CORPORATE INCOME TAX AND PROFITABILITY IN THE NIGERIAN HOSPITALITY INDUSTRY
ABSTRACT
The study looked at how corporate income tax affected the profitability of hospitality business organisations in Lagos State. The study examined the influence of corporate income tax on the net profit margin, profit after tax, and cost of operations of the Eko Hotel and Suites, which served as the study's sample from 2009 to 2016. Data were gathered from the sampled firm's financial statements over time and analysed using regression analysis. The analysis found that corporate income tax significantly affects profit after tax (p < .05), net profit margin (p < .05), and operating costs (p < .05). Based on this, the study recommends that the government find methods to eliminate the incidence of double taxation, which tends to reduce the profitability of private enterprises in the industry (Adefunke and Usiomon, 2022).
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Taxes are viewed as a problem for everyone. Taxation issues have, unsurprisingly, existed since the beginning of recorded history. The fundamental concepts of taxation are nearly as old as human society—taxes have been there for thousands of years. Taxation in Nigeria is thought to have originated in the northern section of the country prior to the establishment of British government. The emirs had organised modes of administration, and their Islamic relations enabled people to pay to charity, laying the groundwork for direct taxation in Northern Nigeria. Prior to 1900, some of the taxes were recognised in Northern Nigeria, such as Zakat (a tax on moral property intended for charity), Jangali (a tax on livestock), Gado (a death tax), Jizjah (a tax on slaves), and so on (Ushra & Jangali, 2025).
Taxes were also levied in Southern Nigeria (Yoruba portions) in the form of tributes (isakole), tolls, levies, fees, and presents given to Obas (Kings) and Chiefs in Benin, Oyo, and other Yoruba Kingdoms in Western Nigeria. However, in the east, this form of tax-paying custom was almost non-existent, with the exception of fines known as "Iri-iwu" due to a lack of organised central authority. Eastern Nigerians are noted for having an egalitarian society. These systems of taxes came to an end with the arrival of colonial masters. Obas and emirs were now utilised to tax their citizens, and any found guilty were punished (Atyap uprisings, 2024).
In modern times, taxation is viewed as an economic development tool that provides a financial foundation for the provision of public goods. It is a double-edged sword, depending on the government's interests in power. It is also a mandatory payment by people and organisations to the appropriate inland or internal revenue authorities at the federal, state, or local government levels. Taxes serve three functions: fiscal or budgetary, economic, and social or redistributive.
The hospitality industry encompasses a wide range of hosting services, including restaurants, hotels, pubs, cruise lines, and many other related enterprises. Globally, it is a multibillion-dollar sector with many offers; in Nigeria, the best examples of hospitality development may be found in hotels and restaurants. The Nigerian hospitality business is rising, and with it comes fresh diversification in a variety of qualities and categories, but there is still plenty of room for expansion, diversification, and standardisation (Ajayi, 2023; Lagos State Digital Tax, 2023).
In Nigeria, the corporate income tax rate is a tax levied on businesses. This figure is based on the net income that organisations earn while conducting business, which typically occurs over the course of a single business year. Corporate income tax revenue is a significant source of money for Nigeria's government. It is also a government assessment levied on a company's profits, resulting in an additional reduction in the company's potential net profit after normal corporate expenses have been deducted—the standard rate being 30% of the net profit assessed in the previous year.
