This research work titled “Effect of Income Tax on Investment in Capital Market” has been setup by the researcher after observing the application of reviewed income tax in Nigeria and how it affect the economy.
In carrying out this research, data was obtained from primary and secondary data through the use of textbooks, journals etc.
The main objective of this research work is to investigate the effect of the reviewed income tax on investment in capital market and how it encourages savings and investment in Nigeria economy. It was observed that, taxation on income has been inadequately reviewed and has negative effect on employment and inflation, its long run effect is the inefficiency it has on capital intensity of the economy and resources allocation.
From the above observation, it is therefore recommended that, income tax should exempt savings and investment while reviewing tax system of government.
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Table of Contents
- Background of the study
- Statement of the problem
- Research question
- Objectives of the study
- Research hypothesis
- Significance of the study
- Scope and limitation of the study
- Definition of terms
- Brief history of income tax and investment
- Definition of income, tax and investment
- The basis of investment categories and types of income
- The implication of tax on investment in capital market
- The real returns of income tax in investment
- The investment theory and its types
- Sources of Data Collection
- Method of data collection
- Research Design
- Population of the study and research sample
DATA PRESENTATION AND ANALYSIS
- Research question/hypothesis I
- Research question/hypothesis II
- Discussion of findings
- Descriptive Analysis of the objectives
- Summary of major findings
SUMMARY, CONCLUSION AND RECOMMENDATION
- BACKGROUND OF THE STUDY
When looking at the present economic situation in Nigeria, the method of tax operation in Nigeria have been inadequate on income earners and it does not encourage more investment in capital market. It is against this background that this research work is undertaken. Any investment opportunities which are from earned and unearned income must think about the number (1) rule which is payment of tax. Investment income are taxed differently just like salary or wages income which is at different rates. Takes two different investment dimensions for instance, one pay 10% and the other pay 12%on the surface, the 12% look better. However, 10% was dividends from companies and 12% was interest from bonds then, the fortune completely changes. Dividends are taxed at much lower rate than interest. This is why, whenever an income after tax is to be invested by an individual or corporate body for future benefits, we should decide very well what to invest in and how to invest after considering the tax involved and level of income that may likely be derived from salaries, wages and pension benefits etc. investment is a bet on fortune prospect. If the bet is lost, then the product invested for much of the investment expenditure turnout to be a sunk cost that cannot be recovered. In the extreme case, investment is irreversible coupled with true uncertainty, irreversibility becomes a fairly important determinant of invest.
STATEMENT OF THE PROBLEM
The problem that brought about this research is mainly on the policy design of government which is the collection of tax on income earners. The effect of taxation on the volume and composition of private savings and investment has traditionally been considered one of the central questions in public finance. This is hardly surprising; from the policy point of view one can point to the series of argument for the importance of the problem of income tax on argument for the importance of the problem of income tax on investment. If alternative tax system can lead to different rate of private savings, then the choice between them should take into account what the short run effect it has on employment and inflation, the likely medium term on the rate of growth and the long term effect on capital intensity of the economy. There is problem of inefficiency of resources allocation and how the tax design to encourage savings and investment may transfer income from ‘‘workers to capitalist’’ and from the present to future generation. The trade off in the policy design by the government has been considered to have inadequate effect on taxation.
This research work is undertaken mainly to investigate the followings;
How has the income tax effect investigate income?
What is the implication of income tax on investments?
How has the tax policy design by government affect investment?
What type of tax policy can encourage savings and investment?
OBJECTIVE OF THE STUDY
The main objective of this research work is to investigate the effect of income tax on investment in capital market as follows:
To determine the tax policy that can encourage savings and investment by income earners.
To determine how can the income tax affect investment income.
To examine the economic implication of income tax on investment in the capital market.
To determine how the tax policy design by government affected investment.
RESEARCH OF HYPOTHESIS
Hypothesis is a proportion that put forward and tested statically for its validity, when the hypothesis is validated, it becomes a fact and when it is falsified it becomes fallacy. The researcher has formulated d the following hypothesis foe validation or rejection at the end of the study.
HO: This is Null hypothesis; there is probability that action will not work or happen as planned
H1: This is alternative hypothesis, there is probability that action will work or happen as planned
HO: The effective tax policy designed and implementation by government on income will not encourage investment in capital market in Nigeria.
H1: The effective tax policy designed and implementation by government on income will encourage 9nvestment in capital market in Nigeria.
SIGNIFICANCE OF THE STUDY
The significance of this is in partial fulfilment of the award of BSc. Accounting certificate. It is significance for the fact that it suggest to tax authority or government on how to solve the problem of inadequate tax policy imposed on income
Essentially, government are expected to always come out with tax policy designed which would encourage investment in capital market etc.
It is also necessary because problem of how to review tax is not to affect income and investment prospect as being formulated. The say problem identified is half solved as that open way for its solution. It is also useful to establishment office, tax authority and student who may need to know the significance and problems created by tax policy of government on investment and to whoever may want to undertake further research work on this area of study.
SCOPE AND LIMITATION OF THE STUDY
The identification of the scope and limitation of the study is an important part of research work. This implies that the area covered by the research has its focus on the effects of income tax on investment in capital market with more emphasis on tax policy designed by government of Nigeria and how it can encourage investment in capital market. This also limits his investigation to the benefits which income earners are likely to achieve investing in capital market. This study essentially covers the basic of investment categories and the impact income tax. Te government guideline was also studied. The researcher looked into how effective tax policy of government can encourage private savings and investment and the way it aid economic development in Nigeria.
DEFINITION OF TERMS
In this project unless otherwise stated, the phrase have the following meanings below,
DISPOSAL INCOME: it is net income after the deduction of taxes and either be spent wholly or of it saved.
PERSONAL INCOME: it is the amount of money received by an individual for their own use.
TAX EVASION: the crime of deliberately not paying all taxes that should be paid.
EARNED INCOME: personal income tax decree defines it as income earned in relation to an individual as derived from trade, profession, vocation or employment or pension derived from previous employment.
DIVIDEND: An amount of profit that a company pays to people who owed shares in the company.
TINKERING: This is to make small changes on something as to changes its condition.
SUNK COST: These are historical cost that have incurred and cannot therefore be affected by a decision. There irrelevant for decision making.
PROGRESSIVE TAX: This is a situation where the rates of tax raise as the income level increases. Under this tax, liability increase more than proportionate with income level. High income earner suffers the impact most.
BOND: These are a form of indebtedness that is sold to the public in set increment. In return for loaning the debtor, the money, the lender gets a piece of paper that stipulates how much was lent, the agreed upon the rates of interest etc.
PORTOFOLIO: This is a collection of stocks and bonds in a single set.
UNEARNED INCOME: These are income derived from source other than trade profession, business vocation of employment examples are dividends, interests, rents etc. they are usually derived from investments
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