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TAX INCENTIVE AND CORPORATE SURVIVALS A SURVEY OF SMALL SCALE BUSINESS IN DELTA STATE.





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TAX INCENTIVE AND CORPORATE SURVIVALS
A SURVEY OF SMALL SCALE BUSINESS IN DELTA STATE.



ABSTRACT
This project is based on the relationship between tax incentive provisions and the survival of small scale business. It sought to find out whether or not, there is a positive relationship between tax incentives and growth of small scale businesses in Nigeria. Attempts were also made to find out what constitute impediments to the impact of tax incentive on co-operate survival. To achieve the aforementioned objectives, both primary and secondary data were collected through the use of questionnaires, oral interview and review of existing works such as textbooks, journals and publications. The data collected were analyzed using simple percentage. It was discovered from data analysis that all the companies surveyed have benefited from tax incentives provision within the period under focus. It was also discovered that mismanagement of benefits due to tax incentive could reduce is impact on growth. This work concludes that system of tax administration should be improved so that the impact of such concession would be more pounced. It was therefore recommended that government should encourage small scale industries through an extended period of tax holiday. Government should increase the period given to the companies from five years to eight years to enable them grow faster. The services of tax experts should be employed to enable them to identify and understand existing on tax incentives.




TABLE OF CONTENTS
Title Page                                                                                 i
Certification                                                                             ii
Dedication                                                                               iii
Acknowledgement                                                                    iv
Abstract                                                                                  
CHAPTER ONE: INTRODUCTION
1.0   Background of the study                                                  1
1.1   Statement of problem                                                      4
1.2   The objectives of the study                                                     
1.3   Research questions                                                          5
1.4   Significance of the study                                                  6
1.5   Scope of the study                                                           6
1.6   Limitations of the study                                                   7
1.7   Delimitation of the study                                                 7
1.8   Definition of operational terms                                                8
1.9   Organization of study                                                       8
CHAPTER TWO
2.0   Literature review/theoretical framework                          10
2.1   Definitions of taxes and tax incentives                            10
2.2   General classifications of tax incentives                          12
2.3   Tax incentives available in Nigeria                                   20
2.4   Tax incentives versus direct incentives                            26
2.5   The relationship between tax incentive and tax rate                27
2.6   The administrative of tax incentives in Nigeria                        28
2.7   Limitations of tax incentives                                            30
2.8   Investments and investment behaviour                           32
2.9   Survival and its measurement                                         36
CHAPTER THREE: METHOD OF STUDY
3.0   Introduction                                                                     39
3.1   Research strategy                                                             40
3.2   Population/sample design                                                       42
3.3   Data collection methods                                                  44
3.4   Data analysis techniques                                                 45
CHAPTER FOUR: DATA PRESENTATION ANALYSIS AND DISCUSSION
4.0   Introduction                                                                     47
4.1   Data presentation and analysis                                               51
4.2   Discussion of findings                                                     52
CHAPTER FIVE: SUMMARY OF FINDING CONCLUSION AND RECOMMENDATION
5.0   Summary of work                                                            54
5.1   Conclusion                                                                      55
5.2   Recommendations                                                           57
Bibliography
Questionnaires
Appendix 






