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This research work on tax incentive as a catalyst for industrial development and economic growth in Nigeria was primarily undertaken to evaluate the effectiveness of tax incentives in developing the Nigerian economy, the extent to which individuals and companies have been responding to the incentive scheme, and how these incentives have been stimulating and motivating these bodies on employment opportunities. The researcher also intends to examine how these incentives have helped the existing industries and firms in expanding their areas of operation and to know if the aim of granting these incentives are being achieved by the government and implemented by the beneficiaries. An empirical study using a well structured questionnaire to assess the relationship that exists between tax incentives, industrial development and economic growth using four different incorporated industries and firms in Port harcourt, Rivers state having considered the type of incentives offered to them by the government. A total number of seventy-five (75) questionnaires were specifically administered to the top and middle management staff (CEO’s managers and Accountants) of these industries and firms and a total number of (60) sixty were retrieved. The hypothesis formulated were tested using the chi-square (X2) method and it was discovered that the tax incentives granted were inadequate to sustain the desired development for which it was granted. Finally, recommendations were made as regards variables which will enhance tax incentives towards industrial development and economic growth...


Title page

Certification page




Table of Contents





1.1 Background of the Study

1.2 Statement of Problem

1.3 Purpose of the Study

1.4 Significance of the Study

1.5 Scope of the Study

1.6 Limitation of the Study

1.7 Hypothesis Formulated

1.8 Definition of Terms





2.1 Criticism of Tax and Incentive Scheme

2.2 Argument for Tax Incentive

2.3 The Impact of Tax Incentives

2.4 Petroleum Profit Tax Act

2.5 Capital Allowance

2.6 Companies Income Tax Act

2.7 Industrial Development (Income Tax Relief) Act

2.8 Other Tax Incentives in Nigeria





3.1 Research Design

3.2 Sources of Data

3.3 Population of the Study

3.4 Sampling Method

3.5 Validity of Instruments

3.6 Reliability of Instruments

3.7 Data Analysis Technique



Date Presentation and Analysis


4.1 Data Presentation

4.2 Data Analysis

4.3 Research Question Analysis

4.4 Test of Hypothesis



Summary of Findings, Conclusion and Recommendations

5.1 Summary of Findings

5.2 Conclusion

5.3 Recommendations







Tax studies have become increasingly sophisticated, especially during the past decade and have yielded conflicting results as regards the tax matter. Some studies focus on the cost and benefit of tax incentives while a few looks at whether public funds could have been better spent or if tax incentives were economically justified. Tax studies offer little guidance to policy makers who are concerned about tax rates or tax offerings and the effectiveness of employing tax incentives as an economic and developmental tool.

The mode by which industrial 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 in those areas which help to improve production capabilities, activate economic growth as well as the allocation of resources in a socially desirable manner.

Investors often emphasize on the relative importance of a good tax system in investment decisions compared with other considerations such as political and economic stability, availability of social infrastructure, security of the life and property and also the general cost of doing business and so on. To the prospective investor, the general feature of a 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 curb 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.

Amadiegwu (2008:74), a tax expert wrote that the objective of tax incentive is that by borrowing rather than taxing, the government has a better chance of expanding investment spending, which is essential in enlarging production possibilities and attaining a sustainable improvement in the standard of living of the people.

Dotun and Sanni (2009:265), in their Nigerian companies taxation stated that these incentives can be targeted on low income earners, local and developing industries, farmers, which will increase their savings and is necessary for higher investment. Tax incentives create employment opportunities for the people, helps to fight economic depression and inflation, thereby increasing the equitable distribution of income and wealth.

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.

  • How the purpose of the tax incentive measures up to establish development criteria.
  • 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 uses 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 development goals of the government.



Empirical studies have shown different views on tax incentives as a catalyst for economic growth and industrial development. A school of thought believes that a tax incentive encourages economic growth and industrial development while another believes that it reduces revenue accruable to the government. As a result of this, it does not stimulate the economy. The poverty alleviation programme aimed at reducing the rate of poverty among the masses, was introduced. This programme covered the provision of jobs for able and unemployed youths, provision of loans for small and medium scale enterprises at a minimum lending rate. With all these measures and policies taken so far, the economy has not shown any appreciable progress and Nigeria still remains one of the developing nations of the world. Given this gap, this study seeks to examine the nature of tax incentives that are extended to deserving companies and the interaction that exists between the tax incentives and the company.

Tax incentives as a catalyst for industrial development and economic growth in Nigeria using selected industries and firms in Portharcourt, Rivers state is that on which the basis are formed, although, many advantages to tax incentives are that they are used for industrial development and economic growth. 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 al firms places some companies at a competitive advantage over others.
  3. That the incentive granted are not adequate for development 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.

For this purpose, the researcher intends to examine the criteria for deserving tax incentives, unfold how the industries and firms have been responding to the provision of the incentives scheme, assess the implication of the tax incentives, ascertain how these incentives have been stimulating and motivating these bodies to establish industries and firms which will in turn create employment opportunities thereby stimulating industrial development and economic growth.

Furthermore, the researcher intends to examine how this scheme has helped existing industries and firms in expanding their areas of operation in Portharcourt, Rivers State.



