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Effects of Company Income Tax and Capital Gains Tax on the Financial Performance of Small and Medium Sized Businesses in Nigeria

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Abstract

This study investigated the influence of taxation on the financial performance of Small and Medium Enterprises (SMEs) in Ibadan, Oyo State, Nigeria, aiming to identify the effects of Company Income Tax (CIT) and Capital Gains Tax (CGT). The research was motivated by the observed complexity and burden of tax compliance for SMEs, filling a gap in understanding how specific taxes impact their financial viability. Utilizing a judgmental sampling technique, 120 SMEs in five bustling urban Local Government Areas in Ibadan were selected, ensuring inclusion of diligent taxpayers. Data were gathered through meticulously distributed questionnaires, employing a systematic approach considering both location and optimal times for retrieval. The study revealed that CIT and CGT significantly hindered growth and profitability for SMEs, with respondents consistently viewing these taxes as barriers to investment and expansion. It concluded that the current tax system is challenging for SMEs, necessitating recommendations for tax reform that include simplifying regulations, providing incentives, exemptions, and actively engaging SME owners in policy formulation. Implementing these strategies, it suggests, would foster a more conducive tax environment for SMEs in the region.

Suggested Citation

  • Aderemi Kabiru, ADEYEMO & Godwin Emmanuel, OYEDOKUN & Sunday Abimbola, AJAYI, 2023. "Effects of Company Income Tax and Capital Gains Tax on the Financial Performance of Small and Medium Sized Businesses in Nigeria," Multidisciplinary Journal of Social Sciences, Association of Forensic Accounting Researchers (AFAR), vol. 3(1), pages 73-94, June.
    • Handle: RePEc:ris:amjoss:0004
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    References listed on IDEAS

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    1. Marc Fleurbaey & François Maniquet, 2018. "Optimal Income Taxation Theory and Principles of Fairness," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 1029-1079, September.
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