Taxation and economic development in nigeria pdf

Therefore they tend to finance their investments more from retention out of profits. But the higher level of demand will possibly result in higher a profit which means more for retention and thus limits the ability to invest. The accelerator theory on the other hand assumes a capital output ratio and that the industry would be operating at its full capital if demand for its products increases and the industry is to produce the higher level of output, capital stock must increase and this necessitate new investment.

Firms in most cases finance their investment with borrowed funds, as long as the rate of return on capital i. It is therefore not of place to expect the firm to be actually aware of a factor as direct taxation on the expected rate on capital aspect. Consequently, it is presumed that since taxes lower the expected returns they will lower investment expenditures.

The government on the other hand does grant tax incentives with a prior view that the action world call forth net investment. The link between such tax incentive, example accelerated depreciation according to Martion reduce whatever curtailing effect the income tax may have on investment. The neoclassical theory of demand assumed perfect certainty, fixed relative prices and interest rate, technology and substitutability of capital for other inputs.

It is proposed that initial allowance and tax credits on net investment favour short live investment. The efficiency of these incentives is explained in terms of neutrality. Broadway looks at an efficient or neutral incentives as one that does not distort the allocation of capital among investment of varying durabilities. An analytical definition of neutrality is that given by Musgrave which submits that the tax structure including any investment incentives built into it is said to be neutral if it reduce the internal rate of return after tax by the internal rate its return after tax by the same proportion on all investment.

Another approach to neutrality was that made by Nickel He argued that corporate tax has no effect on investment if interest payment are not tax deductible but all capital expenditure may be immediately offset against tax.

He also believed that this will hold true if tax rate remain constant. Foreign investment plays an essential role in accelerating the industrial development of many underdeveloped nation. This is true in that many of them do not have the money or technological known how that will enable them explit their natural endowments, moreover, the marketing of such goods are closely controlled by larger international concern.

In recognition of this roles, the various government of under developed nations do offer some tax incentives in order to attract foreign investments. However, Kaldor thought that the amount of investment which large international companies will undertake in these sectors will depends on their estimate of annual growth of world consumption.

He therefore believed it is unlikely that any special concessions in the tax holidays etc granted by the producing countries will have any appreciable effect on the total flow of investment from foreign lands.

Kaldor also held that it is shortage of resources and not inadequate tax incentives that places a limit on the pace of economic development.

Therefore, government should impose more taxes for the provision of infrastructural facilities. Of a magnitude which would drive people out of business and ii. Sufficiency high to discourage industry with consequent reduction in revenue. On the other hand, Philip argued in favour of low tax with some degree of performance as some powerful incentive for investors than a high tax rate combined with any generous incentives than the temporarily, this he believe will ensure a low tax burden on the firm at all times.

From the foregoing, it is clear that there is no general consensus as to the actual impact of laws on investments, the issue of power suggest that tax laws affect profitability. This research work will therefore attempt to show the strength of income tax law in determining investments as well as profits.

Christopher, et al , Discovered in a study of British industrial companies, that the low investment experienced then was as a result of inadequate demand for funds rather than general storage of capital reflecting low investment opportunities.

They subsequently suggested that a policy aimed at expanding the domestic demand would stimulate investment. Kiaselgoff and Modigliani discovered in a bid to quantity demand, many proxies have been suggested, including sales, output, profit and others.

But in a study involving sixty US from Kul demonstrated that sales is superior to profit in explaining investment behavior. Clark showed that for the output was clearly the main determinant of business fixed investment in the United States of America. Given that the prime determinant of corporate capital ending is the demand for its products to the workers, while the government in a bid to stimulate capital investment manipulate the corporate tax rate as having a strong impact on capital spending such studies include, Rockley who found that reductions in the rate of taxation did not appear to have very powerful impact on corporate investment.

Hall and Jorgenson estimated a one percent increase in cost of capital as a result of a cut in corporate tax rate from 52 to 48 persons in As to its influences on foreign investment, the corporate income tax has been founded by Moore, Swenson and Steece as having a weak relationship with foreign manufacturers investments. Tony, et al in their survey of foreign firms in US indicated that executives of such companies ranked states and local tax rate 15th and 16th respectively.

In Nigeria, Mary found that only six out of twenty-six British companies operating in Nigeria attached much importance to the generous tax incentive offered in Nigeria. In another empirical study carried out by Philip It was understood that out of 51 companies studies 33 ranked import duty reliefs highest amongst tax incentives available to them.

