EFFECT OF TAX INCENTIVES AND CONCESSION ON GROWTH AND DEVELOPMENT OF SMEs IN NIGERIA CASE STUDY OF (SME TAXPAYERS IN IKEJA LAGOS STATE, IBADAN)
CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND TO THE STUDY
Small businesses are seen as one key source of economic growth. For this reason,myriad economic policies have been devoted to promote the economic activity within small businesses (Buss 2001). Small and medium enterprises (SMEs) form the core of majority of the world’s economies. A study carried out by the Federal Oice
of Statistics shows that in Nigeria, small and medium enterprises make up 97% of the economy (Ariyo, 2005). Although smaller in size, they are the most important enterprises in the economy due to the fact that when all the individual effects are aggregated, they surpass that of the larger companies. The social and economic advantages
of small and medium enterprises cannot be overstated. This SMEs are seen as a source of employment, competition, economic dynamism, and innovation which stimulate the entrepreneurial spirit and the
diusion of skills. Because they enjoy a wider geographical presence than big companies, SMEs also contribute to better income distribution. Over the years, small and medium enterprises have been an avenue for job creation and the empowerment of Nigeria’s citizens providing about 50% of all jobs in Nigeria and also for local capital formation. Being highly innovative, they lead to the utilization of our natural resources which in turn translates to increasing the country’s wealth through higher productivity. Small and medium scale enterprises have undoubtedly improved the standard of living of so many people especially those in the rural areas.
The mode by which SME development and economic growth can be effectively, efficiently, stimulated and developed is very demanding. As a result of this, the government charges less tax and gives tax holidays in order to encourage investments and economic activities of these small scale entrepreneur in those areas which help to improve production capabilities, activate economic growth as well as the allocation of resources in a socially desirable manner. To the small scale enterprises, the general feature of agood tax system (tax base rate) is more important than the tax incentives in many developing countries. The tax laws are not clearly written and may be subject to frequent review which makes long-term planning difficult for businesses and add to the
perceived risks of undertaking major capital intensive projects. Taxation is a process or means through which communities or groups are made to contribute a part of their income for the sole purpose of societal
administration while tax, is a compulsory levy levied on the people at a given place for the sole purpose of government revenue for government expenditure. Tax incentive itself, is the use of government spending and tax policies to influence the level of national income. This measure encourages the springing up and gradual growth of new enterprises by the reduction of profit tax, which in turn encourages production, influences the production level and curbs unemployment. So, the government should provide such tax incentives in order to boost development which will bring about an increase in employment opportunities and also cause an improvement in the economy, tax incentives according to Kuewumi (1996) encompass all the measures adopted by
government to motive tax payers to respond favorably to their tax obligations. It includes adjustments to tax policy aimed at lessening the effects of taxation on an industry, a group of persons or the provision of certain services. Such measures may subsume the adoption of benign low tax rate; the effective dissemination of fiscal information by tax authority; or the non-imposition of tax at all.
