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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