AN APPRAISAL OF TAX INCENTIVES AS ATOOL FOR ECONOMIC DEVELOPMENT IN NIGERIA (A CASE STUDY OF FEDERAL INLAND REVENUE SERVICES ILORIN KWARA STATE)
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
Table of Contents vii
1.0 Introduction 1
1.1 Background of the Study 1
1.2 Statement of Problem 4
1.3State of Hypothesis5
1.4 Objective of the Study 6
1.5 Scope of the Study 7
1.6 Significance of the Study 7
1.7Limitation of the Study8
1.8 Definition of term 9
2.0 Literature Review 13
2.1 Introduction 13
2.2Federal Boards of Inland Revenue14
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
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
4.0 Data Presentation, Analysis and Interpretation 49
4.1 Introduction 49
4.2 Data Presentation, Analysis and Interpretation 49
5.0 Summary, Conclusion and Recommendation 63
5.1 Summary of Finding 63
5.2 Conclusion 64
5.3 Recommendation 68
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 1st January to 31st December. It is the reference year from which tax is paid. Poior to 1980 it was 1st April of one year to 31st 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.
2.0 LITERATURE REVIEW
The literature review for this research work is obtained from different source. Among these sources are the relevant tax law as promulgated and amendments date by the federal government of Nigeria. A publication by the Federal Inland Revenue Service, titled “general Tax guide for tax administrators and practitioners”.
Other sources of literature review include relevant texts on taxation journal, lectures note and related project work.
2.2 FEDERAL BOARD OF INLAND REVENUE
This was first established under section 3 of the income tax administration ordinance of 1958 and has since bee subjected to series of amendments.
Presently, the board is an establishment of section 1, subsection (1) of company income tax act with an executive operation aim called the Federal Inland Revenue Service. In essence, the administration of company income revenue tax act 1990, petroleum profit (Amended) act 1999 and the taxation of specified individual under the personal income tax act (PITA) no 104 1993 and companies under the capital gains tax act (CGTA) 1990 are under the care and management of the board.
The Federal Inland Revenue Service is a department of the federal government under the control and direction of federal minister of finance.
COMPOSITION OF THE BOARD
According to Ishola (2002: 26-27) summed up the composition of the board on the basis of the provision of company income, tax act 1990 to include:
1. The executive chairman shall be a person within the services experienced taxation to be appointed by the president
2. The director and head of department of the services
3. The officers from time to time holding or acting, research and statistics matters in the federal ministry of finance.
4. A member of the Board of the National revenue mobilization allocation and fiscal commission.
5. A member from Nigerian National Petroleum Corporation not lowers in rank than an executive director
6. A director from the national Planning commission
7. A director from the Nigerian customs services
8. The register general of the corporate affairs commission
9. The legal adviser to the service
10. The secretary (who shall be an ex-official member of the board) shall be nominated by the board from within the services
POWER AND FUNCTIONS OF THE BOARD
The federal board of Inland Revenue is vested with powers for efficient and effective performance of its statutory duties among these function are;
1. The board acquire hold and dispose of any property taken as security for tax or penalty due
2. To she and be shed in its official name
3. To specify the form of returns claim statement and notices under each of the acts
4. To authorize the joint tax board [JTB] to perform on its behalf and its power
5. Give notice in writing to any company to finish further information
6. Grant relief in respect of errors or mistakes
7. Sanction any prosecution in
8. Decide the basis period of the penultimate year of assessment in event of a cessation of business
9. Grant the right of installment payment to tax payers
10. Extend the time within which to pay tax under companies income tax act.