An appraisal of the legislative provisions and executive policies on tax incentive as veritable tool for economic development in nigeria

ABSTRACT

Tax incentives are deliberate reduction

in tax liability granted to investors to encourage particular economic units to

act in some deliberate way (eg invest more, produce more, employ more, exploit

more, save more, conserve less, pollute less and so on). They include

adjustments to tax policy aimed at lessening the effects of taxation on an

industry, a group of persons or the provision of certain services to investors.

These incentives are basically designed to attract new investment into the

country and to expand existing ones. Tax incentives are measures adopted to

motivate tax payers to respond favourably to their tax obligations. This helps

to encourage businesses for more investment, production, employment, savings,

less import and pollution. The beginning of tax incentive in Nigeria can be

traced to the Industrial Development (Income Tax Relief) Act 1971. Tax

incentives in Nigeria are provided in the laws in the nature of tax reliefs,

exemptions, allowances and deductions for the benefits of taxpayers. They play

significant roles in attracting investment decision than in the past years.

Apart from Nigeria, other countries both developing and developed use tax

incentives to attract, retain or increase investment in a particular sector,

stimulate growth in specific areas and assist companies or individuals carrying

identified activities. In Nigeria, the introduction of tax incentives

encourages foreign and domestic investment towards rapid industrialization and

creation of investment opportunities for entrepreneurs, helps in self –

reliance in local production of essential goods, provision of employment

opportunities, discourages the flight of capital and provides revenue payable

to the government. While tax incentive mechanisms made investing in Nigeria

more attractive, the effective use of these incentives to encourage investment

decision is hindered by some factors like corruption, dysfunctional legal

system, social insecurity, unstable power supply, poor means of transportation,

insufficient capital and activities of smugglers. Other than lack of

infrastructure, insecurity and the likes, some of the major policies

discouraging investment in Nigeria include the requirement in the Companies and

Allied Matters Act for a foreign company wishing to carry on business in

Nigeria to incorporate a Nigerian company for that purpose. Sometimes, the

nature and duration of business to be undertaking do not require incorporation

where resort can be made to a branch or representative office. There is also

the commencement rule under the income tax law which levies double taxation on

the profit of a start-up company. In addition, there is excess dividend tax

provision which penalizes a group of company and other entities that invest

their profits rather than distribute them. When such profits are subsequently

distributed, the company is made to suffer an additional 30% tax on the past

profits reinvested. Furthermore, the Companies and Allied Matters Act imposes

minimum tax on Companies where they have no taxable profits. This means that

the companies would have to pay taxes out of their capital. Companies also deal

with multiple agencies outside those required by the constitution. These can

however be tackled by constant monitoring of all tax incentives to ensure

effectiveness and prevent abuse, provision of stable electricity, adequate

infrastructure, consistent economic policies, transparency and proper

accountability on the part of tax administrators and taxpayers, less

restriction to the conditionality attached to tax incentives, removal of excess

dividend tax, minimum tax and the commencement rule. In this work, the writer

made an assessment of the legislative provisions and executive policies on tax

incentives in Nigeria and also made a critical review on how to solve the

defects associated with tax incentives in Nigeria. It is intended to shed more

light on the role of tax incentives in the economic development of our nation

and the need to adopt a more robust policy to attract more investment in the

country. The writer will adopt a comparative analysis of the statutes on tax

incentives and also resorted to journals, case laws, text books, internet and

international instruments. The conclusions will be drawn based on the research

and the writer goes ahead to recommend that there is need for Nigeria to

embrace the practice in other jurisdictions with relevant modifications.

mso-fareast-font-family:"Times New Roman"">A.               

Title Page.

mso-fareast-font-family:"Times New Roman"">B.                

Certification.

mso-fareast-font-family:"Times New Roman"">C.                

Approval Page.

mso-fareast-font-family:"Times New Roman"">D.               

Dedication.

mso-fareast-font-family:"Times New Roman"">E.                

Acknowledgement.

mso-fareast-font-family:"Times New Roman"">F.                 

Abstract.

mso-fareast-font-family:"Times New Roman"">G.               

Table of Contents.

H.               

TABLE

OF CASES.

·        

Seven Up Bottling Company vs. Lagos

State Internal Revenue Board [2000] 3 NWLR p. 565-591

·        

A. G. Lagos State vs. Eko Hotels Ltd.

& FBIR (2009) 1 TCRN

·        

Aberuagba vs. A.G. Ogun (1995) NWLR (pt.

3)385

·        

Addax Petroleum Development (Nig) Ltd

vs. FIRS (2012) vol. 7 TCRN

·        

Alhaji Ahmadu & Anor vs. The

Governor of Kogi State

·        

Alhaji Audu Bado vs. Commissioner of

Revenue (1972) 4 S. C.

·        

Aluminium Industries Aktien Gesellschaft

vs. FBIR

·        

Arbico Limited vs. FBIR (1986) NCLR, 150

·        

Attorney General of Lagos State vs. Eko

Hotels (unrep.) CA/L/428/2005

·        

Authority vs. Regional Tax Board,

Attorney-General of the Western State of Nigeria and Adelaja [1967] NCLR

452-464.

·        

Brandy Syndicate vs. I.R.S. (1921) KB 64

·        

Cadbury vs. FBIR (2009) 1 TLRN 1

·        

Cape Brandy Syndicate v. IRC (1921) 2

K.B.

·        

Chapman vs. Chapman,

·        

Chester Motors vs. Koledo (1986) 148 vt.

357

·        

Chief Obafemi Owolowo vs. Alhaji Shehu

Shagari & Ors (1979) 6-7 S.C. 51