Investment And Taxation In Period Of Economic Crisis
Chapter one of Investment And Taxation In Period Of Economic Crisis
1.1 BACKGROUND TO THE STUDY
Investment inflow, particularly foreign investment is perceived to have a positive impact on economic growth of a host country through various direct and indirect channels. Domestic investment is crucial to the attainment of sustained growth and development (Ekpo, 1997).To invest is to allocate money (or sometimes another resource, such as time) in the expectation of some benefit in the future.
Generally, the expected future benefit from investment is called a return (to investment). The return may consist of capital gain and/or investment income, including dividends, interest, rental income etc. The economic return to an investment is the appropriately discounted value of the future returns to the investment.Investment generally results in acquiring an asset, also called an investment (Ekpo, 1997). If the asset is available at a price worth investing, it is normally expected either to generate income, or to appreciate in value, so that it can be sold at a higher price (or both).
Investors generally expect higher returns from riskier investments (Obadan, 2004). Financial assets range from low-risk, low-return investments, such as high-grade government bonds, to those with higher risk and higher expected commensurate reward, such as emerging markets stock investments.Consequently, many developing countries, Nigeria included, have offered generous incentives to attract foreign inflows, also geared towards the same end creating an investor-friendly environment. Some foreign firms have taken advantage of the incentives to satisfy their various motives of ensuring stable monopolistic control over sources of raw materials for their parent companies, access to control of local markets, utilizing low cost labour and realizing the possibility of higher returns, Nigeria also received very low proportions of global investment inflows, inspite of its being blessed with enormous human and natural resources (Obadan, 2004). This is perhaps because the economy was perceived by investors as a high-risk market for investment.The foreign investor may acquire 10% or more of the voting power of an enterprise in an economy through; incorporating a wholly owned subsidiary or company, acquiring shares in an associated enterprise, through merger or an unrelated enterprise and, participating in an equity joint venture with another investor. Investment incentives may be in form of low corporate and income tax rates, tax holidays, other types of tax concessions, preferential tariffs, special economic zones, investment financial subsidies, soft loan or loan guarantees, free land or land subsidies, relocation and expatriation subsidies, jobtraining and employment subsidies, infrastructure subsidies, research and development support and derogation from regulations, usually for very large projects (Obadan, 2004).
On the other hand, taxation is an essential part of a country’s investment and growth plan. Tax is a compulsory levy imposed on asubject or upon his property by the government to provide security, social amenities and create conditions for theeconomic well-being of the society (Appah, 2004; Appah and Oyandonghan, 2011). The funds provided by taxare used by the states to support certain state obligations such as education systems, health care systems, andpensions for the elderly, unemployment benefits, and public transportation. The researcher is of the opinion that both investment and taxation can be used as a tool for Nigeria development during the economic crisis.
1.2 STATEMENT OF THE PROBLEM
Attempts at developingthe investment sector of the Nigerian economy have been based on the need to maximize the potential benefits derived from them; and to minimize the negative effects their operations could impose on the country. This has been assured by reducing the level of taxation of investment. As a result of the persistent global panic, unemployment has been on the rise, jobs are being lost, there is shortage of liquidity and acute scarcity of credit has remained visible in the financial institutions. For Nigeria to pull through this economic crisis,the nation must generate more investment, efforts should be made at solving problems of government involvement in business; relative closed economy; corruption; weak public institutions; and poor external image. From these foregoing, it is necessary to examine the role of investment and taxation in the period of economic crisis in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
- To examine the role of investment in the period of economic crisis in Nigeria.
- To examine the role of taxation in the period of economic crisis in Nigeria.
- To examine the relationship between investment and taxation in the period of economic crisis in Nigeria.
1.4 RESEARCH QUESTIONS
- What is the role of investment in the period of economic crisis in Nigeria?
- What is the role of taxation in the period of economic crisis in Nigeria?
- What is the relationship between investment and taxation in the period of economic crisis in Nigeria?
HO: There is no significant relationship between investment and taxation in the period of economic crisis in Nigeria.
HA: There is significant relationship between investment and taxation in the period of economic crisis in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study:
- This study will educate the national economic team in Nigeria and the general public on the role of investment and taxation in the period of economic crisis in Nigeria. It will also educate them about the relationship between taxation and investment in Nigeria during the economic crisis.
- This research will be a contribution to the body of literature in the area of the investment and taxation in the period of economic crisis, thereby constituting the empirical literature for future research in the subject area
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study is limited to the Nigerian economy. It will also cover the relationship between investment and taxation during the economic crisis in Nigeria.
LIMITATION OF STUDY
Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
Appah, E. &Oyandonghan J.K. (2011), “The Challenges of Tax Mobilization and Management in the NigerianEconomy”, Journal of Business Administration and Management, 6(2), 128-136.
Appah, E. (2010), “The Problems of Tax Planning and Administration in Nigeria: The Federal and StateGovernments Experience”, International Journal of Labour and Organisational Psychology, 4(1-2), 1-14.
Ekpo, A. H. (1997); “Foreign Direct Investment in Nigeria: Evidence from Time Series Data”, CBN Economic and Financial Review, 35 (1), pp. 35 -42
Obadan, M. I. (2004); “Foreign Capital Flows and External Debt: Perspectives on Nigeria and the LDCs Group”. Lagos: Broadway Press Ltd