It ranked its second most important. Other incentives include accelerated depreciation. Broadway in the act of neoclassical theory of investment developed models with which he proved that: a. Investment allowance do not discriminate against investment with varying durabilities. Initial allowance discriminate against short-live projects c.

Tax credit on gross domestic investment, discriminate short-live capital d. Tax credit on net investment discriminates against short-live capital e. Accelerated depreciation discriminate against very long-lived investment for which the social discount rate is greater than the square root of tax depreciation rate multiply by the depreciation rate multiply by the depreciation exponent.

Interest subsidy also discriminates against short-lived capital. In a comparative study of investment incentives in relation to the life span of projects. Musgrave and Musgrave , Brown and Charles argued that accelerated depreciation favours long-live investments as compared with investment tax credit and vice-versa for short lived investment initial allowance which is a form of accelerated depreciation was showed by Black as favouring long-live investment relatives to investment allowances and vice-versa for short-lived ones.

On the other hands, Sandomos analysis suggested accelerated depreciation favoured short-lived capital. The Accelerated cost recovery system ACRS which is another way of expressing accelerated depreciation was been criticized as generating adequate allowance for depreciation relative to economic depreciation Tax Reform Act because it is used on cost rather than on current cost. Also it has been criticized for failure to consider the issues of fluctuating inflation.

But where the demand is of such a magnitude that the industry operating at full installed capacity cannot satisfy it, they tend to increase their capacity by investing in either case. The decisions to undertake the investment would not be taken unless the additional returns resulting from doing so exceed the cost.

In other words, the MEC must be less than zero. One reason is, tax is a charge on profit. Hence tax would play a role in investment decision so far as it affects profitability. Another reason is that accelerated depreciation assist firms by differing their tax liabilities.

According to Wilson , Accelerated depreciation rules bring about greater certainty about the level of cash and that the cash flow would be produced sooner than later, thus raising the discounted cash returns. This is very important in capital budgeting as it may improve the Npv of projects. Accelerated depreciation as compared with true depreciation in an asset value may result in the equipment of an interest free loan from the amount of tax deferred. Therefore, a policy of accelerated depreciation will favour capital intensive industries.

In the area of attracting foreign investment, Kaldir subscribed to the fact that tax concession can affect the location choice.

This may occur because many under developed countries may have the same natural endowments. So that the one that offers in the best concession will attract foreign investors. Accelerated depreciation Companies Income Tax Act In Nigeria, it is made up of an initial allowance of a proportion of gross investment and an annual allowance. Edame,, Okoi and Edame, Anyango and Anyanwu stated that tax are imposed to regulate the production of certain goods and services, protection of infant industries, control business and curb inflation, reduce income inequalities etc.

Tosun and Abizadeh says taxes are used as proxy for fiscal policy. However, the impact of taxation on an economy is left to be seen as analyzed below.

Engen and Skinner Are of the view that ; a presidential campaign is incomplete without a proposal for tax reform. Recent proposals suggested that by reducing marginal tax rate, or by replacing the current federal income tax with a consumption type tax, Nigeria can experience increased work effort, saving and investments resulting in faster economic growth.

For example, Steve forbes vaulted briefly into the political limelight based almost solely on his advocacy of a flat tax which cut nearly every persons tax bill; but which was supposed to balance the budget by stimulating economic growth. The kemp commission in U. A suggested that its general principles for tax reform would almost double US. Economic growth rate over the next five to ten years.

If has been evidence in research that high taxes are bad for economic growth. This is because, it discourages new incentives, by distorting investment decisions because the tax code makes some form of investments profitable more than others or by discouraging work effort and workers acquisition of skills.

Consequently, Nigeria has developed a contrary view. This is evident in a publication by the: The Punch Newspaper of 12th January The federal government has made N4. The historical development of Nigerian This system worked in the north, where the population had a long history of paying taxes to emirs and where emirs had a Dumka, N. The Ethnic History of Nigeria. It has become imperative to promote and adopt an effective tax system in Nigeria to end the socio-economic inequality that has resulted from unfair Skip to content.

The paper describes the role of local partnerships in the delivery of workforce and economic development services in the United States. The study uses primary date, 14 delegates from the European countries visited about two dozen partnership organizations in the U. Also, the study summarizes the history of local partnerships in the United States, describe the leadership roles of the federal government in fostering partnership and provide case studies of current public-private partnerships that the delegate visited on tour.

More so, state and local economic development efforts focus more and more on improving the competitiveness of their regions, economic development. Federal support of nationwide industry modernization programs and the development of regional industrial cluster initiatives seem reasonable.

