Post by Trade facilitator on Sept 14, 2017 18:55:44 GMT 1
Are the desired attraction on foreign direct investment and economic growth being achieved?
Tax incentives have become an important element of economic stimulation used in a number of developing economies to attract foreign direct investment for economic growth. They are often adopted by governments to pursue economics goals, stimulate the economy drive growth in targeted sectors and industries, generate employment, attract investment in desired industries and encourage companies carrying on economically strategic activities.
Tax incentives in Nigeria are put in place to provide indirect support to investors/ businesses in form of tax breaks, special tax concessions, reduction in tax liabilities, lower tariffs for a defined period of time amongst others. Some other examples of tax incentives schemes that are available in Nigeria are; pioneer status tax holidays, free trade/ export processing zones, reduced corporate income tax rate, ability to carry tax losses forward into future profitable years, investment allowance, investment tax credit infrastructure tax relief, exemption of certain profits, incomes or activities from income tax... the list really goes on and on.
Given the potential tax revenue being forgone by government as a result of this plethora of tax incentives, coupled with the currently not-favorable exchange rate, one would expect daily inflow of foreign direct investment (FDI). As this is far from the reality, it is imperative for government to have a critical look into the effectiveness of these incentives in achieving the desired goals. It may also be necessary to review the effectiveness of the extant floating exchange rate policy as current disparity between the inter-bank and parallel market rates, coupled with general shortage of major foreign currencies may discourage flow of FDI into an economy where unconditional guarantee of repatriation is premised on inflow at official/inter-bank rate.
From the perspective of the perspective of tax incentives, perhaps strategic imperatives for the government of the day should revolve around the evaluating the effectiveness of available tax Incentive schemes in increasing foreign investments and stimulating the much desired economic growth of the nation. In order to do this, there may be the need to examine the extent to which availability of incentives influence investment decisions of investor.
Various stakeholders have, at one time or the other, criticized the appropriateness of target industries for some of these incentives. In fact, there have been situations where some government agencies are reluctant to recognize incentives granted by some other agencies and this may be interpreted as their way of voicing their disapproval of the processes through which such incentives were granted. All these are detrimental to the realization of the economic objectives of these Incentives,
To ensure that government achieves the desired goals from the grant of the various incentive schemes, it may be necessary to pass laws that require regular rigorous and independent evaluation of tax incentives. This will enable the government to determine of some of these schemes are still necessary given the need to increase revenue through taxes.
Tax incentives have become an important element of economic stimulation used in a number of developing economies to attract foreign direct investment for economic growth. They are often adopted by governments to pursue economics goals, stimulate the economy drive growth in targeted sectors and industries, generate employment, attract investment in desired industries and encourage companies carrying on economically strategic activities.
Tax incentives in Nigeria are put in place to provide indirect support to investors/ businesses in form of tax breaks, special tax concessions, reduction in tax liabilities, lower tariffs for a defined period of time amongst others. Some other examples of tax incentives schemes that are available in Nigeria are; pioneer status tax holidays, free trade/ export processing zones, reduced corporate income tax rate, ability to carry tax losses forward into future profitable years, investment allowance, investment tax credit infrastructure tax relief, exemption of certain profits, incomes or activities from income tax... the list really goes on and on.
Given the potential tax revenue being forgone by government as a result of this plethora of tax incentives, coupled with the currently not-favorable exchange rate, one would expect daily inflow of foreign direct investment (FDI). As this is far from the reality, it is imperative for government to have a critical look into the effectiveness of these incentives in achieving the desired goals. It may also be necessary to review the effectiveness of the extant floating exchange rate policy as current disparity between the inter-bank and parallel market rates, coupled with general shortage of major foreign currencies may discourage flow of FDI into an economy where unconditional guarantee of repatriation is premised on inflow at official/inter-bank rate.
From the perspective of the perspective of tax incentives, perhaps strategic imperatives for the government of the day should revolve around the evaluating the effectiveness of available tax Incentive schemes in increasing foreign investments and stimulating the much desired economic growth of the nation. In order to do this, there may be the need to examine the extent to which availability of incentives influence investment decisions of investor.
Various stakeholders have, at one time or the other, criticized the appropriateness of target industries for some of these incentives. In fact, there have been situations where some government agencies are reluctant to recognize incentives granted by some other agencies and this may be interpreted as their way of voicing their disapproval of the processes through which such incentives were granted. All these are detrimental to the realization of the economic objectives of these Incentives,
To ensure that government achieves the desired goals from the grant of the various incentive schemes, it may be necessary to pass laws that require regular rigorous and independent evaluation of tax incentives. This will enable the government to determine of some of these schemes are still necessary given the need to increase revenue through taxes.
