A STUDY OF THE CONTRIBUTION OF QUOTED COMPANIES TO GOVERNMENT INCOME TAX REVENUE

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1. INTRODUCTION
It is the desire of most governments to stimulate and guide the economic and social development of their nations. This desire has led to the formulation of various polices through which governments hope to achieve their economic goals.

The demand for resource mobilization to finance developmental projects has, inter alia, necessitated the imposition of taxes by government. However, not all government revenues are sourced from taxes. Other non-tax revenues include loans, gifts or grants from within or outside the country, revenues gotten from services rendered to the people and charges obtained from government’s direct production of goods and services, including profits as well as dividends from government investments.

In practice, for governments to meet their financial requirements, taxes in various forms are virtually inevitable. However, high tax rates can also be counter-productive, as they may discourage investment, capital formation, and the overall growth and development of the economy.

In the capital market, high tax rates can make the market uncompetitive both in relation to other segments of the financial market and with other jurisdictions.

An appropriate tax policy can on the other hand enhance the attractiveness of the market to both local and foreign investors. Thus, while governments would naturally be interested in increasing their tax revenue by choosing, among other things, a high tax rate, perhaps a better alternative would be to encourage compliance through more investment-friendly tax rates.

We believe that quoted companies, more than any other type of businesses, do make substantial contributions to government’s income tax revenue, perhaps due to their visibility and the consequent ease of enforcing compliance on them by tax authorities. Government would therefore be taking a right step by using tax and other incentives to encourage more companies to be quoted, and thereby gain more tax revenue through increased compliance. Government revenue from companies’ income tax could thus be boosted when more companies are quoted, even if they pay lower rates, rather than not paying at all which is often the case with unquoted companies.

2. OBJECTIVE

Consequently, the objectives of the study are:

i. to establish the profits (before and after tax) made by quoted companies during the period of study (1997 – 2001);

ii. to establish the estimated tax payable by quoted companies during the period under review;

iii. to establish the actual taxes paid by quoted companies over the period;

iv. to establish the actual aggregate companies income tax collected by the government during the period under reference;

v. to determine the relative contributions of quoted companies to government’s companies income tax revenue.

The outcome of the study will call for appropriate recommendation(s) to Government to provide tax incentives to quoted companies, if such companies are found to be making significant income tax contributions. This would of course encourage more companies to seek listing on securities exchanges, such as The Nigerian Stock Exchange.

3. METHODOLOGY
The study relates the estimated income tax payable and the actual tax paid by quoted companies to the income tax revenue actually collected by government over a period of five years.

It covers a period of five (5) years (1997 – 2001). Data on profit before and after taxes as well taxes payable and actually paid by quoted companies were extracted from the companies’ audited annual reports and accounts. While the Profit Before Tax (PBT), Profit After Tax (PAT) and estimated tax payable were sourced from the Profit and Loss Accounts, the actual tax paid for a specific year was sourced from the cash flow statement in the annual report and accounts for each company.

The data on companies income tax actually collected by the government were obtained from the Federal Inland Revenue Service. Attempts were also made to obtain the list and/or number of all public companies from the Corporate Affairs Commission. The objective of this was to relate the number of quoted companies (which ranged between 194 and 196 for the period of study) to the total number of companies, which contributed to the companies’ income tax revenue during the period.

4. CONSTRAINTS/SCOPE AND LIMITATIONS OF STUDY
As earlier indicated the study covered a period of 5 years from 1997 to 2001. Attempts were made to cover all the listed companies during each year. This was achieved to varying degrees of success as in table 1 below.

Table 1: Number of Quoted Companies During Period of Study.

As is common with most empirical studies in Nigeria, a major problem that confronted this study was the dearth of information. This was particularly so in respect of the actual tax paid, which had to be sourced from the cash flow statements. A five-year summary of PBT, PAT and tax payable was sourced from the annual report of each company. This could however not be applied to the cash flow statements where the tax paid was extracted as this usually appears for only one year in an annual report. It therefore means that for an average of 195 listed companies over five years, a total of 975 annual reports had to be sourced. Some of these, especially older ones could not be obtained even at the Stock Exchange in Lagos as they have been reportedly disposed of. Unfortunately, time constraint made it impossible to source this information directly from the companies.

