AHAM NZENWATA
ABSTRACT
This seminar paper
investigated the effect of corporate social responsibility on the strategic tax
behaviour of companies in Nigeria. Data for the study was collected from
primary sources through the issue of structured questionnaires to twenty (20)
employees of companies resident in Port Harcourt. the collected data was
analyzed using multiple regression analyses of the ordinary least squares
method which was analyzed using statistical package for social sciences (SPSS).
The findings of the study indicate that there is a positive relationship
between corporate social responsibility projects embarked on by companies and
tax elimination and minimization. However, the findings were not statistically
significant leading to the conclusion that there are other factors at play to
explain why companies embark on corporate social responsibility beyond using it
as a tax elimination and minimization tool.
1
INTRODUCTION
Corporate social responsibility is
necessarily an evolving term that does not have a standard definition or a
fully recognized set of specific criteria or scope. In the absence of a clear
definition of corporate social responsibility, individual firms must decide for
themselves the nature of their social responsibility and accountability as a
management concept. The only guideline available to a firm in this respect is a
tie between legislations on corporate social responsibility on one hand and
public opinion and pressures on the other. Subject to these constraints, it is
evident that, the operational meaning of corporate social responsibility is
vague and there is much less certainty about what its obligations or its scope
might be.
Vogel (1991) notes that part of the
universal appeal of the concept of corporate social responsibility rests on the
concept’s ambiguity. The motive for taking an action are equally as important
for distinguishing socially responsible actions and actions that are imposed on
the firm by its environment. It is often perceived by corporate organisations
that unless corporate organisations are responsive to Corporate social
responsibility, more enormous intervention by the government will result which
can distort their interest and or profit, impair inefficiency, competitiveness
and at the expense of their license to operate.
Corporations are keen to avoid
interference in their business through taxation or regulations. They therefore
respond with substantive voluntary steps, with which they persuade governments
and the wider public that they are good corporate citizens. Corporate social
responsibility reporting and actions are therefore used to suppress the effect
of damages created as a result of business activities. Some views hold that
performance of societal obligation anchors on the corporation's major objective
of profit maximization (Reuven 2006).
Socially responsibility is neither
necessary nor sufficient for successful financial performance. Bowie and Dunfee
(2002), Shaw (1996) and Solomon (1993) noted that the corporate social
responsibility-related management-focus tends to avoid reflecting on conflicts
between ethical and profit motives. More recently, some have questioned the
facade of corporate social responsibility, asserting that corporations are
prone to use corporate social responsibility as a front for a pathological
search for profits, or are simply not suited for social roles.
Many companies base their socially
responsible actions on the belief that these actions provide or will provide
some benefit to the company, a strategy referred to as enlightened
self-interest. This enlightened self-interest may manifest in the form of
corporations using CSR as a vehicle to minimize or eliminate certain taxes.
Considering the view above that
Corporate Social Responsibility is an additional tax burden and tax is
considered a cost like any other costs imposed on the corporation, it behooves
the management to try to minimize this cost, or even turn it into a profit.
Thus, the goal of shareholder profit maximization can naturally lead to
corporations trying to minimize taxes and thus enhance earnings (Reuven 2006).
The implication of the above is that corporations are wont to behave
'strategically' towards taxes when confronted with Corporate Social
Responsibility costs. This paper is aimed towards investigating how embarking
on corporate social responsibility affects the tax behavior of companies in
Nigeria.
2 REVIEW
OF LITERATURE
The phrase corporate social
responsibility has been used in so many different contexts that it has lost
almost all meaning. Devoid of an internal structure and content, it has come to
mean different things to different people. This section will explore the
development, meaning, framework and other aspects of CSR needed to gain a
proper understanding of the subject matter.
This section will be divided into three viz: Theoretical Framework,
Concept of Corporate Social Responsibility and Review of Empirical Literature
2.1
THEORETICAL FRAMEWORK
The Classical Economic Theory: Milton Friedman (1962) advocated
that there is one and only one social responsibility of business- to use its
resources and engage in activities designed to increase its profit, as long as
it stays within the rules of the game, which is to say, engages in open and
free competition, without deception or fraud. The first approach originates in
classical economic theory as expressed in the hypothesis that the firm has one
and only one objective, which is to maximize profit. By extension, the
objective of a corporation should be to maximize shareholder’s wealth. It is
asserted that in striving to attain this objective within the constraint of the
existing legal and ethical framework, business Corporations are acting in the
best interest of the society at large.
