CHAPTER TWO
LITERATURE REVIEW
Conceptual Review
Overview of Taxation
Taxation is a financial charge imposed by a government on individuals, businesses, or other entities to fund public expenditures. The primary purpose of taxation is to generate revenue to finance government activities, including the provision of public goods and services such as healthcare, education, infrastructure, and national defence. Taxation also serves as a tool for redistributing wealth, reducing inequality, and stabilizing the economy. It can influence consumer behaviour and business decisions, thereby shaping economic activity within a country (Benzarti & Dorian, 2019).
Taxes can be broadly categorized into direct and indirect taxes. Direct taxes are levied directly on the income or wealth of individuals or organizations. These include income tax, corporate tax, and property tax. Income tax is a tax on an individual’s earnings, while corporate tax is imposed on the profits of businesses. Property tax is based on the value of property owned. Direct taxes are usually progressive, meaning that the tax rate increases with the taxpayer’s ability to pay, thus promoting equity in the tax system (Chartered Institute of Taxation of Nigeria, 2022).
Indirect taxes, on the other hand, are imposed on goods and services rather than on income or profits. Examples include value-added tax (VAT), sales tax, excise duty, and customs duty. Indirect taxes are generally regressive, as they are applied uniformly regardless of the taxpayer’s income, potentially placing a disproportionate burden on lower-income individuals. VAT is a common form of indirect tax applied at each stage of the production and distribution process, ultimately borne by the final consumer. Excise duties are specific taxes levied on certain goods, such as alcohol, tobacco, and fuel, often for regulatory purposes or to discourage the consumption of harmful products (Csabay & Stehlikova, 2020).
Taxation plays a crucial role in economic development by providing the necessary funding for government projects and services that enhance the quality of life and promote sustainable growth. By financing infrastructure projects such as roads, bridges, and public transportation, taxation facilitates the efficient movement of goods and people, boosting economic activity and productivity (Dabić et al., 2019). Public investment in education and healthcare, funded through taxes, builds human capital, which is essential for long-term economic growth and development. Additionally, taxation can be used to manage the economy by controlling inflation, encouraging investment, and promoting employment (De Neve et al., 2019).
Tax policies can also be designed to encourage or discourage certain behaviours. For example, governments may use tax incentives to encourage businesses to invest in research and development, green energy, or underserved areas. Conversely, higher taxes on harmful products like tobacco or alcohol can discourage their consumption, leading to better public health outcomes (Emmanuel et al., 2023). Effective tax policy is therefore a key tool for governments in shaping economic outcomes and addressing social issues.
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CHAPTER THREE
METHODOLOGY
Research Design
This study employed a quantitative research design to assess the relationship between tax education and voluntary tax compliance among small and medium enterprises (SMEs) in Nigeria. The choice of a quantitative design was justified as it allows for the collection and analysis of numerical data, which is essential for identifying patterns, correlations, and potential causal relationships. Survey research was selected as the primary method, providing a structured way to gather information from a large number of respondents. This approach facilitated the systematic collection of data on SMEs’ tax education levels and compliance behaviours, enabling the researcher to draw generalizable concl
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