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TAX INCENTIVE AS A TOOL FOR ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE

INTRODUCTION

Background to the Study

Over the years, it has been observed that income tax revenue has been grossly understated due to improper tax administration arising from under assessment and inefficient machinery for collection (Adegbie and Fakile, 2011). The success or failure of any tax system depends on the extent to which it is properly managed; the extent to which the tax law is properly interpreted and implemented (Naiyeju, 1996). The Nigeria law of companies and Allies Mather Act of 1990 as amended incorporating all legal provision have made provision for certain tax incentives for corporate bodies and individuals. Basically, tax incentives are designed to encourage investment in certain preferred sectors of the economy and sometimes they are geared towards attracting in-flow of foreign exchange to compliment domestic suppliers for rapid economic development. Generally, these incentives are in the areas of manufacturing, export, agriculture and solid mineral, VAT, individuals and other areas. These incentives include: Personal allowance, Capital allowance, Investment allowance, Loss relief, Roll over relief, Annual allowance, Pioneer relief, Tax free dividend, Export Processing Zones Relief, Research and development and Tax free holiday.

It is good to note that the incentives are to ease off the burden of tax on tax payers. Tax evasion and avoidance encourage investors, which in turn will enhance economic growth and development for purposes of influencing the structure and character of private investment. As the Nigeria market become more responsive, potential competitors are at an advantage For example, if within the textile industry, a firm that import yarn for weaving is denied a tax holiday which a similar firm that undertake both spinning and weaving is granted, the former is likely to seek to maintain its competitive positions by carrying its backward integration further to spinning stage. Thus incentives to industries act like a catalyst to industrial development by reducing the import content of domestic manufacture improve the balance of payment and enhance the total impact of industrialization on income and employment within the Nigerian economy. This research therefore intends to evaluate the impact of tax incentives on economic development that is seen in terms of industrial growth in Nigeria.

1.2 Statement of Problem

In developing countries, the government has to play an active role in promoting economic growth and development because private initiative and capital are limited. Fiscal policy or budget has become an important instrument in promoting growth and development in such economies. Taxation is an important part of fiscal policy which can be used effectively by government and developing economies. Taxation play a very vital role in economic development of a country which includes: resources mobilization, reduction in inequalities of income, improvement in social welfare, foreign exchange, regional development, control inflation etc. Various studies have been carried out on the determinants of voluntary disclosure of quoted firms, those studies includes: Anyanwu (1997); Ogbonna and Appah (2012); Yaya (2013); Akwe (2014);Saibu (2015); Gareth (2000); Bonu and Pedro (2009); Saima et al. (2014).The scope and methodology of those studies differs and hence their findings, for instance,Anyanwu (1997); Ogbonna and Appah (2012); Yaya (2013); Akwe (2014)indicated positive relationship between taxation and economic growth, others, Saibu (2015); Gareth (2000); Bonu and Pedro (2009); Saima et al. (2014) showed negative relationship. Most of the studies testing empirically the relationship between taxation and economic growth have found a

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