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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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