The Stakeholder Approach: The stakeholder theory developed in 1970s recognizes
the significance of social objectives in relation to the maximisation of
profit. This approach proposed that corporate managers should make decisions
which maintain an equitable balance between the claims of shareholders,
employees, customers, suppliers and the general public. The corporation
therefore, represents a coalition of interest, and the proper consideration of
the various interests in this coalition is the only way to ensure that the
corporation will attain its long term profit maximisation objective. This
‘stakeholder’ approach received much publicity in Britain when it was adopted
by the Opposition Labour Party in 1996. This concept merely views the business
enterprise as being concerned with making profits for its shareholders, and
treats the claims of other interested groups.
Baron (2000) argued that
a firm interacts with a number of constituencies including employees,
suppliers, customers, the communities in which its facilities are located and
the public in general. To the extent that these constituencies have an interest
or stake in the relationship with the firm, they may be referred to as
stakeholders. A stakeholder relationship centres on the exchange, as when an
employee provides labour services to a firm in exchange for wages. Both parties
presumably benefit from the continuation of such an exchange. Both parties
therefore have incentives to take into account the interest of the other in the
relationship.
Profit as a Means to an End: Another view, regards profit as a
means to an end and not an end in itself. It stated that organizational
decisions should be concerned with the selection of socially responsible
alternatives instead of seeking to maximise profit generally. The end result
should be satisfactory level of profit which is compatible with attainment of a
range of social goals. This view was established when ‘the chief executive of a
large corporation had the problem of reconciling the demands of the employees
for more wages and improved benefit plans, customers for lower prices and
greater values, shareholders for higher dividends and greater capital
appreciation- all within a framework that will be constructive and acceptable
to society’.
This concept acknowledges
that the business enterprise has a responsibility to all stakeholders. That is
those who stand to gain or lose as a result of the firm’s activities. From this
approach, it is evident that unless
firms are able to develop clear views of
society’s preferences and priorities,(socially responsible alternatives) they will be unable to plan
activities which will make a social impact, much less report in a meaningful
way on their social performance. Therefore, without this a precise knowledge of
such preferences and priorities, much of the discussion of what is socially
desirable must pass for subjective judgments, or at worst pure guesswork.
However, the constraint
to this third view is the problem of the ever changing nature of the ordering
of social preferences. Social costs as well as social benefits are a function
of social perception of what is good and bad about the business activity. As a
result the nature of corporate social responsibility is not a static concept.
It involves moving targets many of which are the subjects of government action.
2.2
CONCEPT OF CORPORATE SOCIAL
RESPONSIBILITY
The definition of CSR used within an
organization can vary from the strict "stakeholder impacts"
definition used by many CSR advocates and will often include charitable efforts
and volunteering. At its broadest, CSR can be defined as the overall
contribution of business to sustainable development. In practice, views differ
based on two factors. First, the extent to which importance is placed on the
‘financial business case’ for responsible business behaviour in defining the
scope of CSR practices i.e. the extent to which tangible benefits to companies
must be demonstrable.
Secondly, the extent to which
government is seen to have a role in framing the agenda and how. A minimum
standard for CSR might be that businesses fulfill their legal obligations or,
if laws or enforcement are lacking, that they ‘do no harm’. A median approach
goes beyond compliance, calling for businesses to do their best, where a
‘business case’ can be made, to contribute positively to sustainable
development by addressing their social and environmental impacts and
potentially also through social or community investments. A maximum standard
point will be an active alignment of internal business goals with externally
set societal goals (those that support sustainable development).
Bowen (1953) noted that the
discussion of social responsibility is the obligation of business to pursue
those policies to make decision or to follow those lines of action which are
desirable in terms of objectives and values of the society. The idea suggests
that corporation have a responsibility to the society which extends beyond the
economic and legal obligations.
Carroll (1975) defined social
responsibility as the economic, legal, ethical and discretionary expectations
placed on the organization by the society at a given point in time. This
implies that the society has a set of basic expectation that should be
fulfilled by the business in its capacity as a corporate entity. Luthans and
hodgets (1976) defined CSR as the obligation of the business to pursue those
policies, to make decisions, or to follow those lines of actions, which are
desirable in terms of objectives and values of the society.
According to Jonkers (2005),
corporate responsibility is a sensitizing concept, a term that draws attention
to a complex range of issues and elements that are all related to the position
and function of the business enterprise in contemporary society.
PricewaterhouseCoopers (2004) viewed CSR as the proposition that companies are
responsible not only for maximizing profits but also for recognising the needs
of such stakeholders as employees, customers, demographic groups and even the
regions they serve .
