Tax Incentives Catalyst For Industrial Development
1.1 BACKGROUND OF THE STUDY
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
The mode by which industrial development and
economic growth 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. The tax laws are not clearly written and may be subject
to frequent review which makes long-term planning difficult for businesses and
add to the perceived risks of undertaking major capital intensive projects.
Taxation is a process or means through which
communities or groups are made to contribute a part of their income for the
sole purpose of societal administration while tax, is a compulsory levy levied
on the people at a given place for the sole purpose of government revenue for
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
Amadiegwu (2008:74), a tax expert 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.
Dotun and Sanni (2009:265), in their Nigerian
companies taxation 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. Tax incentives create
employment opportunities for the people, helps to fight economic depression and
inflation thereby increasing the equitable distribution of income and wealth.
A good economic development policy should
contain the following elements.
a. GOALS AND OBJECTIVES
Goals and objectives create a context for
accountability as regards the use of economic and developmental incentives.
Common goals used in economic development include targeted economic sector
growth, business retention and/or recruitment, geographic focus, job creation,
light mitigation, improving on distressed areas and environmental improvements.
b. FINANCIAL INCENTIVES TOOLS AND LIMITATIONS
An economic development policy should define
the type of incentives and the extent to which the government will use them.
For example, the government may decide to grant an entitlement to any firm that
meets the minimum 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.
c. EVALUATION PROCESS
A clearly defined evaluation process should
be outlined in an economic development policy for the purpose of consultancy
and transparency which include.
How the purpose of the tax incentive measures
up to establish development criteria.
A cost benefit analysis
An evaluation of a tax based impact both in
terms of increase in taxable value.
Economic and industrial development
incentives Act (2008) both financial and non-financial include a broad range of
tools ranging from expected planning processes to direct or indirect funding.
Government often use these incentives to pursue specific economic goals such as
tax base diversification, job creation, business retention, and expansion that
are usually set by the government which consists of both the federal, state and
local practice. The use of financial incentives to benefit private parties
introduces risk factors which are not generally present in other public
financial management areas. For this reason, economic incentives must be based
on a policy that establishes parameters for their appropriation in relation to
the economic developmental goals of the government.
1.2 STATEMENT OF PROBLEM
Empirical studies have shown different views
on tax incentives as a catalyst for economic growth and industrial development.
A school of thought believes that a tax incentive encourages economic growth
and industrial development while another believes that it reduces revenue
accruable to the government. As a result of this, it does not stimulate the economy.
The poverty alleviation programme aimed at reducing the rate of poverty among
the masses, was introduced. This programmecovered the provision of jobs for
able and unemployed youths, provision of
loans for small and medium scale enterprises at a minimum lending rate. With
all these measures and policies taken so far, the economy has not shown any
appreciable progress and Nigeria still remains one of the developing nations of
the world. Given this gap, this study seeks to examine the nature of tax incentives
that are extended to deserving companies and the interaction that exists
between the tax incentives and the company.
Tax incentives as a catalyst for industrial
development and economic growth in Nigeria using selected industries and firms
in Portharcourt, Rivers state is that on which the basis are formed although,
many advantages to tax incentives are that they are used for industrial
development and economic growth. But, most tax experts, consultants,
Individuals and economic analysts ignored or criticized the incentive for the
1. That the impacts of the incentives are not
effective in the economy.
2. That the exemption privilege not granted
to al firms places some companies at a competitive advantage over others.
3. That the incentive granted are not
adequate for developmental and industrial growth.
4. Most management of firms, companies and
industries lack the awareness of the incentive.
5. The unwillingness of some companies and
individuals to claim the incentive because they do not understand the role of
1.3 PURPOSE OF THE STUDY
Tax incentive is a strong fiscal measure or
policy which can stimulate investment and savings leading to capital formation
thereby enhancing industrial growth and economic development. This capital
acquisition can be used positively in economic and industrial development of
companies and could be of individual effective usage in self development. In
deciding if these incentives can stimulate the companies and individuals to
invest in the economy, one basic fact to be checked is if the company or
industry concerned decided to go into business because of the incentive
For this purpose, the researcher intends to
examine the criteria for deserving tax incentives, unfold how the industries
and firms have been responding to the provision of the incentives scheme,
assess the implication of the tax incentives, ascertain how these incentives
have been stimulating and motivating these bodies to establish industries and
firms which will in turn create employment opportunities thereby stimulating
industrial development and economic growth.
Furthermore, the researcher intends to
examine how this scheme has helped existing industries and firms in expanding
their areas of operation in Portharcourt, Rivers State.
Can these tax incentives attract foreign
investors to Nigeria?
2. Are the existing tax incentives adequate
for industrial development and economic growth?
3. Are these incentives claimable by
4. Do these incentives stimulate individuals
to establish new enterprises which will boost industrial development and
5. Do these tax incentives induce the
existing industries to pursue vigorous expansionary policies?
1.4 SIGNIFICANCE OF THE STUDY
Tax incentive scheme is an economic policy
which exists among other competing alternatives. The scheme may be an
inducement towards rightful investment and securing a proposal on private
investors. This means that if the scheme achieves its aim of implementation,
then, the benefits expected from these incentives should be able to justify the
cost with the following results/benefits:
a. As a result of the creation of more
industries and with the expansion of the existing ones, the standard of living
of the populace will be positively affected.
b. Tax incentives will help the small scale
industries to spring up and aid in the expansion of existing ones thereby
improving the standard of living of the populace and its surrounding environs.
c. The tax incentive scheme leading to
economic diversification will also result in increasing urban and rural
It is the intention of the researcher to look
into ways and the extent to which the existing tax incentives are being used by
the entrepreneurs, in setting up industries and establishments which aids
industrial development and economic growth.
1.5 SCOPE OF THE STUDY
This study covers the tax incentives as a
catalyst for industrial development and economic growth. The research study
will be limited to the use of questionnaires and oral interviews when
appropriate and to a review of related literature (review of relevant books and
journals) that could provide an insight into the impact of tax incentives on
industrial development and economic growth. Data collection will be restricted
to four industries and firms in Port Harcourt, Rivers State which are Nest Oil
Ltd, Abuloma, Paboard Breweries Nigeria Ltd, Rumumasi, Amsale Engineering Ltd,
Trans-Amadi, and Hallmark Mills Ltd Rumu-Kwurushi all in Portharcourt, Rivers
1.6 LIMITATION OF THE STUDY
The constraints of this study may be
Inherent limitations of the analytical method
of gathering information such as the un-cooperative attitude of the
2. Irrelevant or unreliable information
obtained from oral interviews. This is based on the degree of the respondent’s
truthfulness in answering the question’sraisedduring oral interviews. Some of
the respondents thought that the research work is meant to expose their company
and thus, were not ready to give relevant information.
3. The writer was also faced with time
constraint which involved appropriating her time between writing the project
work and performing her academic function as well as meeting her social needs.
4. Also encountered was the problem of
getting an exact from the school authorities for the purpose of the research work.
1.7 HYPOTHESIS FORMULATED
Three hypothesis were formulated as shown
Ho: Industries that benefit from tax
incentives do not develop better than industries that do not benefit from tax
Hi: Industries that benefit from tax
incentives develop better than industries that do not benefit from tax
Ho: The tax incentives granted by the
government to industries and firms is not considered as an economic booster.
Hi: The tax incentives granted by the
government to industries and firms is considered as an economic booster.
Ho: Tax incentives cannot be used to off-set
other disadvantage that investors may face.