ABSTRACT

This study examines an appraisal of tax incentives as a tool for economic development in Nigeria, a case study of federal Inland Revenue services Ilorin, Kwara State.

Tax incentive is a kind of allowance that is deduced from tax payers income before taking whatever remains of the individuals or corporate body’s income the essence of this tax incentive is to their obligation duty. Chapter one looked at the background of the study, the statement of research problem, statement of hypothesis. It also highlighted the objective of the study, limitation of study, scope of study and definition of terms. Chapter two was based on review of relation literature, tax instrument and relevant texts on taxations. Chapter three outlined the research method used in conducting the research work. It indicates that this research work was carried out suing the survey research method. The use of questionnaire and personal interview in collecting relevant data was adopted. Chapter four, gives the presentation of data collection and the analysis made on the data collected, it include the test of hypothesis. Finally, chapter five brings the research work to a conclusion by giving a summary of findings, conclusion and recommendations.

 

 

TABLE OF TABLE

Title page                                                                                i

Certification                                                                                      ii

Dedication                                                                               iii

Acknowledgement                                                                             iv

Table of Contents                                                                    vii

Abstract                                                                                  xi

CHAPTER ONE

1.0            Introduction                                                                            1

1.1            Background of the Study                                                        1

1.2            Statement of Problem                                                    4

1.3            State of Hypothesis                                                       5       

1.4            Objective of the Study                                                   6

1.5             Scope of the Study                                                       7

1.6            Significance of the Study                                                         7

1.7            Limitation of the Study                                                  8       

1.8            Definition of term                                                          9

CHAPTER TWO

2.0     Literature Review                                                          13

2.1     Introduction                                                                            13

2.2     Federal Boards of Inland Revenue                                 14     

2.3     Tax Incentives in Personal Income Tax                         18

2.4     Tax Incentives in Company

Income Tax (CITA) 1990                                              30

2.5     Tax Incentives in Value Added Tax                               32

2.6     Tax Incentives in Petroleum Industry                                      34

2.7     Tax Incentives in Capital Gain Tax                               38

2.8     Tax Incentives, a tool for

Economic Development                                                 40

CHAPTER THREE

3.0     Research Methodology                                                  45

3.1     Research Design                                                            45

3.2     Population and Sample Size                                          45

3.3     Sources of Data Collection                                            47

3.4     Method of Data Collection                                            47

3.5     Method of Data Analysis                                                        48

CHAPTER FOUR

4.0     Data Presentation, Analysis and Interpretation             49

4.1     Introduction                                                                            49

4.2     Data Presentation, Analysis and Interpretation            49

CHAPTER FIVE

5.0     Summary, Conclusion and Recommendation      63

5.1     Summary of Finding                                                      63

5.2     Conclusion                                                                    64

5.3     Recommendation                                                           68

References                                                                      69              

 

 

 

 

CHAPTER ONE

1.0   INTRODUCTION

1.1   BACKGROUND OF STUDY

Taxation is a system of imposing compulsory levy of the citizen or a company base on certain tax or fiscal law. Taxation is also a system of imposing compulsory levy either directly or indirectly on all income, goods, services and properties of individual partnership trustees, executive and companies by the government.

Tax itself is a compulsory levy imposes by public authority on income, consumption and production of goods and services. Taxes are levied on personal income (consisting of salaried, business profit, interest, income, dividend and royalties, e.t.c). Company profit petroleum profit, capital goods and capital transfer.

It is also an important way of influencing economic activities of a nation as a whole in the promotion of government social-economics depression e.g to fight inflation, deflation, economic depression e.t.c to achieve equitable distribution of income.

In addition, it is used to re-allocate the resource in a socially desired pattern, to discourage the consumption of certain product and to encourage and protect infant industries with a country.

Tax incentive are designed in Nigeria tax system in order to encourage and attract investment in certain preferred sectors, it also enhance capitals formation thereby leaving more retained profit arising from tax saving for reinvestment and protect certain industrial and manufacturing sectors against competition and stimulates the expansion of domestic production capacity in their areas.

As applied in taxation, the term incentive involves all measure adopted by government to motivate tax for payer to favourably to their obligation.

A tax incentive is a deliberate reduction in the tax liability granted by government in order to encourage particular economic unit to act in some desirable way.

Tax incentive could achieve the following, voluntary tax compliance by tax payers due to low rate or exemption from tax, it encourage investment by attracting foreign investors. It provides industrial expansion and capacity utilization of industries.

During the pre-colonial era, taxation functioned principally on either basis in Nigeria as a result of the organized centralized authority; taxes during this period were levied for the use of land, religions and education purpose.

