Effective and Efficient Tax Policy  A Tool for Resuscitation of Nigerian Economy                                          

  CHAPTER ONE

 1.0                               INTRODUCTION

1.1                    BACKGROUND OF THE STUDY

An operation becomes effective when it achieves the desired goal. It becomes efficient when the goal was achieved at a minimum cost. Policies are formulated to control functions so as to conform to desired target. Indeed, the economy of any given nation grows when the population growth is accompanied by positive net capital formation and the relationship between the latter and the growth of output is given by assumed constant incremental capital output ratio. Tax functions include:

• To generate revenue for government to carry out its business,
• To restrain consumption so that amount of investment needed for non inflationary growth can be undertaken
• To do the above 2 in such a way that consumption of high income groups is restrained more proportionately, than consumption of the lower income groups. If these tasks are successfully performed, economic growth will take place and the distribution of income should be improved. These kind of taxes required in these cases are direct taxes, progressive expenditure taxes supported by gift taxes. Taxation, rather than natural resources, such as oil, ought to be the central instrument of state economic policy in Nigeria – as it is in truly modern democratic states, 1 Sven Steinmo (2011), Taxation and Democracy, New Haven.

Tax, a compulsory levy imposed on taxable persons within a given domain or society by the authority that governs the same society has become an instrument of control and revenue generation in the hands of the authorities concerned. Historically, tax was invented to finance public projects like wars and provision of essential public infrastructures. Lord Keynes had it that tax policy is key to economic restructuring and development. Tax policy involves the determination of goals, objectives, strategies, priorities and frame work reflected in formally adopted tax planned document. Nigeria is much a consuming nation rather than a productive one. The Nigerian economy tends to mono economic one, heavily dependent on oil which is not even processed in Nigeria.

The Gross Domestic product and other economic indicators show Nigeria economy to be a weak one. The GDP though recently shown to be high cannot portray how well off Nigerian standard of living is, hence very negligible number of Nigerian live in affluence while much great percentage of the Nigerians living below poverty line. Such critical economic indicators like power supply, employment rate, inflation, mortality rate, etc. score Nigerian economy very low.

There is low propensity to save, no clear future and hopelessness stare on the majority of Nigerian faces. The above suggests how weak Nigeria economy appears, though there appears significant improvement in the general economy recently. There is need for better economic planning. With proper economic planning the economy of Nigeria must boost. At the core of economic planning is effective and efficient tax policy. There are the raw materials, abundant human resources and abundant natural resources. Tax could restructure the economy of Nigerian when the functional tax policy is seen to be in place.

 

1.2 STATEMENT OF PROBLEMS

 

National Tax policy is seen as document which spelt out issues on tax, taxations and all matters concerning tax.

Nigerian economy is slow at shaping up.  This is caused by domestic debts, high inflation, corruption, resulting in high poverty level. Business Eye.  Pg 22, 32 and 39 Sept. 2012

Revenue from personal and corporate tax contribute about ¾ of Federal Revenue, Samuelson (2002)

US Federal Budget Receipts from taxes amounts to 95% in 2003.  Hoffman, Smith, Willis (2004).

Former UN Sec. Gen. Kofi Annan, has said that tax avoidance and murky deals by major international firms are depriving African states of $10 billion each year, Abota, Sun Newspaper June 24^th, 2013.

Money laundering and tax evasion have become a norm especially among the companies owned by Asian; in Nigeria – Sun Newspaper 28^th June 2013 pg 19

Poor legal framework on the tax could bring about poor yield from tax. Absence of effective and efficient tax structure brings about low compliance to tax. Also poor accounting records and corruption could bring about poor yield from tax

Low revenue contributions from tax as results of the above factors ultimately lead to Government not having enough money to finance its bills. This can directly result in low economic development. Functional national tax policy can go a long way in assisting Nigerian economy grow and meet the needs of Nigerians.