Also, the ability to link businesses, government and other stakeholders into effective partnership depends on areas civic entrepreneurs. Individuals must come from government, business, and the broader community and be willing to work together through partnerships to address their local issues.

In Gale and Samwick , the paper examined the effects of income tax changes on economic Growth. The study examined how changes to the individual income tax affect long-term economic growth. The researchers were silent about the methodology used in the investigation.

The study found that, from all the analysis tax changes will have the same impact on growth. Reforms that improve incentives reduce existing subsidies, avoid windfall gains, and avoid deficit financing will have more auspicious effects on the long-term size of the economy, but in some cases may also create trade-offs between equity and efficiency.

Ayeni, Ibrahim and Adeyemi examined tax revenue and Nigeria economic growth. The paper was designed to investigate the tax revenue and Nigeria economic growth for the three decade, used time series data from The objective of the study was to investigate the significant difference between the effects of oil and non-oil tax revenue on economic growth in Nigeria. The study uses secondary data, collected from central Bank of Nigeria, statistical Bulletin and National Bureau of statistics.

They found that, there was a great level of difference between the oil and non-oil tax revenue on economic growth in Nigeria. And also, oil and non-oil tax revenue has contributed 7. The exploratory design is used to gather relevant materials from secondary data such as text books, journal articles and so on while the ex-post facto design is adopted on the basis that it does not provide the study an opportunity to control the variables mainly because they have already occurred and cannot be manipulated.

The first is on determinant of partnership income tax in Nigeria, the second is on effect of partnership income tax indicators on Social and Economic development in Nigeria using gross domestic product as the dependent variable; the explanatory variable includes: Personal Income Tax PIT , which is a proxy for measuring partnership income tax in Nigeria.

E r ro r t-Statis tic Prob. R- Square value of 0. The remaining 40 per cent is accounted for the stochastic error term. To test for the individual statistical significant of the parameters, the t-statistics of the respective variables were considered. Considering their probability values which were automatically generated during the computation process by the Econometric Views E-Views software, the constant term is significant at 5 per cent level and GDP is significant at 5 per cent level.

The a priori expectations about the signs of the parameter estimates were also considered. The study also tests for auto correlation in the residual of the model.

Durbin-Watson statistic result was 0. Therefore, the estimates should be taken with caution. The study empirically examined the effect of partnership income tax on social and economic development of the Nigerian economy. As can be seen in the tables above, the positive coefficient of Partnership Income Tax Revenue confirms priori expectation of a positive relationship with the Gross Domestic Product.

In evaluating the model, the R. Squared which is the coefficient of determination of 0. With the probability F- statistic value of 0. The results refuted that a rise in the income tax from partnership firms leads to an increased in social and economic development. It was found that partnership income tax revenue plays a vital role in the economy activity and making funds available to government that can be used to adequately execute enormous projects to the benefit of the citizens of the country.

Findings from this study contribute towards a better understanding of partnership income tax and show it contributions to the social growth and economic development of Nigeria.

The study concluded that, the increasing amount generated from partnership firms yearly has improved social, economic well-being and a better standard of living for the Nigerian citizens. Furthermore, the role of partnership income taxation in developing a nation's economy has been described as irreplaceable. Though, the issue of tax leakages is a global concern which Nigerian situation cannot be exempted as a result of the scale of corruption practices in Nigeria.

It is therefore concluded that partnership tax revenues have significant impact on social and economic development in Nigeria for the period under review.

This will give the tax administrators a sense of direction and educate the tax payers Partnership Firms on the reasons to file their tax returns as at when due. Reference Ayeni, A. T ax revenue and Nigeria economic growth. Bhartia, H. L Public Finance 14th Edition. Public—private partnerships: Perspectives on purposes, publicness, and good governance. Public Administration and Development, 31 1 , 2—14 Chigbu, E. Current Research Journal of Economic Theory, 4 2 Collaborative strategic management: strategy formulation and implementation by multi-organizational cross-sector social partnerships.

Journal of Business Ethics, 94 1 , 85— Cooley, T. The Law of Taxation. Crane, A. Exploring green alliances. Journal of Marketing Management, 14 6 , — Deran , E. National Tax Journal: The dilemma of privatized public services: Philosophical frames in understanding failure and managing partnership terminations.

Public Organization Review, 4, 25— Eberts, R. Upjohn Institute. In The Economics of Tax Policy, 13— Gale, W. Economic Studies, no. September, pp. Glasbergen, P. Partnerships, governance and sustainable development. Cheltenham: Edward Elgar. Henry, C. Le Ber, M. Re forming strategic crosssector partnerships relational processes of social innovation.