CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The Nigeria economy has been characterized by the mixed economy system where private individuals and the public sector (government) participate in economic activities. However, from observed societal phenomenon, it is obvious that the private sector or individuals dominates the economy.
In order to encourage more private participation by government and in a bit to enhance industrialization in the economy, government came up with laws that exempt certain business enterprises from paying specific taxes via a process called tax incentives.
Tax incentives also known as holiday or tax breaks has multi various definitions. Some of the definitions given to tax incentives are;
It is a deduction, exclusion, exemption from a tax liability offered as an enticement to engage in a specified activity such as investment in capital goods (Wikipedia the free encyclopedia). It is a deduction that is granted in order to encourage a particular type of commercial activity (Erskine Bowales,2004].According to Alan Simpson, (2001). It is a tax benefit offered in order to encourage or discourage targeted activities.
In a more identified definition, tax incentives exclusions, deductions, exemptions given by government to existing and potential business enterprise of tax payable by them with the motive to encourage effective capital; investment in an economy in order to attain an industrialized economy.
Industrialization can be defined as a process in which a society or country transforms itself from a primarily agricultural society info one based on the manufacturing of goods and services. Then before, with tax incentive, existing and potential businesses will spring up and invest their productive resources into the economy which eventually will enhance industrial growth.
In an industrialized economy, there are many benefits and opportunities such as massive employment opportunities, increase in per capital income, increase in productivity, affordable prices, development of skills, earning or foreign currency, etc.
The taxation profit/income of business when exampled leads to saving which will be re-investment into capital projects and eventually attracts foreign investment in the economy.
1.2 STATEMENT OF THE PROBLEM
There have been some measures taken so far by the government to improve the economy which have not been able to produce good results. The naira exchange rate has not been able to stimulate the economy. The poverty alleviation programme has not been able to reduce the rate of poverty among Nigerians.
With all these measures and policies taken so far, the Nigeria economy has not shown any appreciable progress. Nigerian still remains one of the developing nations. Given this gap, this study inventive that are extended to deserving companies and the interaction that exists between tax incentive and the economy.
1.3 PURPOSE OF THE STUDY
The purpose of this study is to determine the following:
i Learn how effective tax incentives granted by the government to business enterprises would enhance industrialization in the economy
ii To examine the criteria for deserving tax incentives.
iii To assess the various incentives available to companies.
iv To access the economic implications of tax incentives.
1.4 RESEARCH QUESTIONS
For the purpose of this study, the research questions are;
i Does high tax rates has a negative effect on the growth of an economy.
ii Of what significant impact will tax incentive have on an economy.
iii What are the modalities put in place by government to implement and regulate the compliance of business enterprises of tax incentives?
iv To what extent has the government envisioned the negative impact/effect of tax incentive in the economy?
v Does tax incentives leads to reduction of revenue to government?
1.5 SIGNIFICANCE OF THE STUDY
The significance of this study is geared toward giving a broad view and enlightenment of how tax incentive can be used in creating and attaining an industrialized economy in Nigeria. It will also help in broadening the knowledge of students, investors and government official on the effectiveness and the need of tax incentives in realizing a state of industrial growth in the Nigeria economy
1.6 SCOPE AND LIMITATION OF THE STUDY
The scope of this study encompasses the use of tax incentives granted by government of a sovereign state to increase the number of industries in its economy.
However, as a result of carrying out this research study, certain factor limits its effectiveness such as; financial constraints, short time frame requires for submission of the research study, unavailability of sufficient data on the research topic.
1.7 DEFINITION OF TERMS
1 Mixed economy: Is an economic system in which both the state and private sectors participate in the production and distribution of goods and services.
2 Economy: An economy consists of the economic system of a country; the labor, capital, production, trade, distribution and consumption of goods and services of that country.
3 Capital Goods: Any tangible assets than an organization uses to produce goods and services such as office buildings, equipment, machineries, e.t.c.
4 Capital Investment: Money invested in a business venture with an expectation of income and recovered through earning generated by the business over time.
5 Business Enterprise: These are organizations that provide goods and services in an economy with profit motives.
6 Tax: Are compulsory levies on the incomes of citizens of a country imposed by the government with the intention to provide welfare services to the society.
7 Per Capital Income: Is the mean income within an economy aggregate such as a country. It is measured by taking a measure of all the sources of incomes in the aggregate, i.e. dividing national income by the total population.
8 Incentive: These are things or something that encourages or necessitates an action to be carried out.