Company Income Tax – Its Effects on Investment Decisions

Company Income Tax – Its Effects on Investment Decisions (A Study of Coca-Cola Aba in Abia State)


Company Income Tax – The study effect of company income tax on investment decision is an evaluation of the impact of company income tax on   managerial decision with the goal to proffer possible recommendations to investors and mangers. Specifically, the objectives seeks to knowing if company income tax affects investment decisions, to find out whether company management consider these effects before embarking on investment project and determining the extent to which company tax consideration influences investment decision.

Purposive  sampling techniques was uses to sample respondents upon which 98 respondents from a selected company where chosen thus well structure questionnaire served as a source of primary data and secondary data came from textbooks, journals and world wide web.

Therefore, data were analyzed using simple descriptive statistical tools which entail the use percentages and tables.

Chi-square tools were likewise adopted to test the stated hypotheses. Findings made after the study showed that company income tax affects investment decision and company mangers and investors don’t consider tax implication before going into investment projects the researchers based on the findings make recommendation for checking the plights

 Background of Study

An efficient allocation of capital is the most important investment function in the modern times. It involves decisions to commit t the firms fund to the long term assts. According to Pandey (2010), investment decisions are of considerable importance to the company since they tend to determine its value by influencing its growth. Investment decision is defined, according to Akinsuleri (2005) as the company decision to invest its current funds most efficiently in the long term assets in anticipation of an expected flow of benefits over a series of years.

However, investment decisions of companies are mostly fiscal weapon. Taxation is regarded as an indispensable measurer towards any nation’s development (Uchenna (2009) among the various sources of achieving economic goal of any nation presely developing country like Nigeria Taxation stands out as the most importance in economic analysis. The question then is what is the concern of taxation in investment decision of companies?

Coca-cola Nigeria limited is one of the companies that operate in Aba State. It is located at port-Harcourt Road Aba. According to the human resource department of the company, the company has total staff strength of 130 workers which comprise of 10 management staff, 50 senior staff and 70 junior staff. The company produces carbonated a major player in the industry for years. They have invested so much in the state.

Also, the company has expanded in their operation in the state. This can be seen in the way have established new deports and sale out lets in the state.

Consequently, it is obvious that the company has made some investment decision in the state. These investment decisions require company taxation to be properly and effectively planned for the achievement of company’s goals and objectives. It is based on the foregoing that the researcher became interested to investigate into the relationship between company income tax and investment decisions of the company.

Agwlu (2009) defined taxation as the compulsory levy by government through its various agencies on the income or consumption of its subjects the  ultimate justification for company income tax in investment decision is that investment decisions required special attention and cannot be satisfactory evaluated without considering tax implication. More so investment decision has a long term implication for the firms and can influence the firms risk complexion and are mostly irreversible decision (Panedy, 2012).

Consequently there is no company that do not make investment decision at one time or the other which requires company taxation to be property and effectively planned for it achievement of companies goals and objective. It is based on these facts that the researcher between company income tax and investment decision of a company.

Statement of the Problem

Company business activities are surrounded by risks and uncertainties and such risk could lead to losses of money invested, losses of material in site and the causes of all these things could be having not made good decisions on how to invest. Many things are put into considerations, such areas to investment. For the work taxation is our focuses. Considering how taxation in that particular area on a particular material can affect the company success normally utters the investment decision making of the company this is because investment decision are made based on the knowledge information of prevalent issues in the area.

Although most feasibility studies are taking at time such preventing issues as taxation which means the tax laws in the environment or other system obtainable there. But when proper application investment of appraisal techniques are taking, it could be found that taxation may have roll to play on success faster of the company. This is why this work is out to investigate the effect taxation on company investment decision tax making.

Objective of the Study

 The general purpose of the study is to investigate and determine the effects of company tax on investment decisions.

However, being more precise is needed in any work of this nature, this inform for specific purpose and stated below.

  1. 1.       To know if company tax affects investment decisions.
  2. 2.       To find out whether companies managers consider these effects before embarking on investment projects.
  3. 3.       To certically assess the extent company income tax consideration influence various investment decision.

Research Question

To do this, the study posed the following research questions

1.       How does company affect corporate investment decision?

2.       How does high company income tax rate reduces the income of companies and dividend available for distribution.

3.       Do companies consider the effects of company income tax before embarking on investment decision?

State of Research Hypotheses

For the purpose of this study the following hypotheses are postulated for the study.

Ho1, there is no significant difference in opinion of the respondents on company income tax effects on investment decision.

Ho2, there is no significance difference in opinion of respondent between tax consideration and investment decision.

Significance of the Study

The researcher was stimulated to study the effect of company income tax on investment decision of Nigeria Company by the ever pressing need to offer season and information to various interested groups. The study will be of fundamental importance to government both in planning and administration of company tax as to create favourable investment climate in the economy. It will also serve as a purpose to corporate organizations in policy formulation as it affects investment policies and decision. It will also help management to reduce their tax liability legitimately.

Limitations of Study

In the course of completing this work the researcher had constraints which includes the following:

Financial problem: Many at times, difficulty to cope with financial problem such as, transportation fees from school to the library and other research where Materials were gathered and photocopy.

Time limit was also another challenge. To combine the research work with other official works and assignment was hectic gathering information from some of the respondents during interviews which was in the form of questionnaire.

Scope of Study

Effect of company income tax on investment decision is rather a very broad topic and area of study which entails a lot. However for the purpose of the research. The topic will be restricted to a selected company (Coca-Cola Aba in Abia State.

Definition of Terms

1.    Cash inflow: This means Revenue derived from a project.
2.    Cash outflow: It is defined as expenditure made on project.
3.    Discount Rate: This is means that the rate at which cash inflows are brought to the present time value.
4.    Dividend: It means profit shared or distributed to the owners of the business.
5.    Fiscal policy: This means that financial rules and regulation for the year.
6.    Hypothesis: It is the tentative answer to a research question.
7.    Investment portfolio: A collection of investment.
8.    Investment Appraisal: It is a quantitative methods of selecting project among alternatives.
9.    Tax Rate: It is a rate at which tax is assessed.
10.    Tax Base: It means income that is tancable.
11.    Tax Implication: This means that after effect of taxation on a thing.
12.    Tax Liability: This means the amount an entity is liable to pay as tax.
13.    Tax Environment: It means that these are laws, regulation ploicies and institution concerned with tax matters.

This article is a part of a Project work titled: “Effect of Company Income Tax on Investment Decisions (A Study of Coca-Cola Aba in Abia State)”


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3 Comments on “Company Income Tax – Its Effects on Investment Decisions”

  1. auwal bala sulaiman says:

    nice work,i need an assessment on the impact of
    company income tax on corporate performance

  2. Plz can i get the project on the effect of corporate tax on business behavior. How soon cos i need it today

  3. maduafor joy says:

    can i get the project on the topic ;the effect of merger and acquisition in banking performance.

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