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THE IMPACT OF TAX INCENTIVES ON GROWTH AND DEVELOPMENT OF SMALL AND MEDIUM SCALE INDUSTRIES IN NIGERIA. (A CASE STUDY OF: INDUSTRIAL PROMOTERS NIGERIA LIMITED, SPRINGFIED NIGERIA LIMITED AND DELUZ PAINTS INDUSTRIES LIMITED, ENUGU).
1.1 BACKGROUND OF THE STUDY
The year 1926 was a year of depression-slack in overall economic activities in Britain which led to decline of the total earnings of the economies, shortage of fund in the private sector and reduction in income per capita in Britain.
It was at this juncture that the economic world formulated various fiscal policies. The main and prime objective of these policies was to revive, rehabilitate and mobilize enough capital to provide for economic and social expenses and to raise the crunched standard of living of citizens. It was this period that the term, Fiscal Policy called TAXATION came into existence.
The direct taxation in its reformed pattern was introduced in Nigeria in 1904 by Lord Lugard, the then British High commissioner for Northern Nigeria with the issue of the land revenue proclamation for Northern Nigeria. In other words, income tax was introduced into Nigeria in 1904 and that was when community tax became very operative in Northern Nigeria.
It is important to realize that the present tax laws in Nigeria were developed or formulated from the Raisman’s commission of enquiry of 1957. Before now, there were the income tax ordinances for colonies and which was rather common in all the colonies and the provisions were similar. Raisman’s recommendation was the basis for providing in section 70; subsection 1 of the Nigerian constitution Order in council of 1960 which conferred an exclusive power on parliament to make for Nigeria or any part thereof with respect to personal income tax.
In exercise of these powers, the Federal Government enacted the Income Tax management Act, 1961 (ITMA) on April 1. But before ITMA, Lagos territory was being administered as a region and the personal income tax (Lagos) Act, 1961 was enacted for it separately. But when ITMA ’61 came into operation, all the other regional laws on taxation were amended to bring them into conformity with federal law.
As previously mentioned, the earliest trace of any form of direct taxation in Nigeria according to Ezejelue (1981:33) even before the British administration “was in Northern Nigeria” it was relatively easy to introduce the reformed system in the North because the tax-paying tradition had already been established there. Unlike the South, the North had a form of organized central administration under the Emirs. The spirit of Mohammedanism which made it possible for people to contribute towards charity, afforded a religious foundation for direct taxation in the North.
This tradition of direct taxation found expression in a number levies and forms of taxes existing in the North long before 1914.
These included in Zakat, Kurdin Kassa, Shukka Shukka, Jangeli and Kharat which according to Mrs. Iheduru were grain tax, agricultural tax, plantation tax, livestock, and community tax respectively.
According to Okigbo (1955:80) they were so varied, perplexing and complex that in the 1880’s the problem as seen by the Royal Niger Company (RNC) was not how to introduce new tax forms but how to simplify the existing forms.
All this time, southern Nigeria was separately administered until 1914 when North and South were amalgamated. It was not easy to impose direct taxation on the south. They resisted it until after some experiments, the native Revenue Ordinance of 1917 was grudgingly accepted in the western providences of the South in 1918.
Discussions were held in 1924 and 1925 to find ways and means of modifying the ordinances I its application in the Igbo taste. Since there were no traditional natural rulers like in the North and some areas in the West that could be used in revenue matters. Suspicions and oppositions wee evoked over the issue of nominating warrant chiefs by the government.
In Aba, Calabar, and Owerri, there was riot that were in attempt to resist taxation. Particularly in Aba in the then Eastern Region the women’s riot was of such a dimension that a probe was instituted to look into the causes, though government finally succeeded in extending the Native Revenue Ordinances in amended form to Eastern providences in 1928.
Taxation is divided into two (2) viz:
- Direct taxation and
- Indirect taxation
- Direct taxation
This is based on the ascertainment of income and assessment of income either on individual, a group of individuals, corporate bodies and institutions. This is a tax paid to the state for the maintenance of government as well as its services and not just for a specific service rendered to the payers.
Again the direct taxation is further divided into two viz:
- Personal income tax and
- Companies income tax
The personal income tax is assessed and collected by the state from those individuals resident in the state. While the companies income tax is charged on corporate bodies and it is the responsibility of Federal Board of Inland Revenue (FBIR).
- Indirect tax can come in the following types: