EFFECT OF MULTIPLE TAXATION ON FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN NIGERIA (A CASE STUDY OF FEDERAL INLAND REVENUE SERVICE (FIRS), ABUJA)

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Countries have recognized the importance of attracting foreign direct investment as a means of revitalizing their economies and stimulating growth. This has prompted many countries to work on developing favourable conditions to promote foreign direct investment but there are a variety of factors that influence foreign direct investment [Tomonori, 2012]. Over the years, more and more businesses are investing in other countries and it is easily evident that one of their strategies in achieving the desired competitive advantage is the search for new locations that are more attractive from several reasons such as cheap labour, exemption from tax payment, tax secrecy or other taxation benefits, not forgetting geographical benefits [Drago-Paun, 2013]. A conducive business environment depends both on companies operating in that environment and on the rules and regulations provided by the country also seeking to obtain a higher profit through market share and in this sense they develop policies and strategies to differentiate them from the competition. At the same time, governments are struggling to gain a competitive advantage in order to attract greater investment in their territory. They are doing this because it will create new jobs, will boost revenues from taxation, lead to the formation of local budget and will also increase property value. The main reasons why some businesses tend to have a higher interest in some countries rather than others is provided by the economic and fiscal policies of those countries, and the level of bureaucracy or the presence of the necessary infrastructure. Tax policies occupy a central place in the final destination of choice for a company wishing to invest in a country other than the country of origin [Justman, Thisse & Van, 2014]. Bearing this in mind, it can be deduced that a country is even more attractive to investors if its taxes are low and well-coordinated. Moreover, the size of the economy, its purchasing power and other market related factors can be compensated if there are fiscal incentives for companies [Bucovetsky, 2012]. In this way, each country wants to attract more foreign investors and it will act accordingly in terms of the administrative and legal framework. According to Yin, [1999], the increase of foreign direct investments is seen as a positive aspect, not only from an industry point of view but also from a social and economic point of view. Countries use tax incentives and tax reductions to stimulate the inflow of foreign direct investments.

EFFECT OF MULTIPLE TAXATION ON FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN NIGERIA (A CASE STUDY OF FEDERAL INLAND REVENUE SERVICE (FIRS), ABUJA)