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THE EFFECT OF TAX INCENTIVES ON BUSINESS PERFORMANCE: AN EVALUATION OF MANUFACTURING FIRMS IN RIVERS STATE.





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THE EFFECT OF TAX INCENTIVES ON BUSINESS PERFORMANCE: AN EVALUATION OF MANUFACTURING FIRMS IN RIVERS STATE.




TABLE OF CONTENTS
PAGE
Title page                                                                                         i
Declaration                                                                              ii
Certification                                                                             iii
Dedication                                                                               iv
Acknowledgement                                                                    v     
Table of Content                                                                      vi
List of Tables                                                                           ix
Abstract                                                                                   xi
CHAPTER ONE: INTRODUCTION
1.1   Background of the Study                                                 1
1.2   Statement of Problem                                                      2
1.3   Objectives of the Study                                                    3
1.4   Research Questions                                                         4
1.5   Research Hypotheses                                                       5
1.6   Significance of the Study                                                 6
1.7   scope and Limitations                                                      7
CHAPTER TWO: LITERATURE REVIEW
2.1   Introduction                                                                     8
2.2   Types of Tax Incentives                                                    9
2.2.1 Pioneer Certificate                                                           9
2.2.2  Import Duties Exemption                                               13
2.2.3  Capital Allowance                                                          14
2.2.4 Loss Relief                                                                      17
2.3   Criticism of Tax Incentive Scheme                                   19
2.4   Arguments in Favour of Tax Incentives                            23
2.5   Tax Incentives for Economic and Industrial Growth                28
2.6   Tax Incentives for Manufacturing Companies                  30
2.7   Tax Incentives for Export Promotion                                        33
2.8   Review of some Empirical Studies on Tax Incentives               39
CHAPTER THREE
3.1   Introduction                                                                     43
3.2   Research Design                                                              43
3.3   Sampling Procedure                                                                 44
3.4   Data Collection Method                                                   45
3.4.1 Questionnaire                                                                 45
3.4.2  Personal Interview                                                         46
3.5   Operational Measurement of Variables                            46
3.6   Data Analysis Techniques and Presentation                    47
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA
4.1   Introduction                                                                     48
4.2   Presentation and Descriptive Analysis of Primary Data    48
4.3   Hypotheses Testing and Further Analysis                                57
4.3.1 Hypotheses I                                                                   58
4.3.2 Hypotheses II                                                                  61
4.3.3 Hypotheses III                                                                 64
4.3.4 Hypotheses IV                                                                 66
CHAPTER FIVE
5.1   Discussion, Conclusion and Recommendation                        70
5.2   Research Findings                                                           70
5.3   Conclusion                                                                      71
5.4   Recommendation                                                             72
        Bibliography                                                                    73
        Appendix


LIST OF TABLES
PAGE
Table 4.1: shows some of the tax incentives
available to firms                                                     48
Table 4.1.b Review the awareness of the
                various tax incentives                                              49
Table 4.2: Effects of tax incentives on investment
                decisions                                                                 49
Table 4.3: Examined whether the administration
                ff tax incentives is cumber some or not                   50
Table 4.4: Examined whether government loses
                revenue by administering tax incentives                  51
Table 4.5: Examined whether tax incentive
                attracts investors or not                                           51
Table 4.6: Effects of tax incentives on profit                            52
Table 4.7: Effects of tax incentives on company’s
                expansion                                                                        53
Table 4.8: Examined other factors that affect
                investment climate in Rivers State                           53
Table 4b: Examines major factors that determine the
                performance  of manufacturing forms
in Rivers State                                                         54
Table 4.9: Examined whether companies use  imported
                or locally produced raw materials                            54
Table 4.10: Examined the effects of tax incentives on
                 employment  generation.                                        55
Table 4.11: Analysis the effects of tax incentives on
                transfer of technology.                                             56
Table 4.12: Analyzed the effect of tax incentives on
                research and development (R&D)                             56
Table 4.13: Examined the effect of tax incentives on capital    57
Table 4.14: Ranking of the effect tax incentives on
                incentives  on incentives decisions, capital
                growth and profit.                                                    58
Table 4.15: Ranking of the effect of tax incentives on
                 location , Age and size of firms.                              61
Table 4.16: Ranking of the effect of tax incentives on
                 transfer  of technology, research and
                development and job creation.                                 64
Table 4.17: Ranking of the effects of different types of
                 tax  incentives.                                                               67


ABSTRACT
In Nigeria, the concept of taxation, especially as it relates to tax incentives has been an important topic for discussion both in the government circle and in the private sector. Governments usually give tax concession and incentives to enhance the performance of firms. The purpose of this study is therefore to assess the degree of effect of tax incentives on the performance of manufacturing firms using some indices liked investment decision, profit, capital growth, research & development (R&D) etc. extensive literature review on textbooks, journal, and materials on the areas of the study was carried out. The data collected were presented on static tables tested with Kendall Coefficient of concordance. Based on the analysis, it was discovered that various incentives are available to manufacturing firm in Rivers State, but not all the companies are aware of the available tax incentives scheme because of poor administration of incentive scheme. Tax incentives do not bear much on the performance of the firms because they are considered secondary to more fundamental determinant factors like market size, security and infrastructure. On the strength of the findings it is recommended that government should introduced a strong monitoring unit to oversee the administration of tax incentives. Government should equally pay attention to the issue of security and infrastructure which are basic in order to maximize the benefits of tax incentives.