 

• OBJECTIVE OF THE STUDY

The main objective of the study is to access the effectiveness and efficiency of the current Nigerian tax policy in resuscitating the Nigerian economy, vide its increased revenue generation which would provide revenue for Government to do its business. Other sub-themes in the objective are:

1. To evaluate the capacity of the new tax policy in significantly improving the growth/development of the Nigerian economy in relation to Gross Domestic Products.
2. To access the capacity of the new tax policy in increasing the revenue in relation to federal government demand for capital expenditure (for construction, health etc).

• To compare the compliance rate of the tax payer before and after the adoption of the new tax policy in Nigeria as would show in greater revenue generation to better the lives of the whole Nigerians.
  • HYPOTHESES OF THE STUDY
• The performance of tax as a result of new tax policy does not have corresponding positive impact on the Nigerian Gross Domestic Product.

2. The revenue generation from tax as a result of new tax policy does not have positive impact on the Federal Capital Expenditure (for capital formation).
3. The revenue generation from tax as a result of new tax policy cannot improve or bring about increase in per capita income of Nigerians.
   • RESEARCH QUESTIONS

• To what extent can the new tax policy significantly improve the growth/development of the Nigerian economy?

2. To what extent does the new tax policy increase tax collection in Nigeria?
3. Is there any significant difference between the level of compliance by the tax payers before and after the adoption of the current tax policy in Nigeria?
4. Does the increase in revenue generation if any positively impact on Nation’s Gross Domestic Product, Federal Capital Expenditure and Per Capita Income.

 

1.6  SCOPE OF THE STUDY

The research is on the Tax Policy on individual Income tax, company tax, Petroleum Profit tax, Value Added tax and other tax areas.  It covers revenue generation from tax for a gap of 2004 – 2012.  This is to ascertain the revenue contribution to National development.

Such development indicators that affect the economy like GDP, quality of life, investment  are looked into to see the growth and investment in Nigerian Economy. This is to see the impact of tax in improving the economy of Nigeria

 

• SIGNIFICANT OF THE STUDY

The research is significant to two categories of interest namely practical and academic significant.

PRACTICAL SIGNIFICANT

The research would expose what need to be known, the area of improvement to tax administrators and tax payer. The tax payers would find the research very useful as good model approaches to issue on tax is documented. The State Inland Revenue Services and Federal Inland Revenue Services will find the tax guide well exposed and relevant to them in their duties. The tax advisors and taxpayers would use the research work as guide for tax planning.

ACADEMIC RELEVANCE

In the field of academic, the research would contribute as a body of knowledge for the students in the field of taxation.

It offers a good guide for further studies in the area. It would assist young research personal get more exposed in the area of tax. It can be a point of reference for other research purposes.

              1.8     OPERATIONAL DEFINITION OF TERMS

Tax – compulsory levy imposed on eligible person/s in a given society by the Government or authority of that society or country.

Tax Policy – This is tax guide, the modus operand on tax aimed at attaining the goal set up by the government machinery.

Merit Wants – These are staple food needed to keep a laborer alive. It is no more than a daily bread only enough to keep a being minimally functional in a day.

Effective – the ability to achieve a goal not considering the cost or commensurate benefit or advantage.

Efficient – the ability to produce a result under such minimum cost so that the end result is very advantageous.

Economic growth – this is a state where capital formation is in consonance with population growth such that the output is assumed constant incremental capital ratio in growth.

Mono Economic – the state of economy where there is heavy reliance on one line of business or heavy reliance on a line of product/service.

Gross Domestic Product – the total value of goods and services produced by a given country.

Fiscal Policy – the way a government attempt to manage the economy through taxation, spending and borrowing.

Investment: the act of investing money into an economic activity to boost the economy or boost productivity.

