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
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;
- The industrial development (income tax relief) Act of 1958 as amended by decree 22 of 1971.
- The industrial development, (import duties relief) Act of 1957.
- Costumes duties (dumped and subsidized goods Act of 1958.
- The customs (draw back) regulation of 1958
- 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
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
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.
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.
- Did your industry decide to go into business in the first place because for the offer of tax holiday
- Is your industry subsequent decision on investment induced by tax holiday subsidy
- Is tax holiday scheme influencing the size of investment in your industry
- 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
- How can tax holiday scheme be used to redirect investment pattern
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
- 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
- Tax holiday: the period of time allowed of granted to the pioneer industry to enjoy income tax relief
- Investment: the economic activity design to
increase in dimension of growth or to maintain the production quality of
the existing stock or capital.