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PROJECT TOPIC AND MATERIAL ON TAX INCENTIVES CATALYST FOR INDUSTRIAL DEVELOPMENT AND ECONOMIC GROWTH
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- Name: TAX INCENTIVES CATALYST FOR INDUSTRIAL DEVELOPMENT AND ECONOMIC GROWTH
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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 developmental
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 government
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
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
How the purpose of the tax incentive measures up to establish
A cost benefit analysis
An evaluation of a tax based impact both in terms of increase in
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 programme covered 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 following
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
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 such.
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 offered.
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.
1. 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 companies?
4. Do these incentives stimulate individuals to establish new enterprises
which will boost industrial development and economic growth?
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
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
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 development.
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,
1.6 LIMITATION OF THE STUDY
The constraints of this study may be attributed to:
1. Inherent limitations of the analytical method of gathering information
such as the un-cooperative attitude of the respondents.
2. Irrelevant or unreliable information obtained from oral interviews. This
is based on the degree of the respondent’s truthfulness in answering
the question’s raised during 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 below:
Ho: Industries that benefit from tax incentives do not develop better than
industries that do not benefit from tax incentives.
Hi: Industries that benefit from tax incentives develop better than
industries that do not benefit from tax incentives.
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.
Hi: Tax incentives may be used to off-set other disadvantage that
investors may face.
1.8 DEFINITION OF TERMS
1. INCENTIVE- An incentive is a form of tax relief, inform of a reduction
in or an exemption from the tax which someone, a firm, or an industry
would normally be liable.
2. TAX INCENTIVES-These are reliefs granted to tax payers or
industries in form of an off-set from the total profit before tax liability
is determined. In case of industries and firms, tax incentives are given
inform of tax holidays which is established by the legislative authorities
on such payment of taxes.
3. DISPOSABLE INCOME- This is the personal income available for
consumer spending, savings, and investment consisting of all incomes
less taxes and other payments to the government.
4. INITIAL ALLOWNACE- Initial allowance is defined as an allowance
granted to companies who have incurred a qualifying capital
expenditure during the basis period for a year of assessment in which
the asset was first put into use for the purpose of the companies trade
5. ANNUAL ALLOWANCE- This is provided/ granted to companies who
have incurred a qualifying capital expenditure during every year of
assessment in which the asset is in use at the end of the basis period
whether or not the initial allowance has been granted. It is granted
each year of assessment in respect of any asset used wholly,
exclusively, necessarily and reasonably till the end of the accounting
year for the purpose of the trade.
6. CAPITAL ALLOWANCE- This is granted by the act on a qualifying
capital expenditure incurred wholly, exclusively, for the purpose of
trade or business.
7. INVESTMENT ALLOWANCE- Investment allowance is given as a tax
incentive to a certain category of companies for incurring some
qualifying capital expenditure on plant and equipment used for the
business at the rate of 10% on cost.
8. EXPORT PROCESSING ZONE ALLOWNACE- This is granted to a
company that has incurred expenditure on a qualified building, plant
and equipment in an approved manufacturing activity in an export
processing zone to a tone of 10% of it’s capital allowance in any year
9. RURAL INVESTMENT ALLOWANCE- This is granted to all capital
expenditures incurred by companies established in rural areas in
respect of providing a lacking infrastructural facility.
10. TAX OFF-SET- Section (17) of the act provides that custom duties on
essential plants, royalties on domestic sale of crude oil and investment
tax credit should be deducted in full before arriving at the chargeable
tax to be paid by such company.
11. ROLL-OVER RELIEF- According to section (31) (CGT Cap C1, LFN,
2008, a roll-over relief arises where the proceeds from the disposal of
an asset is re-invested into the acquisition of a new asset which is of
the same class with the old asset disposed. It is also granted to the
owner or disposer of an asset which is destroyed or lost.
12. LOSS RELIEF- A company under this Act may be elected to defer the
set-off or loss incurred to another period.
13. EXPLORATION INCENTIVE- These are incentives granted to all
expenditures which are wholly exclusively, necessarily and reasonably
incurred for the purpose of petroleum operations.