Download Full Material-N5000

Assessment of effectiveness of accounting information as a tool for management decision

CHAPTER ONE

INTRODUCTION

BACKGROUND OF STUDY

Accounting is fundamentally a measurement and communication process used to report on the activity of profit and non-profit seeking organizations. In other words, it is concerned with the discipline of summarizing, recording, analysing and interpreting economic events and other financial activities. This process is performed by accountants who furnish management with the relevant information needed for effective and efficient decision making as to contribute to the quest for means of surmounting industrial, commercial, governmental and academic problems inherent in a dynamic and volatile socio-economic and political setting. The chambers 20th century dictionary defines information as “intelligence given-knowledge”. This is because reliable information is necessary before a sound decision involving the allocation of scarce resource (land, labour and capital) can be made, that is why accounting profession is dynamic and there is always the need for an accountant to continually update his/her knowledge of accounting portfolio. Accounting information is valuable because it can be used to predict the financial consequences of each alternative course of action. An organization needs quantitative information to function or make decision. Management uses the best available information system to

 

provide management information which is used primarily to accomplish three broad purposes;

• To provide financial statement to the interest of external users,

 

• To plan the organization activities and operations in both short and long run, and
• To control the result of its

 

The American Accounting Association (1966) also defined accounting as “the process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of the information”. Another definition, which is widely accepted, is by the American Institute of Certified Public Accountants (1970) defined accounting as “the art of recording, classifying and summarizing an event which is in part at least of a financial character and interpreting the result thereof”.

The above definition place emphasis on the use of accounting information for evaluating the results of the past and present activities and making decisions concerning future actions. The information is primarily financial and generally stated in monetary terms. It is the process by which the profitability and solvency of an organization can be measured and also periodic information needed as a basis for making business decision and appropriate control that will enable the management to guide the organisation on a profitable and solvent

 

course. The accounting information is prepared and presented in form of financial statement in accordance with the accounting standard issued by the Nigerian Accounting Standard Board Act (2003) which are the means of conveying to management and interested outsiders a concise picture of the profitability and financial position of the business. The form of preparing and presenting accounting information includes the following; the profit and loss account, balance sheet, income statement etc.

Hence, accounting is divided into three (3), namely;

 

• Financial accounting

 

• Cost accounting, and

 

• Management accounting

 

According to Leopold (1982), he said that, financial accounting “is concerned with providing information on the financial activities of the organization for the benefit of both internal and external users”. It is also the classification, recording of monetary transaction of an entity in accordance with establish concepts, principles, accounting standard and legal requirement and  presentation of a view of those translations during and at the end of an accounting period.

 

While cost accounting on the other hand produce information about cost that are incurred by organization in running the organization so as to achieve the objectives on which it is set up.

Finally, Calvin (1982), stated that management accounting “is concerned with providing information to management for the purpose of planning or provision of information needed at all levels”. Management and creditors use these reports internally.

Stamford (1978) stated that accounting information has played a role as “a tool for management decision making” because it function as “a historical record of contractual obligations between the outsiders with the end product in form of financial statements to report the financial status of an organization at a point in time”.

However, the relevance of accounting information to effective management decision making in many organisation is still not appreciated but with the test to be conducted in this research, the degree of accounting information as a “tool for management decision making” shall be clearly understood.

STATEMENT OF PROBLEM

Management who takes wrong decision always end up not achieving their set goals and objectives. Many managers who think that they can operate successfully without the use of information provided by their accountants, leads to economic failure such as liquidation of many banks. So, effective decision or management decision cannot be taken by managers if the information provided by their accountants is not properly adhered to. Accounting information answer questions such as;

• Arethedisclosuresof accounting information accurate and reliable?
• Is accounting information prepared with General Accepted Accounting Principle (GAAP)?
• Does accounting information as a tool for decision making satisfy the management?

AIMS AND OBJECTIVES

 

The purpose of this study is on Assessment of effectiveness of accounting information as a tool for management decision.

The subsidiary objectives of this study are;

• The basic issues of how the accounting information systems are used to perform the generally recognised financial and management function in First Bank Nigeria Limited, Abdullahi Fodio Road Branch,
• To carefully look at the need for accounting information for management decision-making.
• To make suggestions as to the usefulness of accounting information to the users in
• The research seeks to know the extent to which the management of the organisation under review have used the accounting

SIGNIFICANCE OF STUDY

 

The study is aimed at establishing whether there is any correlation between the accounting information provided by the account department (accountants) and the decision made thereof by the users of the information, most importantly management of First Bank of Nigeria LimitedAbdullahi Fodio Road Branch, Sokoto.

