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One of the common tools for macro- economic development in developing countries is tax
incentives. Government tries to attract domestic and foreign capital using tax incentives to boost
her economic activities. Many countries have determined that the tax incentives covered by the
tax incentive provision should be defined precisely to ensure that tax incentive is granted only
for an agreed concession. These countries have concluded that general references to special
incentive laws are designed to promote economic development. This is commonly done through
a direct reference to domestic legislation.
Tax incentives are generally intended to encourage the start-up of new operations. It has
therefore been found appropriate in some treaties to place a time limit on the availability of the
tax sparing relief for each tax payer, thereby preventing tax sparing from becoming a permanent
Every investor will consider the host country’s tax system in their investment decisions along
with other important matters such as security of lives and properties, infrastructural facilities,
political and economic policies.
Tax incentives are measures that provide for more favorable tax treatment of certain activities or
sectors compare to what is generally obtainable.
Under this description, a general cut in the tax rate or generous depreciation scheme applicable to
all firms would not be considered as tax incentives (Klemm 2009:3)
In order words, tax incentives are special arrangements in tax laws to attract, retain or increase
investment in a particular sector or for a particular purpose over a given period of time.
Nigeria’s economic decline since the 1980’s has created a hostile environment that is
unfavorable to entrepreneurial success. The Nigerian infrastructure limits entrepreneurial
effectiveness and is a barrier to success. The high cost of carrying out business operations in
Nigeria, such as the lack of adequate supply of electricity and other basic amenities. Tax
incentives are not sufficient to investors without favorable business environment especially
needed infrastructure that will enable them to compete in price, quality and quantity
The main argument of this study is based on the pressures caused by the unemployment and tax
incentives are mainly analyzed as a tool of entrepreneurship attraction to reduce the pressure of
unemployment. Empirical analysis is used to illustrate the effects of tax incentives, highlighting
pioneer tax incentives. The new and old arguments are combined to produce a set of criteria that
can be used to evaluate tax incentives. As an additional innovation, this study inevitably repeats
many well-known points of the area of study in order to provide a self contained discussion of
the issue.
A good economic development policy should contain the following elements.
Goals and objectives create a context for accountability as regards the use of economic and
developmental incentives. Common goals used in economic development include targeted
economic sector growth, business retention and/or recruitment, geographic focus, job
creation, light mitigation, improving on distressed areas and environmental improvements.
An economic development policy should define the type of incentives and the extent to which
the government will use them. For example, the government may decide to grant an entitlement
to any firm that meets the minimum required qualification or may choose to provide incentives
based on the assessment of individual firms. Government may also establish maximum funding
for a particular process.
A clearly defined evaluation process should be outlined in an economic development policy for
the purpose of consultancy and transparency which include:
i) How the purpose of the tax incentive measures up to establish
development criteria.
ii) A cost benefit analysis
An evaluation of a tax based impact both in terms of increase in taxable value.
Economic and industrial development incentives Act (2008) both financial and non-financial
include a broad range of tools ranging from expected planning processes to direct or indirect
funding. Government often use these incentives to pursue specific economic goals such as tax
base diversification, job creation, business retention, and expansion that are usually set by the
government which consists of both the federal, state and local practice. The use of financial
incentives to benefit private parties introduces risk factors which are not generally present in
other public financial management areas. For this reason, economic incentives must be based on
a policy that establishes parameters for their appropriation in relation to the economic
developmental goals of the government.
It is therefore desirable that a research with emphasis on the significance of tax incentives and
infrastructural development be conducted.
There are different views on the introduction of tax incentives as a catalyst economic growth and
development. Empirical studies like those of (Sanni 2002) and (Dotun 2009) has reported
different views on tax incentives as a catalyst for economic growth and development. A school
of thought believes that tax incentive propels economic growth and development while others
believes that it reduces revenue to the government therefore it is counter- productive, as there
will be no means of financing government projects.
However, most of the economic measures put in place by government in the past to stimulate
economy have not yielded significant positive result hence tax incentive cannot be held
responsible for economic stagnation.
Litwack (2013) argues that seventy million Nigerians are poor. According to World Bank (2012)
Nigeria country profile statistics indicates an income inequality of 0.49; this is correlated with
differential access to infrastructural amenities.
This problem of high poverty rate due to youth unemployment may be solved by the influence of
local and foreign direct investment to some extent but the question is whether or not tax
incentives are the right approach to solve them, when there is no model for measuring the
influence of tax incentives in investment.
An advantage of tax incentives is that it is used for infrastructural development and
entrepreneurship. But, most tax experts, consultants, Individuals and economic analysts ignored
or criticized the incentive for the following reasons:
1. That the impacts of the incentives are not effective in the economy.
2. That the exemption privilege not granted to all firms places some of them at a competitive
advantage over others.
3. That the incentive granted are not adequate for developmental and industrial growth.
4. Most management of firms, companies and industries lack the awareness of the incentive.
5. The unwillingness of some companies and individuals to claim the incentive because they do
not understand the role of such.
Tax incentive is a strong fiscal measure or policy which can stimulate investment and savings
leading to capital formation thereby enhancing industrial growth and economic development.
