FUNDING OF
FEDERAL PARASTATALS
(A CASE STUDY OF FEDERAL RADIO COOPERATION OF
NIGERIA IN ENUGU STATE)
CHAPTER ONE
INTRODUCTION
Tax policy among other being the basic objective of the
encouraging capital formation for economic development.
Income
that would otherwise be spent on non-essential is usually taxed out of their
holder to mobilize enough savings to finance needed investment both in the
manufacturing and social overhead capital.
However,
in thud capital formation, sole development of the economy lies in the conflict
between the need for high rate to raise enough capital for the government owned
investment in utilities and infrastructures which are essential for development
and industrializations and the need to keep tax rate low enough to encouraged
private investor in industries and in agriculture.
The situation is further compounded by the fact that by and
large, income are low in the development economy (giving rise to low tax
revenue generally) and those tax which vary directly and rise progressively
with the income and which are most effective in retrieving a good portion of
gain of the economic development are the once likely to affect return from
private investment.
In other to meet up with those conflicting demand, the
approach is to combine high rate of tax with preferential treatment to
categories of desired development activity (with penalty tax for undesired
activities). At 45%, the company income tax rate in Nigerian as considered high
enough could be an effective tool for any necessary deduction in the economic
activity. But apart from the deriving, the must effective way of mobilizing
capital , there is still he need to direct investment to the desired sector of
the economy. Other dilemma here is that investment which meet the main motor of
the private investor (capital profits) are not necessary those that bring about
high social benefits. In fact before 1964, value added production was quit
unattractive to entrepreneur. They regard trading and contract business as the
quickest way of increasing the income. In addition, the British trading firm
that dominated the economy with the assistance of the colonial government
discourages diversified indoctrination in Nigerian to protect their own trading
interest.
But
with the Nigerian political independency in 1960, come the international
completion for the Nigerian vast market. The intensification of this
competition coupled with the government active encouragement gave impetus to
industrialization. The investment in the industry after a public policy is a
challenge to influence the level, composition and direction of the
manufacturing output and capital production. Such policies at first encouraged
the domestic production of various goods previously imported but latter
emphasis has shifted to maximization of value added to the grose domestic
product the policy is therefore at encouraging the utilization of our local raw
material by the manufacturing firm in place of the imported ones and also for
encouraging production for foreign market. Nigerian has been utilizing a system
of fiscal incentive, which is consciously manipulated to influence the
direction of investment in activities in the private sector. These incentives
are embodies in fire legal enactment as follows;
1.
The industrial development (income
tax relief) Act of 1958 as amended by decree 22 of 1971.
2.
The industrial development, (import
duties relief) Act of 1957.
3.
Costumes duties (dumped and
subsidized goods Act of 1958.
4.
The customs (draw back) regulation
of 1958
5.
The income tax (amendment) Act of
1959)
THE STATEMENT OF PROBLEM
Tax holiday scheme is wildly used by the developing countries
in the belief that it is a useful fiscal industrial policy for rapid economic
development, sine it is activity in the preferred sector of the economy. But
the scheme can activity be providing subsidy to all the firm benefiting by it
without necessary stimulating fir example if for a firm that enjoys tax
holiday, the volume and timing of the incentive as well as the decision
concerning the input and output market of an opportunity and other pioneer and
other infant company sector. Condition of the firm remains as would have been
without the tax holiday. Though the subsidy is enjoy but that firm become
socially non beneficial.
It is therefore important to determine and to what extent is
a firm stimulated to invest by tax holiday and them know which among the infant
industry are stimulated and which are not from the which knowledge we can then
determine the extent of the effectiveness of the tax scheme.
OBJECTIVE OF THE STUDY
In deciding whether a companies incentive included that (is
stimulated) , two things comes to mind, whether the company decide to go into
business because of the offer ( of the tax holiday which we shall not
investigate here) also whether the company subsequent decision on investment
are included by tax holiday subsidy.
Apart
from using the liquidity model to evaluate the extent of inducement for
subsequent investment of infant industry in Imo State (selection region) this
study will also examine other basic issue that influence the effectiveness of
tax holiday scheme.
SCOPE
OR DELIMITATION OF THE STUDY
The
researcher carried out the study wit limits imposed by practical consideration
of the financial involvement and time constraint. Considering the geographical
areas of the nation, the researcher chose seven companies in Imo State.
RESEARCH
QUESTION
The following research question is used for the project
topic” the impact of tax holiday investment in private or infant industries ( a
case of companies in Imo State.
1.
Did your industry decide to go into
business in the first place because for the offer of tax holiday
2.
Is your industry subsequent
decision on investment induced by tax holiday subsidy
3.
Is tax holiday scheme influencing
the size of investment in your industry
4.
In what can increase in the
investment as a result of fiscal inducement (some time coupled with the
condition that indigenous labour must be used by the benefiting company) cause
the red action in unemployment.
5.
How can tax holiday scheme be used
to redirect investment pattern
HYPOTHESIS FORMULATION
In order to employ a scientific approach to the realization
of the objective of this research work, the following hypothesis were analyzed.
Ho:
the impact of tax holiday on investment is not favorable in the infant industry
in Imo state.
Hi;
the impact of tax holiday to the infant industry in Imo state is favorable in
Imo state
SIGNIFICANCES OF THE STUDY
The
holiday involves the government expenditure in two forms
(a)
In form of subsidy to the infant
industry
(b)
In form of cast of administering
the pioneer scheme
Been an expenditure, there should be benefit to show for it 9
particularly in this austere time) else the fund expended on it should be
directed to other areas of need. This is why the evaluation of the scheme
becomes important. Beside the scheme is an industrial policy, which there are
alternative and one of which is government direct participation in the sector
in which private investors lad behind. If the scheme is found to be an
effective inducement, the alternative strategy for building stock of
profitability investment in the relevant sector should take it place.
DEFINITION OF TERMS
The definition is for use in this book only and not for
general standard definition. They are relevant to this context
1.
Infant or pioneer industry:
industry operating in Nigerian and in those areas where the government consider
being beneficial to the Nigerian and assistance to which will in public
interest.
2.
Tax holiday:
the period of time allowed of granted to the pioneer industry to enjoy income
tax relief
3.
Investment:
the economic activity design to increase in dimension of growth or to maintain
the production quality of the existing stock or capital.