CHAPTER ONE
INTRODUCTION
1.1   BACKGROUND OF STUDY
Evidence gathered from most advance nations shows the importance of industrialization, which is the process of achieving economic development. For the fact that industrialization plays a major role in the economic development of advance country, it could be said that economic development of underdevelopment nation is synonymous with effort towards industrialization and diversification of economics.
Nigeria as a developing nation is caught up with this objective of industrialization. There are obstacles and negative economic indices that tend to slow down it growth, thus the growth in small scale industries. The Nigeria government past and present has formulated policies to motivate industrial growth by way of concession inform of tax incentives. Tax incentives are concessions given in order to attract local or foreign capital investment to particular activities or areas. These procedures started since the fifties when the pioneer industry ordinance act was passed. This was followed by various legislations and amendments like:
a.     The income tax (amendment) act of 1957.
b.     The industrial; development (import duty relief) act of 1957.
c.     The industrial development (income tax relief) act of 1958.
d.     Finance (miscellaneous provisions).
During this period, government effort was directed towards attracting foreign investors and import substitution.
The need to attract foreign investors was an imperative target as the underdeveloped countries were seen as investors markets. The incentives given were sufficient and attractive but failed to attract enough foreign investment to stimulate growth. The first national development plan (1970-1974) observed that the tax incentives provided were not successful because they were general policy statements, which were made without any selected criteria. They only succeeded in enabling certain firms to make huge profits.
In the seventies (the period generally regarded as the period of oil boom) industrialization was neglected as oil export become the major objectives of the government. Its contribution to export in 19970 was 58.1% as compared to 2.7% in 1960. It was conclusive to size of development of the whole economy.
In 1975, the government responded and started another campaign for industrialization. This time it was interested in indigenizing. This led to the establishment of Nigeria enterprise promotions degree of 1975. The objective was to allow retention of profits increase the net industrial contribution to the economy and avoid explosive socio-economic consequences.
As the use of tax incentives increased, the fourth national development plan (1980-1995) obscured that the problem with manufacturing sector was lack of raw materials. Within this period it was observed that manufacturing firms that depended on imported raw materials did not record any significant growth. However, there was an increase in the production and this was due to the supply of structural adjustment programme relief measures. in 1988 the manufacturing firms complained of the inadequacy of existing tariff. They demand that the tariff review board should streamline the tariff to encourage local production and discourage undue import of finished goods.
In 1990, all manufacturing product groups recorded a decline in production. The central bank of Nigeria (CBN) observed that the volume of local purchase of raw materials for manufacturing concerns.
The measure of growth of manufacturing concerns is an onerous task. The importance attached to tax incentives by the federal government as reflected by their programme and policies seem to be misplaced incentives it tends to be granted across broad without much regard to the place and pattern of Nigeria industrial development.
 1.2  STATEMENT OF THE PROBLEM
Legislators see the offer of tax incentives to companies as stimulation of capital accumulation and eventually record growth for the industry. They attribute the survival of companies to the tax incentives offered Richard (1978) “it is offer felt that lack of adequate incentives are mainly the cause of insufficient economy growth and investment” Richard (1978).
It is of great importance to draw a distinction here it is one thing to greater tax incentives and another thing to check whether these concessions are actually necessary for the growths of the industry.
The general taxpayers guide (1992) showed that the tax incentives available in Nigeria are general. They benefit both industries that require the concessions for their survival and possible growth those that would perform will without such incentives thus the available tax incentives are not neutral that means one tax incentives is capable of counteracting the benefits that could be derived from another. A good example of such incentives is found in Nigeria tariff structure.
Hellenar and Kaufman (1963) reported that a number of study on the tax system of tax incentives and it impact on corporate survival in many countries play a major role in attracting or including industrial investment. A similar study conducted by Phillips (1969) showed that tax incentives were generous but had only a marginal effect on industrial survival.
Tax incentives as good as they may have not encouraging tax incentive must be advantageous for the survival of small business government should do more to improve on the existing ones.
1.3   THE OBJECTIVES OF THE STUDY
The purpose of this study is to ascertain the impact of tax incentives on small scale enterprise.
a.     Identify the kind of incentives given by the government to the small enterprises, and the way these incentives are administered.
b.     Examine the impact of these incentives on the performance of these small scale enterprises.
1.4   RESEARCH QUESTIONS
The study tends to answer the following questions objectively.
a.     Why do small scale enterprises in Nigeria apply for six incentives?
b.     Are there constraints that countered the benefits to be derived from tax incentives?
c.     How efficient are these six incentives?
d.     Are the constraints that countered the benefits to be derived from tax incentives?
e.     How efficient these tax incentives?
f.      Have there been any significant growth in business that benefit from tax incentives?
g.     Has there been any need for government to change its policies for providing these incentives?
1.5   SIGNIFICANCE OF THE STUDY
Tax incentives are seen as fiscal tools where manipulation should have an impact on industrial growth or the survival of small enterprises. The limit to which this assumption operates in the Nigeria economy will be shown in this research. Therefore, the research will ascertain whether tax incentives have been able to accelerate growth and at the same time suggest ways of finding the modalities that government should consider when providing tax incentives.
1.6   SCOPE OF THE STUDY
The researcher will limit the scope of the study to only manufacturing firms. The study will be limited to growth and survival recorded in recent period (1990-2001).
1.7   LIMITATIONS OF THE STUDY
The most remote causes of limitations are available data and information time and finance.
a.     Data and information: probably because information is really not available and their sources are not easily accessible.
b.     Time and finance: the researcher had to combine with other academic work such as lecturers and examination preparations. The problem of unavailability of much fund to a large extent will affect the gathering of materials for the study coupled with the above mentioned factors researcher could not travel to most of the small scale industries for the collection of same necessary materials.
1.8   DEFINITION OF OPERATION TERMS
Federal Board of Inland Revenue: This is the authority that is responsible for assessment and collection of tax at federal level.
Small Scale Industries: Industries other than medium and large scale industries.
Manufacturing Industry: The united defined manufacturing industry as ordinals.
Investment: Current outlay in the expectation of future benefits
Growth: Development in a company which is shown in its performance in terms of profitability, size, employment and quality.
Survival: Synonymous growth or one of the stages of growth.
Key Personnel: This refers to top management staff involved in decisions making concerned with the formation, growth and necessary liquidation of the firms.
Effect: The outcome of tax incentives
Capital Allowance: The aim is to remove investment risk and to raise the rate of return.
Import Substitution: Under taking domestic activities to replace imports.
Tax Incentives: Reduction in tax burden on the favoured activities.
1.9   ORGANIZATION OF STUDY
This essay is in five chapters. It is entirely on tax incentive and corporate survival.
Chapter One: Embraces the introduction and to the issues such as method of collecting data objectives, significance of study, scope of study, limitation of study, research questions and definition of operation terms.
Chapter Two: Literature review, introduction, definition of taxes and tax incentives, tax incentives available in Nigeria, tax incentives versus direct incentives, the relationship between tax incentives in Nigeria, limitation of tax incentives investment and investment behaviour and survival and its measurement.
Chapter Three: Embraces the methodology introduction, research strategy and data analysis techniques.
Chapter Four: Is basically analytical and presentation of data to be used.
Chapter Five: Summaries the finding and conclusion and recommendation were given.


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