The confederation of British industry
(2001) states that CSR requires companies to acknowledge that they should be
publicly accountable not only for their financial performance but also for
their social and environmental record. CSR encompasses the extent to which
companies should promote human rights, democracy, community improvement and
sustainable development objectives throughout the world.
To the World Bank (2004) CSR is the
commitment of business to contribute to sustainable economic development,
working with employees, their families, the local community and society at
large to improve their quality of life in ways that are both good for business
and good for (international) development. Ikpeze (1987) categorized the
obligations of corporation to social responsibility into two;
· Outright charity to social courses
(such as education, sport , art and culture) which do not necessarily make
direct impact on the profitability of business.
· Elimination or reduction by offending
firms on social costs arising from their normal
business operations which constitute external diseconomy for their
business as well as poses health , safety hazard for non business entities.
Chartered Institute of bankers in
Nigeria (2009) corporate social responsibility has to do with an organization
going out of its way to initiate actions that will impact positively on its
host community, its environment and the people generally. It can be seen as a
way of acknowledging that some business fallouts have adverse effects on the
citizens and society and making efforts to ensure that such negative impacts
are corrected.
According to Bamigbaiye (2008) CSR is
a self defining phrase, it is the responsibility that corporation owe their
stakeholders and to maintain leadership with their operating environments. CSR
is a way to show respect loyalty, understanding and a spirit od togetherness
with the people and community where the organization operates which ultimately
brings rewards such as corporate reputation that is of immeasurable value.
Tiemoko (2008) states that CSR is a concept whereby companies integrate social
and environmental concerns in their business operation and in their interaction
with their stakeholders on a voluntary basis.
Amangbo (2008) defined CSR as a
concept whereby organization consider the interest of society by taking
responsibility for the impact of their activities on customers, suppliers,
employees, shareholders, communities and other stakeholders as well as the environment. The obligation to
be good corporate citizens is seen to extend beyond compliance with statutory
legislation to a voluntary effort to improve the quality of life for the
employees, local community and society at large. It is within this framework
that social responsibility derives its significance.
2.3
REVIEW OF EMPIRICAL LITERATURE
Amaeshi et al. (2006) used a two
pronged and two stage approach in carried out a research on Corporate Social
Responsibility (CSR) in Nigeria: Western mimicry or indigenous practices? The
results/analysis showed that the understanding and practice of CSR in Nigeria
is still largely philanthropic and altruistic. There finding differs from the
understanding and practice of CSR in Western economies where CSR have advanced
beyond philanthropy.
Folajin, Ibitoye and Dunsin (2014) investigated the impact of Corporate
Social Responsibility on bank profitability with particular reference to United
Bank for Africa (UBA) PLC. Data relating to cost/investment/expenditure as the
case may be for the bank on corporate social responsibility and profitability
was used to construct ordinary least square (OLS) model of regression to which
was analyzed using SPSS. Result showed that Corporate Social Responsibility
spending has short term inverse effect on Net Profit but in the long run it
will provide better returns
Abdulrahman, (2013) examined the
influence of corporate social responsibility on profit after tax of some
selected deposit money banks in Nigeria. The study utilized content analyses
and regression and correlation analyses to analyze the data collected for the
study. Based on the outcome of the result it shows that there is weak positive
relationship between CSR and PAT, but it is significant at 5% indicating implementation
of corporate social responsibility on the long run improves earnings.
Fakile and Uwuigbe (2013)
investigated the Effects of Strategic Tax Behaviors on Corporate Governance.
Their study which was descriptive in nature showed that interactions between
corporate governance and taxation are bilateral and bi-unique. In essence, they
stress that the manner in which corporate governance rules are structured
affects the way a corporation fulfills its tax obligations; on the other hand,
the way tax designs (from the government perspective) and related tax
strategies (from the corporation perspective) are planned influences corporate
governance dynamics.
3 METHODOLOGY
This paper adopted the use of a questionnaire as the
primary source of data. The sample of the study was determined based on
convenience and accessibility of the individual respondents. The questionnaires
were issued specifically to twenty (20) individuals who were identified as
accountants and finance officers in the three (3) sample organizations. The
choice of the sample being as a result of the fact that they were willing to
complete the research instrument. They are also users of experts in accounting
and taxation and corporate social responsibility systems in their various
organizations. The questions were designed to elicit information on how
corporate social responsibility relates with the strategic tax behaviour
companies in Nigeria. Eight (8) questions (shown in the appendix) were used to
elicit information on corporate social responsibility and strategic tax
behaviour.