1.2 STATEMENT OF PROBLEM
However, players in the country's hospitality industry have claimed that numerous taxes are limiting sector growth. The operators stressed that the existing load of taxes and levies is onerous on them, particularly given the high running costs for businesses, and that these charges have driven the sector to the verge. The operators mentioned several taxes and charges, including Registration of Hospitality Premises, Stamp Duty, Nigerian Social Insurance Trust Fund (NSIT), Industrial Training Fund (ITF), National Pension Commission (PENCOM), and Nigerian Tourism Development Corporation. Others are Company Income Tax, Withholding Tax, Liquor License, Food Handlers and Health Certificate, Visual Advert, Waste Disposal, billboards, signposts, Operation Permit, Vehicle Emission Fee, Contravention Charges, Business Premises, Administrative Charges for Environmental, Audit, Copyright Society of Nigeria (COSON), water supply, electricity supply, copious levies by Local Government Councils and other fees charged by regulatory agencies across the sector. Taking into account all of the fees, levies, and forms of taxes that companies in the hospitality industry must pay, not to mention the corporate income tax that must be paid after determining their net profit, all pose a threat to companies in this sector, which is a viable and highly profitable industry to enter. All of this poses a threat to these businesses because, when looking at the actual earnings and subsequent deductions, there is a significant difference between what they pay in taxes and what they keep. Companies in this area face threats from various sources (ThisDay Live, 2025; Punch NG, 2023; Nigeria News Agency, 2024; ProjectPapers, 2024).
1.3 OBJECTIVES OF STUDY
The aim of this study is to determine the relationship between corporate income tax and the profitability of the hospitality industry in Nigeria. However, the key objectives include examining the relationship between company income tax and cost of operation to ascertain corporate income tax influence on PAT to compare the corporate income tax influence on NPM of accommodation and restaurants
1.4 RESEARCH QUESTIONS
In relation to attaining the set objectives, the study must be able to adequately answer the following questions:
To what extent does corporate income tax influence the cost of operations of major sectors in the hospitality industry? Does corporate income tax influence PAT? is there any significant difference in corporate income tax influence and NPM of accommodation and restaurants?
1.5 RESEARCH HYPOTHESES
In order to ascertain or accomplish the objectives of this research and provide answers to the research questions, there is a need to establish testable hypotheses.
Hypothesis One
H0: Company income tax does not significantly influence the cost of operations in the hospitality industry
Hypothesis Two
H0: Corporate income tax does not significantly influence the PAT of accommodation and restaurants
Hypothesis Three
H0: There is no significant difference between corporate income tax influence and NPM of accommodation and restaurants
1.6 SIGNIFICANCE OF STUDY
The hospitality business in Nigeria is now peaking at N562 billion as of last year. This was disclosed by SlimTrader, West Africa Vocation Education (WAVE), a technology/e-commerce solution provider, in a chat with Vanguard. Femi Akinde, Managing Director, SlimTrader, said: “The Hospitality industry in Nigeria is worth approximately N562 billion ($3billion) in 2014 and still growing" (Ekwujuru, 2015). This study, therefore, will be carried out to know the extent to which taxation affects stakeholders in the https://researchwap.com/accounting/corporate-income-tax-and-profitability-in-the-nigerian-hospitality-industry/index.html.
1.7 SCOPE OF STUDY
This study covers company income tax and profitability of the accommodation and restaurant sub-sectors of the hospitality industry over a period of 5 years.
1.8 OPERATIONAL DEFINITION TERMS
Companies Income Tax(CIT): the corporate income tax rate is a tax collected from companies. Its amount is based on the net income companies obtain while exercising their business activity, normally during one business year
Assessment Authority: This is the body appointed by the board for the purpose of assessing tax payable.
Company: A company is defined by section 3(1) of the act as “any co-operation (other than a corporation sole) established by or under any law in force in Nigeria or elsewhere”. The relevant tax authority in respect of company income tax is the Federal Board of inland revenue.
Federal Inland Revenue Service (FIRS): This is the body set up by section 5.1 of ITA (1979) and charged with the overall administration of the companies' income tax act.
Income: There is no statement that defines the word `` income`'' in taxation status. However, for the purpose of this study, reference is made to section 5.4 (2) (6) of the income tax management act (ITMA) 1961, which recognises income as including any amount deemed to be income under the act.
Tax Arrears: These are an assessment of tax during the preceding period whose payment is received at the current assessment period.
Profit After Tax: The net amount earned by a business after all taxation-related expenses have been deducted. The profit after tax is often a better assessment of what a business is really earning and hence can use in its operations than its total revenues.
Net Profit Margin: The net profit margin is the percentage of revenue left after all expenses have been deducted from sales.
References
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