These groups will benefit from the research namely;

 

• The organization under study
• Business Managers
• Future researchers, and
• The researcher

THE ORGANISATION UNDER STUDY

The management of the organisation (Bank) will use the research where applicable as a tool for formulating policies for the firm as a standard of

 

evaluating accounting information and control of their accounts department through financial decision.

• BUSINESS MANAGERS

 

The work will also go a long way to educate managers on the relevance of a sound accounting information in decision-making process of their organisation and subsequently on its growth.

• FUTURE RESEARCHERS

 

The work will serve as a source of secondary data to future researchers who intend to carry out further research work on “accounting information as a tool for management decision making” or any related topic. It will also help students in the accounting department to have in-depth knowledge of the practical application of accounting information.

• THE RESEARCHER PERSONALLY

 

The research will enable us imbibe thorough knowledge of the uses of accounting information as a tool for management decision making. It will also give foresight on the applicability of accounting information on the Management of the Bank.

 

• RESEARCH HYPOTHESIS

 

Abubakar (2004) said, “Hypothesis is a theoretical conceptualization or guess about how the researcher thinks the result should look like or as statement that was usually linked to the theory being treated and it was tested in a testable form to predict the relationship between two variables”.

For the purpose of this study, the following hypothesis was available for testing;

 

H_o – There is no statistically significant difference in the respondent size  among those who accept that accounting information are not tools for management decision making.

H₁ – There is a statistically significant difference in the respondent size among those who accept that accounting information are tools for management decision making.

SCOPE OF STUDY

 

The research work will cover certain aspect of accounting systems operational in First Bank of Nigeria Plc (as a case study of Abdullahi Fodio Road Branch, Sokoto and types of reports prepared for decision making. The relationship that exist between accounting information and management decision making will be examined and some related literatures in the field of the study will be reviewed and incorporated.

 

The study will also be limited to the importance of each branch of accounting and the type of information they prepare, usefulness of each of the information prepared by individual segment of the branches of accounting, examples financial accounting section, management accounting section and cost accounting section.

• LIMITATION

 

The project is limited by many factors which posed as snags or obstacles to the smooth compilation of the work. It is important that users of the work note the limitations in the course of carrying out the work. The significant problems faced include the following;

ECONOMIC TREND

 

The global economic meltdown, which apparently affected the Nigerian economy ate deep into the Banking sector of the economy destroying the shares value of all financial institutions in the Country and resulted in poor performance. This has a psychological impact on the respondents.

FINANCE

 

The economic turndown coupled with inflation has increasingly raised the cost of materials. This led to the devaluation of Naira affecting every aspect of the Nigerian economy. The impact of this on the study is enormous limiting visits to the respondents and qualitative materials for carrying the study.

 

TIME

 

Time is another limiting factor which acted as a snag to the completion of the project, though lengthy period was given for the submission of the work but considering the academic pressure coupled with the writing of the project made things not too really easy for the research.

NON-DISCLOSURE

 

There are some vital as well as important information which the Bank refused to disclose for security reasons. Incomplete and lack of availability of records, which was considered to be very useful, were referred to as confidential.

However, time and financial constraints are the most impactful limitation to the study. Finally, despite all limitations and constraints, the research contained the necessary relevant resource material and to- date data obtained, analysed and provided in the work.

• TERMINOLOGY

 

Accounting

 

This is the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information.

Information

 

This is a complete set of processed data that has a meaning.

 

Accounting information

 

These are processed data used by an organization to make financial decision.

 

Financial Accounting

 

It is the process of collecting, classifying, recording, summarizing and communicating data in respect of event, which can be expressed in terms of money for the purpose of making decisions.

Accountant

 

This is a professional whose job is to prepare and keep the books of account of an organization.

Management Accounting

 

This is a process of allocating resources by planning, organizing, controlling and directing for the purpose of producing desired output.

Management

 

This means a group of decision makers or managers in an organization who see to the smooth running of the affairs of the business.

Assets

 

These are the economic resources of the business that can usefully be expressed in monetary terms. Assets may be in form of land, building and equipment which have readily identifiable physical features.

Liabilities

Download Full Material-N5000