  1. Can these tax incentives attract foreign investors to Nigeria?
  2. Are the existing tax incentives adequate for industrial development and economic growth?
  3. Are these incentives claimable by companies?
  4. Do these incentives stimulate individuals to establish new enterprises which will boost industrial development and economic growth?
  5. Do these tax incentives induce the existing industries to pursue vigorous expansionary policies?



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 for 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 results/benefits:

  1. 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.
  2. 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 environs.
  3. 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 industrial development and economic growth.



This study covers the tax incentives as a catalyst for industrial development and economic growth. 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 industrial development and economic growth. Data collection will be restricted to four industries and firms in Port Harcourt, Rivers State which are Nest Oil Ltd, Abuloma, Paboard Breweries Nigeria Ltd, Rumumasi, Amsale Engineering Ltd, Trans-Amadi, and Hallmark Mills Ltd Rumu-Kwurushi all in Portharcourt, Rivers State.



The constraints of this study may be attributed to:

  1. Inherent limitations of the analytical method of gathering information such as the un-cooperative 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 question’s raised during oral interviews. Some of the respondents thought that the research work is meant to expose their company and thus, were not ready to give relevant information.
  3. The writer was also faced with time constraint which involved appropriating her time between writing the project work and performing her academic function as well as meeting her social needs.
  4. Also encountered was the problem of getting an exact from the school authorities for the purpose of the research work.



Three hypotheses were formulated as shown below:



Ho: Industries that benefit from tax incentives do not develop better than industries that do not benefit from tax incentives.

Hi: Industries that benefit from tax incentives develop better than industries that do not benefit from tax incentives.


Ho: The tax incentives granted by the government to industries and firms is not considered as an economic booster.

Hi: The tax incentives granted by the government to industries and firms is considered as an economic booster.


Ho: Tax incentives cannot be used to off-set other disadvantage that investors may face.

Hi: Tax incentives may be used to off-set other disadvantage that investors may face.



  1. INCENTIVE– An incentive is a form of tax relief, in the form of a reduction in or an exemption from the tax, which someone, a firm, or an industry would normally be liable.
  2. TAX INCENTIVES-These are reliefs granted to taxpayers or industries in the form of an off-set from the total profit before tax liability is determined. In case of industries and firms, tax incentives are given in the form of tax holidays which is established by the legislative authorities on such payment of taxes.
  3. DISPOSABLE INCOME– This is the personal income available for consumer spending, savings, and investment consisting of all incomes less taxes and other payments to the government.
  4. INITIAL ALLOWANCE– Initial allowance is defined as an allowance granted to companies who have incurred a qualifying capital expenditure during the basis period for a year of assessment in which the asset was first put into use for the purpose of the companies trade or business.
  5. ANNUAL ALLOWANCE– This is provided/ granted to companies who have incurred a qualifying capital expenditure during every year of assessment in which the asset is in use at the end of the basis period whether or not the initial allowance has been granted. It is granted each year of assessment in respect of any asset used wholly, exclusively, necessarily and reasonably till the end of the accounting year for the purpose of the trade.
  6. CAPITAL ALLOWANCE– This is granted by the act on a qualifying capital expenditure incurred wholly, exclusively, for the purpose of trade or business.
  7. INVESTMENT ALLOWANCE– Investment allowance is given as a tax incentive to a certain category of companies for incurring some qualifying capital expenditure on plant and equipment used for the business at the rate of 10% on cost.
  8. EXPORT PROCESSING ZONE ALLOWANCE– This is granted to a company that has incurred expenditure on a qualified building, plant and equipment in an approved manufacturing activity in an export processing zone to a tone of 10% of it’s capital allowance in any year of assessment.
  9. RURAL INVESTMENT ALLOWANCE– This is granted to all capital expenditures incurred by companies established in rural areas in respect of providing a lacking infrastructural facility.
  10. TAX OFF-SET– Section (17) of the act provides that custom duties on essential plants, royalties on domestic sales of crude oil and investment tax credit should be deducted in full before arriving at the chargeable tax to be paid by such company.
  11. ROLL-OVER RELIEF– According to section (31) (CGT Cap C1, LFN, 2008, a roll-over relief arises where the proceeds from the disposal of an asset is re-invested into the acquisition of a new asset which is of the same class with the old asset disposed. It is also granted to the owner or disposer of an asset which is destroyed or lost.
  12. LOSS RELIEF– A company under this Act may be elected to defer the set-off or loss incurred to another period.
  13. EXPLORATION INCENTIVE– These are incentives granted to all expenditures, which are wholly exclusively, necessarily and reasonably incurred for the purpose of petroleum operations.



Amadiegwu, N.,P. (2008). Taxation, An Indispensable Tool for Economic Development. Enugu: Aries Publication.

Dotun, S.,O. & Sanni, O.,E. (2009). Corporate Tax Incentives and Economic Growth in Nigeria. Ibadan: University of Ife Press Ltd.

Federal Republic of Nigeria (2004). Industrial Development Act. Abuja: Federal Government Press.

The Impact of Tax Incentives on Industrial Growth and Economic Development (2012). Retrieved May 4 2012 form http://ww.taxplicycenter.org.

Tax Incentives: A Gateway to Economic Growth and Industrial Development (2012). Retrieved February 25, 2012 from http://www.google.com.




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