TAX INCENTIVES AND ITS IMPACT ON ECONOMIC GROWTH AND DEVELOPMENT IN NIGERIA

19

CHAPTER ONE

BACKGROUND TO THE STUDY

As part of the effort to provide an enabling environment that is conducive to the growth and development of industries, inflow of foreign direct investment (FDI), and stimulate the expansion of domestic production capacity; the Federal Government of Nigeria has developed packages of incentives for various sectors of the economy. These incentives, is hoped, will help revive the economy, accelerate growth and development and reduce poverty.These incentives, generally referred to as tax incentives is defined by the UNCTAD[1]

[1]United Nations Conference on Trade and Development. It is a permanent intergovernmental body established by the United Nations General Assembly in 1964 to aid the expansion of trade globally.

, as “any measurable advantages accorded to specific enterprises or categories of business by (or at the direction of) a Government, in order to encourage them to behave in a certain manner”. Other scholars[2]Steven .C and Ana C.(2007), Tax Incentives For Investment- A Global Perspective: experiences have described tax incentives as “any incentives that reduces the tax burden of enterprises in order to induce them to invest in a particular project or sector of the economy”.Ifuek[3]Ifueko .O.O. (2009), Tax Incentives for Foreign Investors in Nigeria. The Nigerian Investor describes tax incentives as “a special arrangement in tax laws to: stimulate growth in specific areas, attract, retain or increase investment in a particular sector, assist companies or individuals carrying on identified activities”. They include measures specifically designed either to increase the rate of return of a particular sector, or to reduce (or redistribute) its cost or risks. Tax incentives are expected to attract more investments, which would ultimately translate to higher future production in the economy. Much as the impact of tax incentives on productivity, employment, and economic growth has been examined extensively; evaluation of the impact of tax incentives on economic growth and development is still relatively limited in literature[4]Ohaka, J. (2011). Tax Incentives and Financial Performance of Quoted Manufacturing Companies in Nigeria. Unpublished Ph.D Thesis, Department of Accounting, University of Port Harcourt, Choba, Rivers … Continue reading.

Tax studies have become increasingly sophisticated especially during the past decade and have yielded conflicting results as regards the tax matter. Some studies focus on the cost and benefit of tax incentives while a few look at whether public funds could have been better spent or if tax incentives were economically justified. Tax studies offer little guidance to policy makers who are concerned about tax rates or tax offerings and the effectiveness of employing tax incentives as an economic and developmental tool[5]Mohammed, U.,A. (2012, February 18), Tax Incentive an Economic and Industrial Bail Out. Business Times, p. 4.. The mode by which economic growth and development can be effectively, efficiently, stimulated and developed is very demanding. As a result of this, the government charges less tax and gives tax holidays in order to encourage investments and economic activities in those areas which help to improve production capabilities, activate economic growth as well as the allocation of resources in a socially desirable manner.  Investors often emphasize on the relative importance of a good tax system in investment decisions compared with other considerations such as political and economic stability, availability of social infrastructure, security of the life and property and also the general cost of doing business and so on. To the prospective investor, the general feature of a tax system (tax base rate) is more important than the tax incentives in many developing countries[6]Regan, L.,E. (2008). Tax Incentives in Developing Countries.A Reading on Taxation in Developing Countries.3rd Edition. London: Chassel Press.  The tax laws are not clearly written and may be subject to different interpretation which makes long-term planning difficult for businesses and add to the perceived risks of undertaking major capital intensive projects.

 

Tax incentive itself, is the use of government spending and tax policies to influence the level of national income. This measure encourages the springing up and gradual growth of new enterprises by the reduction of profit tax, which in turn encourages production, influences the production level and curbs unemployment. So, the government should provide such tax incentives in order to boost development which will bring about an increase in employment opportunities and also cause an improvement in the economy. A tax expert[7]Amadiegwu, N.,O. (2008). Taxation an Indispensable Tool for Economic Development.Enugu: Aries Publication wrote that the objective of tax incentive is that by borrowing rather than taxing, the government has a better chance of expanding investment spending which is essential in enlarging production possibilities and attaining a sustainable improvement in the standard of living of the people. A couple of tax experts in Nigeria have stated that these incentives can be targeted on the low income earners, local and developing industries, farmers, which will increase their savings and is necessary for higher investment. It has been posited that tax incentives helps create employment opportunities for the people, helps to fight economic depression and inflation thereby increasing the equitable distribution of income and wealth hence enhancing competitive advantage.

TABLE OF CONTENTS

 

Title page

Certification page

Dedication

Acknowledgment

Abstract

 

CHAPTER ONE: GENERAL INTRODUCTION

  • Background to the study
  • Statement of the problem
  • Operational definition of terms
  • Scope and definition of terms
  • Research questions
  • Theoretical framework
  • Literature review

1.8       Discussion of literature

 

CHAPTER TWO: OVERVIEW OF TAX INCENTIVES IN NIGERIA

2.1       Definition of the Concept of Taxation and Tax Incentives

2.2       Tax Incentives as a Tool for Economic Growth and Development

2.3       Classification of Tax Incentives

 

CHAPTER THREE: LEGAL AND REGULATORY FRAMEWORK FOR TAX INCENTIVES IN NIGERIA

3.0       Tax incentives under the Various Tax Laws in Nigeria

3.1       Pioneer Status Incentive

3.2       Tax Incentives and Foreign Direct Investment

3.3       Tax Exemptions and Incentives

3.4       Incentives under the Companies Income Tax Act

3.5       Incentives under the Capital Gains Act

3.6       Incentives under Value Added Tax Act

3.8       Incentives for companies in the Petroleum Industry

3.9       Tax Incentives under the Tax Free Zones and Export Processing Zones

3.10     Nigeria Double Tax TreatyIncentives under the Personal Income Tax Act

 

CHAPTER FOUR: IMPACT OF TAX INCENTIVES ON ECONOMIC GROWTH AND DEVELOPMENT IN NIGERIA

4.1       Harnessing tax incentives to achieve economic growth and development – Lessons for companies and individuals

4.2       Advantages and disadvantages of widely used tax incentive instruments and the economics of harmful tax competition.

4.3       Deficiencies in the legal, administrative and regulatory framework for the implementation of tax incentives in Nigeria

4.3       Lessons from other jurisdiction on the framework and implementation of tax incentives

 

CHAPTER FIVE

5.1       Conclusion

5.2       Recommendation

References

References
1

[1]United Nations Conference on Trade and Development. It is a permanent intergovernmental body established by the United Nations General Assembly in 1964 to aid the expansion of trade globally.

2 Steven .C and Ana C.(2007), Tax Incentives For Investment- A Global Perspective: experiences
3 Ifueko .O.O. (2009), Tax Incentives for Foreign Investors in Nigeria. The Nigerian Investor
4 Ohaka, J. (2011). Tax Incentives and Financial Performance of Quoted Manufacturing Companies in Nigeria. Unpublished Ph.D Thesis, Department of Accounting, University of Port Harcourt, Choba, Rivers State, Nigeria.
5 Mohammed, U.,A. (2012, February 18), Tax Incentive an Economic and Industrial Bail Out. Business Times, p. 4.
6 Regan, L.,E. (2008). Tax Incentives in Developing Countries.A Reading on Taxation in Developing Countries.3rd Edition. London: Chassel Press
7 Amadiegwu, N.,O. (2008). Taxation an Indispensable Tool for Economic Development.Enugu: Aries Publication
______________________________________