Again, it was also difficult to compare the income tax contributions of quoted companies to the aggregate for all public limited liability companies as was also intended because data on the taxes paid by public unquoted companies could not be obtained from the Federal Inland Revenue Services (FIRS). This is because the tax figures supplied by FIRS was aggregated by type (such as companies income tax, value added tax etc) and efforts to get the FIRS to disaggregate same by category of payers (such as quoted or unquoted/public limited and private companies) did not yield any result. In the circumstances, we were left to deduce that the companies’ income tax (as per FIRS data) that could not be ascribed to quoted companies must have been paid by “other companies”, including public unquoted and private companies.

The dearth of information in this respect is made worse by the inability of the Corporate Affairs Commission to provide a reliable list of all public limited liability companies (both quoted and unquoted). Thus, the FIRS could not provide the total number of public quoted, public unquoted and private companies, which contributed to the companies’ income tax figures provided for the years.

The list of public limited liability companies obtained from the CAC revealed obvious omissions of some public limited companies, including quoted companies and could therefore not be used as originally intended.

Data Analysis
For the companies for which data were available, the profit before tax and profit after tax figures are as in Table 2 below.

TABLE 2: PROFIT BEFORE TAX, PROFIT AFTER TAX, AND TAX PAYABLE OF QUOTED COMPANIES 1997 - 2001

Source: Compiled from various companies Annual Reports.

As shown in the table, the profit before tax stood at N25.8 billion for 155 companies in 1997, rose to N29.61 billion (158 companies) in 1998 and N83.64 billion (138 companies) in 2001 thus showing a rise of 223.56 percent over the five year period. This is in spite of the fact that the number of companies for which data could be collected fell to 138 in 2001. In other words, the PBT figure is expected to have risen even more steeply if data for more companies were available for year 2001.

The Profit After Tax figures, which rose by 214.81 percent from N18.37 billion to N57.83 is consistent with the pattern observed in the case of profit before tax.

It can also be seen that quoted companies have generally been improving on the quantum of their profit. This may have resulted from expansion in operations or enhanced efficiency or both; notwithstanding that the aggregate figures could have been negatively impacted upon by the losses recorded by some companies.

Taxes of Quoted Companies
The study considered the income taxes of quoted companies from two perspectives; the tax payable and actual taxes paid during a particular year are as in Table 3 below.

TABLE 3: Tax Payable, Tax Paid by Quoted Companies and Government’s Company Income Tax Revenue: 1997 – 2001.

The actual taxes paid during a particular year as extracted from the cash flow statements do not necessarily arise from the companies operations for a financial year. However, this appears a more appropriate data for comparison with the actual aggregate companies income tax revenue of government as obtained from the FIRS, which is what is actually collected and not collectibles like the tax payable (see table 4). The actual tax paid also rose impressively by 179.21 percent during the period under review from N4.33 billion in 1997 to N12.09 billion in 2001.

Contributions of Quoted Companies
During the five year period, 1997 to 2001, the companies income taxes collected by government were as in table 4 below:

Table 4: Companies Income Tax Collected by Government: 1997-2001

Source: Federal Inland Revenue Service

An analysis of the contributions of quoted companies to the above figures in percentage terms was done using the figures sourced from the quoted companies annual reports. The analysis is indicated using taxes payable as numerator, on the assumption that these are tax liabilities that will ultimately be paid. The quoted companies contributed 26.50 per cent in 1997, 27.07 per cent in 1998, 28.48 per cent in1999, 25.99 per cent in 2000 and 32.03 per cent in 2001. This gives an average of 28.01 percent for the five-year period of study.

The contributions however dropped slightly, using actual tax paid obtained from the cash flow statements. In 1997, quoted companies contributed 15.59 per cent, 13.35 per cent in 1998, 19.37 per cent in 1999, 19.74 in 2000 and 17.43 percent in 2001. This gives an average of 17.54 percent.

These percentages are quite impressive, considering the number of quoted companies in the study vis-à-vis the total number of companies, which contributed to government’s companies’ income tax. Although, the accurate number of the latter could not be obtained from the FIRS, they are estimated to be of the order of 500,000 companies. It must be emphasized that the contributions of quoted companies would have been better appreciated if compared only to the taxes paid by public limited liability companies. This could however not be achieved as the FIRS was unable to disaggregate the companies income tax revenue figures.

Conclusions and Recommendations
From the foregoing, it is easy to establish that quoted companies, in spite of their limited number, have been making impressive contributions to the aggregate company income tax revenue of government. This percentage has generally been increasing over the years, even in the absence of complete data especially for the most recent years. One can therefore conclude that there are great potentials for quoted companies to significantly contribute more to the coffers of government, if more companies are quoted. Government therefore stands to benefit more if more companies are quoted. One way of doing this is to introduce incentives including but not limited to tax concessions to encourage more listings.