CHAPTER ONE

INTRODUCTION

1.1      OVERVIEW OF STUDY

Tax is a compulsory levy imposed by the government on the incomes of individuals and corporate organization for the performance of its duties of social welfare and security. In other words, it is a levy imposed by the government against the income, profit or wealth of the individuals, partnership, and corporate organization. (Ochiogu 2001:1).

For the government, it is dispensable for it to provide all the important amenities that are needed to make life worth living. Some of the services performed by the government include: maintenance of law and order, defense, basic education, health services, pipe-borne water, road construction etc. If any of these services are not provided, our lives and the economy (i.e. business environment) would become worse off. Therefore the government tries to generate the funds to carry out these activities through taxation.

Every corporate organization is expected as a requirement to pay

taxes as one of its corporate social responsibilities. Dividend policy on the other hand forms a major financial decision often faced by the management of corporate organizations in their pursuit of maximizing the value of their organization. Dividend policy allocates the earnings between payment to shareholders and reinvestment in the firm.

A lot of controversies regarding taxes ad dividend policy have attracted many academic interests. Some scholars are of the opinion that taxes affect organizational corporate dividend policy. If this speculation is true, changes in corporate dividend policy would be expected whenever the government changes its income tax policy (Wu 1996).

However, this is not the case in the banking business. Linter (1996:12) asserted that the major determinants of dividend policy are the anticipated future earning and the pattern of past dividends.

The banking sector is of interest to this research because of the structure of its dividends. Dividends are usually paid to owners or shareholders of a business at specific periods. This depends largely on the declared earning of the firm and the recommendation of the directors. Therefore, if no profit is made, dividends will not be declared. But when profits are made, the company is obligated to pay corporate tax and other statutory taxes to the government.

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