodox collection procedure
discourages both potential and existing
entrepreneurs to either venture or expand
existing business
170
252
33
30
8
3.76
0.058
0.0468
Source: Field Survey (November/December, 2018)
SA: Strongly Agree (5points), A: Agree (4 points), UND: Undecided (3 points), D: Disagree
(2 points), and SD: Strongly Disagree (1 point).
The z-value is calculated using the statistical formula:   

Where Z = the standard normal deviation
X = the mean of the sample (value of observations)
 = the mean of the population (the distribution)
 = the standard deviation of the population (the distribution)
FINDINGS AND DISCUSSIONS
From the table 1, it was found that all the items of questionnaire construct have a mean response
score greater than 3.0 on a five (5) point Likert scale. This is an indica4ion that there is a
reasonable agreement that the desire of operators of SME's to grow and expand their business
is inhibited by multiple taxes imposed by different levels of government a desperate bid to
widen their revenue base. This finding is consistent with that of Oseni (2014), Ocheni &
Hemade (2015) and Ebere et'al (2016) that discovered in their separate studies that multiple
taxes have negative effect on operation of SME's in Nigeria.
Similarly, the positive values of Z-statistics for all items of the questionnaire in the table
implies that multiple taxation is one of the major issue impeding the growth of SMEs operating
in the area of study and a reflection of what obtains of effects of MT on SMEs elsewhere in the
country operating under the same socio-political and economic environment. This result is in
conformity with that of Chukwuemeka (2017) and Segun & Osazee (2018) in their studies
found out that multiple taxes has hindered the growth of SMEs in Nigeria.
CONCLUSION AND RECOMMENDATIONS
Multiple taxation, its imposition and unfriendly collection procedure meted out for SMEs in
Nigeria has been a serious issue with less attention of successive government on finding ways
of curbing it. It is quite unfortunate that while the immediate negative effect of multiple taxes
is felt at micro level, the negative effect of multiplicity of taxes on the national economy is

Journal of Taxation and Economic Development ISSN 1118-6017 Vol. 18(2) September 2019, Pp. 1-8
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higher due to reduced revenue and high employment rate as entrepreneurs will result to evading
taxes and unwillingness to either venture into new business or expand their existing businesses.
This will certainly worsen the unemployment situation in Nigeria that government is battling
with. Therefore, immediate action of government at all levels in Nigeria. To curb the
socioeconomic effect of multiple taxes on SMEs is of interest to entrepreneurs, government
and people of Nigeria.
It is in this view that the following recommendations are put forward:
1. That all tiers of government especially the local and state government in the federation
should restrict themselves within the confinement of their tax jurisdiction as enshrined
in the constitution.
2. Revenue officials and tax agencies/consultants used by these level of government
should be enlightened on the legal implication of imposition of multiple taxes on tax
payers especially SMEs operators. Because the reactionary effect of multiple taxes can
be counterproductive mostly manifested in tax evasion loss of revenue and
microeconomic retardation.
3. Nigerian tax laws should be strengthen for stringent penalty against any tier of
government and tax agencies used in imposing and collecting illegal taxes in the
country.
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