However, since independence this changes as tax and tax incentives mostly being administered by the federal Inland Revenue service. The federal Inland Revenue service is responsible for company income (CITA 1990), petroleum profit tax act (PPTA 1959) stamp duty act (1996) personal income tax (PTA 1993), value added tax (VAT 1993), capital gain tax act (CGTA 1990) and withholding tax (WHI 2000).

1.2     STATEMENT OF PROBLEMS

The resulting output despite the various tax incentive granted by the government is far below expectation. The problem of implementation is majorly responsible for this inadequacy. Other associated problems include frequent changes in government policies, political instability and so on. The above stated problems are what the researcher intends to address in this research work.

1.3     STATE OF HYPOTHESIS

A hypothesis is an intelligent guess of solution(s) to a research problem. It is a tentative explanation for certain phenomena or events which have occurred or will occur which guides an investigation. After a problem has been well defined, the next things to do is given a focus or direction to it’s solution.

The hypothesis as regards this research problem is based on the Null Hypothesis (Ho) and Alternatives hypothesis (Hi). Below are the hypothesis statement on which the survey of this research work is based.

Ho:    Tax incentive is an effective tool in the development of Nigeria economy

Hi:     Tax incentive is not an effective tool in the development of Nigeria economy.

Ho:    The beneficiaries of tax incentive take advantage of the incentive

Hi:     The beneficiaries of tax incentive do not take advantage of the incentive

1.4     OBJECTIVE OF THE STUDY

The objective of this research is to:

1.       Examine the effectiveness of tax incentives in Nigeria

2.       Know the level of awareness of tax incentives by the tax

3.       Know whether tax incentives encourages and attract foreign investors

4.       Know whether the introduction of tax incentives makes tax evasion or avoidance

5.       Know whether it serves as an instrument of controlling the economic growth

1.5     SCOPE OF THE STUDY

The scope of the study is within the Federal Inland Revenue Services. However, it is strictly restricted to the tax administered by the income tax, petroleum profit and personal income tax and the tax incentive involved.

 

1.6     SIGNIFICANCE OF THE STUDY

The significance of this research work is not far fetched. Tax incentives are granted over years with the initiation of achieving some objective which among other includes:

1.       To generate revenue for the government

2.       To discourage tax evasion and avoidance

3.       To redistribute income in the society

4.       To encourage the growth of infant and local industries

The research work is therefore devoted to examine these objective and also to evaluate the extend to which goals and objectives have been achieved

Also, this research, work explores the various tax incentives available to the various sectors of the economy and how effectively they have been implemented.

Furthermore, the research work suggests possible tax incentives as a tool to economic development in Nigeria.

1.7     LIMITATION OF THE STUDY

The attainment of objective of the research work successfully was impeded by many factors. There was the problem of time constraint. Another problem faced was that of finances.

There was not much resources to go gather all the necessary information needed and also not must resources to purchase all relevant materials needed.

The most serious problem was the non-challenges of respondents of questionnaire given.

1.8     DEFINITION OF TERMS

The following terms and defined as they are used in this research work:

TAX: It is a compulsory levy imposed by a public authority on incomes consumption and production of goods and services. They are levied on personal income profit, company profit, petroleum profit, capital gains and capital transfer.

TAX INCENTIVES: It are instrument and measures adopted by the government in order to make tax payers respond positively to their tax obligation.

TAX EVASION: This is an illegal method of reducing one’s tax liability such s declaring lower income or refusing to pay tax altogether.

TAX AVOIDANCE: This is a deliberate act of the tax payer to pay less than be ought to pay legally by taking advantage of a specific provision of the law.

YEAR OF ASSESSMENT: This is the year reaming for twelve month from 1^st January to 31^st December. It is the reference year from which tax is paid. Poior to 1980 it was 1^st April of one year to 31^st march of the calendar year.

CAPITAL ALLOWANCE: This is a form of relief granted to business who incurred qualifying capital expenditure in respect of assets used at the end of a basis period.

INITIAL ALLOWANCE: This is an allowance granted in the year of assessment in which the qualifying capital expenditure was incurred and this allowance is granted once in life span of any asset.

ANNUAL ALLOWANCE: It is an allowance that is granted every year. An asset is put to use ad it is prorated based on the numbers of month in the basis period in the first or commencement year of the business.

BALANCING CHARGE: This obtained where the sales proceeds is less than the tax written down value (TWDV) of the time or date of the disposal of an asset.

BALANCING ALLOWANCE: This obtained where the sales proceeds exceed the tax written down value (TWDV) of the asset as the time of disposal.

QUALIFYING CAPITAL EXPENDITURE: This refer to capital expenditure on which capital allowance can be claimed.