This capital acquisition can be used positively in economic and industrial development of
companies and could be of individual effective usage in self development. In deciding if these
incentives can stimulate the companies and individuals to invest in the economy, one basic fact
to be checked is if the company or industry concerned decided to go into business because of the
incentive offered.
The focus of this study is:
i. To investigate the relevance of tax incentives towards economic development
ii. To know the effects of tax incentives on manufacturing companies
iii. To determine the extent at which good infrastructural facilities provided from tax
incentives can support entrepreneurship in Nigeria.
iv. To determine if individuals/companies are aware of tax incentives.
The four pertinent questions raised in this study are:
i) What is the relevance of tax incentive towards economic development?
ii) What are the effects of tax incentives on manufacturing companies?
iii) What are the extents at which good infrastructural facilities from tax incentives can
support entrepreneurship in Nigeria?
iv) What are the extents at which companies are aware of tax incentives?
In order to give direction to the study, the research is stated in its null forms.
Hypothesis 1
Ho: Tax incentive does not facilitate economic development in Nigeria.
H1: Tax incentive facilitates economic development in Nigeria.
Hypothesis 2
Ho: Tax incentives are not relevant in the development of manufacturing companies.
H1: Tax incentives are relevant in the development of manufacturing companies.
Hypothesis 3
Ho: Good infrastructural facilities from tax incentives do not support entrepreneurship
development in Nigeria.
H1: Good infrastructural facilities from tax incentives support entrepreneurship development
in Nigeria.
Hypothesis 4
Ho: Companies are not aware of tax incentives
H1: Companies are aware of tax incentives.
Tax incentive scheme is an economic policy which exists among other competing alternatives.
The scheme may be an inducement towards rightful investment and securing a proposal on
private investors. This means that if the scheme achieves its aim of implementation, then, the
benefits expected from these incentives should be able to justify the cost with the following
a. As a result of the creation of more industries and with the expansion of the existing ones, the
standard of living of the populace will be positively affected.
b. Tax incentives will help the small scale industries to spring up and aid in the expansion of
existing ones thereby improving the standard of living of the populace and its surrounding
c. The tax incentive scheme leading to economic diversification will also result in increasing
urban and rural development. It is the intention of the researcher to look into ways and the
extent to which the existing tax incentives are being used by the entrepreneurs, in setting up
industries and establishments which aids infrastructural development and economic growth.
This study will be of significant value to pioneer companies and entrepreneurs because it clearly
shows the impact of tax incentives on their business.
Other interested parties that will benefit are students, researchers and providers of infrastructural
It will also be of immense use to tax practitioners, government agencies (e.g. Budget Office) and
revenue authorities for information and policy formulation.
The area of this study covers individuals and organizations in Nigeria. This study covers the
significance of tax incentives and infrastructural development on entrepreneurship. The research
study will be limited to the use of questionnaires and oral interviews when appropriate and to a
review of related literature (review of relevant books and journals) that could provide an insight
into the impact of tax incentives on infrastructural development and entrepreneurship. Data
collection will be restricted to Afe babalola university.
The constraints of this study may be attributed to:
1. Inherent limitations of the analytical method of gathering information such as the uncooperative attitude of the respondents.
2. Irrelevant or unreliable information obtained from oral interviews. This is based on the degree
of the respondent’s truthfulness in answering the questions raised during oral interviews. Some
of the respondents thought that the research work is meant to intrude in their privacy and thus,
were not ready to give relevant information.
3. Also encountered was the problem of getting an exeat from the school
Chapter one provides all the background information of the study, statement of the problem,
objectives, research questions, research hypothesis, scope and limitations of the study.
Chapter two shows the review of related literature, conceptual framework ,theoretical
framework and empirical analysis of the study.
Chapter three is shows the hypothesis ,research design and instruments.
Chapter four shows data analysis and interpretation of the study
Chapter five is the summary, conclusion and recommendation.
1) Tax incentive: This is a provision where a country applies a tax credit against taxes owned on
foreign income that is equivalent to the tax exemption provided by the foreign country. Tax
incentives policies are especially important to developing countries in their effort to attract
2) Entrepreneurship: this is the capacity and willingness to develop, organize and manage
business venture along with any of its risks in order to make profit.
3) Infrastructure: this is the relatively permanent and foundational capital investment of a
country, firm, or project that underlines and makes possible all its economic activities. It includes
administration, telecommunications, transportation, education, health care, research and
development and training facilities, power supply.
4) Investment: this is the money committed or property acquired for future income.
5) Populace: the people living in a particular area or country.
6) Capital: this is the money invested in a business to generate income.
7) Revenue: this is the income generated from sale of goods, services or any other use of capital
or assets, associated with the main operations of an organization before any costs or expenses are
8) Unemployment: this is the total number of able men and women of working age seeking paid
9) Poverty: this is the condition where people’s needs for basic amenities such as food, clothing
and shelter are not being met.
10) LOSS RELIEF- A company under this Act may be elected to defer the
set-off or loss incurred to another period.


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