It is expedient to state here, that since the quality
of any research work is not determined or measured by the complexity,
sophisticated or scientific statistic tools used, but what is rather important
is applying the correct statistical tools to the intended problems being solved
and this is the consideration for choosing multiple regression as the
appropriate statistical tool for the study.
Regression analysis
expresses the relationship between two or more variables in a behavioural form.
The formula is given as:
y
= a0 + b1x1 + b2x2 ....
+ bnxn + ei . . .
. . . . . (1)
Thus, we propose that:
Corporate
Social Responsibility = f(Strategic Tax Behaviour) . . . . . . . . (2)
Where corporate social
responsibility is measured as: Social Welfare Programmes and strategic tax
behaviour is measured as tax elimination, tax minimization, we restate the
above equation as:
Social Welfare Programs = f(Tax Elimination, Tax Minimization) . . . . .
. (3)
This we can restate in
econometric terms as:
Social Welfare Programs = B0 + B1Tax
Elimination + B2Tax
Minimization + ei . . . . . . . . (4)
4
DATA ANALYSES, RESEARCH RESULTS AND
INTERPRETATION
This section deals with analysis of data used in this paper. The paper
adopts the multiple regression analysis of the Ordinary Lease Square (OLS)
method with Statistical Package for Social Science (SPSS) to test the
relationship between the variables.
TABLE 1: Summary
Regression Results detailing the relationship between Corporate Social
Responsibility and Tax Elimination and Minimization
|
Variable(s)
|
Coefficient
|
t-statistic
|
Probability
|
|
C
|
0.854
|
1.992
|
0.063
|
|
Tax Elimination
|
0.235
|
0.425
|
0.676
|
|
Tax Minimization
|
0.428
|
0.755
|
0.461
|
|
R =
0.180; R2 = 0.0.032; F-Statistic = 0.285; Prob (F-Statistic) = 0.755
|
|||
Table 1 below shows the summary
results of the multiple regression analysis performed on the research data. The
result of data analyses shows that the strength of the relationship between Tax
Elimination, Tax Minimization and Corporate Social Responsibility is very weak
at 18.0% while the value of the coefficient of determination of 0.032 indicates
that only about 3.2% of the variations in Corporate Social Responsibility can
be explained by changes in Tax Elimination and Tax Minimization. The import of
this result is that tax elimination and tax minimization efforts of companies
in Nigeria have very little effect on corporate social responsibility projects
they embark on.
The
results further show that tax elimination and tax minimization has a positive
correlation with corporate social responsibility. With a coefficient of
regression value of 0.235 and 0.428 respectively for tax elimination and tax
minimization, implying that a unit increase in tax elimination and tax
minimization will lead to 0.235 and 0.428 units increase in corporate social
responsibility and vice versa.
The
positive relationship between the study variables imply that embarking on
corporate social responsibility projects increases efforts towards tax
elimination and tax minimization by companies in Nigeria. Thus, corporate
social responsibility increases strategic tax behaviour by companies in
Nigeria.
Finally,
the regression result show the computed t-statistic for the coefficients of tax
elimination and tax minimization are 0.425 and 0.755 respectively which is
lower than the critical t-statistic of 2.042 @ 0.05 level of significance. This
means that there is no significant relationship between tax elimination, tax
minimization and corporate social responsibility.
5
DISCUSSION OF FINDINGS AND
CONCLUSIONS
This study research paper
investigated the relationship between corporate social responsibility and
strategic tax behaviour by companies in Nigeria. The findings of the research
which are shown in the previous section show that there is positive
relationship between embarking corporate social responsibility and strategic
tax behaviour. This finding implies that companies employ corporate social
responsibility as an avenue to reduce or eliminate their tax burden. For
example, companies are more likely to embark on corporate social responsibility
project which are tax deductible either in part or on the whole.
However, the findings
also indicate that strategic tax behaviour is not statistically significant in
its effect of corporate social responsibility. This finding implies that tax
elimination and tax minimization as strategic tax behaviour indicators are just
one of the many reasons why companies embark on corporate social responsibility
projects. Other reasons may include gaining a corporate image as a socially
responsible firm. It may also be due to regulatory requirement or to build a
rapport with the host community. Furthermore, it may also mean that using
corporate social responsibility as tax elimination and minimization strategy
may not be very effective as there could be law in place to check such
unwholesome behaviour form taxpaying entities. Finally, companies may exhibit
strategic tax behaviour not necessarily in response to corporate social
responsibility but as a way to reduce the general costs of the firms and
increase earnings.
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