CHAPTER ONE
INTRODUCTION
1.1   Background of the Study
        Taxation has been an important tool in the hands of government to achieve some of its fiscal and economic goals. Among other measures, government makes laws to attract and sustain industries where:
(i)     The scale of operations of an industry is less than is suitable to the economic requirements of the country.
(ii)    The industry does not exist at all,
(iii)   There are favourable prospects for further development of an industry,
(iv)   It is in the public interest to encourage the establishment or development of any industry.
Tax incentives has been as old as the government of Nigeria and has been one of the tools which the government uses to achieve its goals especially in the area of attracting individuals and corporate bodies to invest in the country.
        It has been the concern of Nigerian government to encourage the performance of the manufacturing sector in order to reduce excessive importation of goods which has adversely affected the economy. It is also believed that, if the manufacturing industry is developed, it will go a long way to reduce unemployment in the country.
        The idea of this study however, is to evaluate the degree of the effects of the available tax incentive on those incentives are justifiable.
1.2   Statement of Problem
        Nigerian government sacrifices huge amount of money every year by way of tax incentives to companies including manufacturing firms. Despite these incentives, the manufacturing industry has not really experienced much development since there is still high dependence on imported goods in the country. Government has also been calling on the indigenous and foreign investors to invest in the manufacturing sector, but the response to this call has been very low.
        Tax administration in Nigeria has been too poor. An average Nigerian does not know tax laws and its applications. Many companies in Nigeria still avoid taxes and some do not even know the incentive scheme available to them. As a result, some of the fiscal goals of the government targeted to be achieve through tax administration are being defeated. The researcher believes that proper administration of tax incentives would go a long way to reduce these problems.
1.3   Objectives of the Study
        Baridan (2001:187) has it that the purpose of study should state the specific aims of the study. The central objectives of this study therefore include:
1.     To discuss the various tax incentives available to the manufacturing firms in Rivers State.
2.     To examine the degree of effect of tax incentives on the manufacturing firms.
3.     To assess the extent individuals and corporate bodies have been responding to the available incentive schemes.
4.     To ascertain whether these incentives have helped to generate employment, encourage export, Research and Development (R&D), Transfer of Technology, attract investors and expansion in the industry.
5.     To evaluate the cost incurred by the government in administering these incentives and the resultant benefits.
1.4   Research Questions
        The following research questions were formulated for the purpose of the study.
(i)     To what extent do tax incentives affect the performance of manufacturing firms?
(ii)    What are the existing tax incentive?
(iii)   Which particular tax incentives is more appealing to the firms?
(iv)   Which other factors are major determinants of the performance of manufacturing firms in Rivers State?


1.5   Research Hypotheses
In line with the objectives and benefits of this study, the following hypothesis were formulated.
HO1: There is no significance agreement (concordance) among the manufacturing firms concerning the degree of effect of tax incentives on investment decision, profit and capital growth.
HO2: There is no significant agreement (concordance) among the manufacturing firms concerning the degree of effect of tax incentives on Age, Size and location of firms.
HO3: There is no significant agreement (concordance) among manufacturing firms on the degree of effect of tax incentives with respect to Transfer of Technology, Job Creation and Research & Development (R&D).
HO4: There is no significant agreement (concordance) among the manufacturing firms on the particular incentive that appeal most to the firms.


1.6   Significance of the Study
        Bardiam (2001:187) state that the significance of research work must be such that will provide a justification for doing the work.
        This work however will be very useful to the government. It will enable the government to know the extent to which tax incentives influence the performance manufacturing firms. It will also enable government to know the extent firms has been responding to the available tax incentives. Government, through this research could evaluate the profitability of the tax incentives, that is whether the revenue forfeited by way of tax incentives are justifiable or not. On the other hand, it will enable government to know whether tax incentives can actually help to redirect investment pattern of individuals and corporate bodies towards the development of manufacturing firms.
        This study will also enable government to compare the effects of the different tax incentives in order to identify those that are more profitable to the economy. This study will go a long way to sensitize companies and individuals on the existing tax incentive available to the manufacturing firms and their possible effects. It will also enable individuals and companies to make qualitative investment and tax decisions.
1.7   Scope and Limitation
        For the purpose of this study, the researcher will restrict himself to the corporation tax incentives available to the manufacturing companies in Nigeria. Also the time allowed for this research is too short considering the fact that the research topic covers a broad area. Besides, companies and individuals in Nigeria do hesitate to give information relating to tax matters in an attempt to avoid tax.




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