ABSTRACT

In Nigeria Small and Medium enterprises (SMEs) are increasingly seen as engines of economic growth of the country, contributing 75% of GDP and constituting 90% of the private sector. This is because they contribute to sustained creation of employment approximated to be 2.5 million, improve living standards and ensure social and political stability (Hatega, 2017). On the other hand, it has been observed from previous taxation studies that several SMEs in developing economies are  generally not compliant to tax despite the significant number of reforms intended to enhance compliance (Terkper, 2016; James, Barbour & Stern, 2017; Ayoki, 2017). Such enterprises cannot easily be located by tax administration (Teera, 2015), and those who can be traced pay less than their fair share of tax (Ahmed& Braithwaite, 2015).

Income tax is therefore defined as a tax imposed on a person's taxable income at specific rates. A person includes an individual, company, partnership, trustee, government and sub divisions of government. Income tax is charged on every person who has chargeable income for every year of income. Chargeable income is derived from three main types of income, namely; business, employment and property. In addition, a tax is referred to as a non-quid pro quo, implying that a tax is paid by assesses without corresponding returns in form of social goods and services from the government. Justice Holmes described tax as the price for civilization. Ismail Kintu (2016). 

Muwanga, (2014). Profitability has been defined as an organizations ability to earn revenues in excess of expenses over a period. Pandey noted that, a company should earn profits to survive and grow over a long period. Firms must earn profits to maximize their shareholders wealth, to generate income for expansion and to finance their daily operations.