TAX INCENTIVES CATALYST FOR INDUSTRIAL DEVELOPMENT AND ECONOMIC GROWTH

ABSTRACT

This research work on taxincentive as a catalyst for industrial development and economic growth inNigeria was primarily undertaken to evaluate the effectiveness of taxincentives in developing the Nigerian economy, the extent to which individualsand companies have been responding to the incentive scheme, and how theseincentives have been stimulating and motivating these bodies on employmentopportunities. The researcher also intends to examine how these incentives hashelped the existing industries and firms in expanding their areas of operationand to know if the aim of granting these incentives are being achieved by thegovernment and implemented by the beneficiaries. An empirical study using awell structured questionnaire to assess the relationship that exists betweentax incentives, industrial development and economic growth using four differentincorporated industries and firms in Portharcourt, Rivers state havingconsidered the type of incentives offered to them by the government. A totalnumber of seventy-five (75) questionnaires were specifically administered tothe top and middle management staff (CEO’s managers and Accountants) of theseindustries and firms and a total number of (60) sixty were retrieved. Thehypothesis formulated were tested using the chi-square (X2) methodand it was discovered that the tax incentives granted were inadequate tosustain the desired development for which it was granted.  Finally, recommendations were made as regardsvariables which will enhance tax incentives towards industrial development andeconomic growth.

TABLE OF CONTENTS

CHAPTER ONE

Introduction                                                                                         

1.1     Background of the Study                                                 

1.2     Statement of Problem                                                     

1.3     Purpose of the Study                                                      

1.4     Significance of the Study                                                 

1.5     Scope of the Study                                                         

1.6     Limitation of the Study                                                  

1.7    Hypothesis Formulated                                                   

1.8     Definition of Terms                                                        

                References                                                                  

 

CHAPTER TWO

Introduction                                                                         

2.1 Criticism of Tax and Incentive Scheme                                

2.2 Argument for Tax Incentive                                              

2.3 The Impact of Tax Incentives                                            

2.4 Petroleum Profit Tax Act                                                   

2.5 Capital Allowance                                                             

2.6 Companies Income Tax Act                                                 

2.7Industrial Development (Income Tax Relief) Act                    

2.8 Other Tax Incentives in Nigeria                                          

References                                                                                   

                                                 

CHAPTER THREE

Introduction                                                                                         

3.1 Research Design                                                                

3.2 Sources of Data                                                               

3.3 Population of the Study                                                       

3.4 Sampling Method                                                               

3.5 Validity of Instruments                                                       

3.6 Reliability of Instruments                                                    

3.7 Data Analysis Technique                                                   

 

CHAPTER FOUR 

Date Presentation and Analysis                                                

Introduction                                                                         

4.1 Data Presentation                                                              

4.2 Data Analysis                                                                    

4.3 Research Question Analysis                                                      

4.4 Test of Hypothesis                                                                   

CHAPTER FIVE

Summary ofFindings, Conclusion and Recommendations            

5.1 Summary of Findings                                                          

5.2 Conclusion                                                                        

5.3 Recommendations                                                           

        Bibliography                                                                 

        Appendices                                                        

PROPOSAL

 This research work intends to examine taxincentives as a catalyst for industrial development and economic growth inNigeria. It also seek to evaluate the extent to which individuals and companieshave been responding to the incentive scheme, show how these incentives havebeen helping existing industries and firms in expanding their areas ofoperation and to know if the expected result of these incentives are achievedby the industries and firms who benefit from these reliefs using fourindustries and firms located at Portharcourt, in Rivers state having consideredthe type of incentive being offered to them by the government.

 In pursuance of this research study, data willbe gathered from the income Tax Management Acts, Newspapers, Libraries,Journals and questionnaires. 

 Some challenges that will be faced by theresearcher in the course of carrying out this study include financial and timeconstraint, unco-operative attitude of the respondents, irrelevant orunreliable information obtained from oral interviews and that of getting anexeat from the school authorities. Finally, recommendations will be made from the summary of findings andconclusion of which if implemented by the tax experts, consultants, individuals,and economic analysts, will enhance the overall aim and performance of the taxincentive scheme towards industrial development and economic growth.

CHAPTER ONE

INTRODUCTION

1.1BACKGROUND OF THE STUDY

Tax studies have becomeincreasingly sophisticated especially during the past decade and have yieldedconflicting results as regards the tax matter. Some studies focus on the costand benefit of tax incentives while a few look at whether public funds couldhave been better spent or if tax incentives were economically justified. Taxstudies offer little guidance to policy makers who are concerned about taxrates or tax offerings and the effectiveness of employing tax incentives as aneconomic and developmental

tool. 

The mode by whichindustrial development and economic growth can be effectively, efficiently,stimulated and developed is very demanding. As a result of this, the governmentcharges less tax and gives tax holidays in order to encourage investments andeconomic activities in those areas which help to improve productioncapabilities, activate economic growth as well as the allocation of resourcesin a socially desirable manner. 

Investors oftenemphasize on the relative importance of a good tax system in investmentdecisions compared with other considerations such as political and economicstability, availability of social infrastructure, security of the life andproperty and also the general cost of doing business and so on. To theprospective investor, the general feature of a tax system (tax base rate) ismore important than the tax incentives in many developing countries. The taxlaws are not clearly written and may be subject to frequent review which makeslong-term planning difficult for businesses and add to the perceived risks ofundertaking major capital intensive projects. 

Taxation is a processor means through which communities or groups are made to contribute a part oftheir income for the sole purpose of societal administration while tax, is acompulsory levy levied on the people at a given place for the sole purpose ofgovernment revenue for government expenditure. 

Tax incentive itself,is the use of government spending and tax policies to influence the level ofnational income. This measure encourages the springing up and gradual growth ofnew enterprises by the reduction of profit tax, which in turn encouragesproduction, influences the production level and curbs unemployment. So, thegovernment should provide such tax incentives in order to boost developmentwhich will bring about an increase in employment opportunities and also causean improvement in the economy.

Amadiegwu (2008:74), atax expert wrote that the objective of tax incentive is that by borrowingrather than taxing, the government has a better chance of expanding investmentspending which is essential in enlarging production possibilities and attaininga sustainable improvement in the standard of living of the people.

Dotun and Sanni(2009:265), in their Nigerian companies taxation stated that these incentivescan be targeted on the low income earners, local and developing industries,farmers, which will increase their savings and is necessary for higherinvestment. Tax incentives create employment opportunities for the people,helps to fight economic depression and inflation thereby increasing theequitable distribution of income and wealth.

A good economicdevelopment policy should contain the following elements. 

a.       GOALS ANDOBJECTIVES

Goals and objectivescreate a context for accountability as regards the use of economic anddevelopmental incentives. Common goals used in economic development includetargeted economic sector growth, business retention and/or recruitment,geographic focus, job creation, light mitigation, improving on distressed areasand environmental improvements. 

 

b.       FINANCIALINCENTIVES TOOLS AND LIMITATIONS

An economic developmentpolicy should define the type of incentives and the extent to which thegovernment will use them.  For example,the government may decide to grant an entitlement to any firm that meets theminimum required qualification or may choose to provide incentives based   on the assessment of individual firms.Government may also establish maximum funding for a particular process. 

 

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