IMPERATIVE OFTAX INCENTIVES IN NIGERIA

In recent years, taxation is regarded as a very fundamental tool that

drives sustainable development and the growth of emerging economies

such as Nigeria. Tax incentives are basically premeditated to attract

new investment into the country and to expend existing ones in priori

industries which is based on the country development plan capable of

stimulating economy growth. The broadening of a country's taxable

capacity is often linked in economic literature to the generous

incentives prevalent in tax system. The debate of exemptions is

imperative since they have a significant impact on the effective tax

base. The provisions of generous exemptions often tend to erode the tax

base, which inversely affects income elasticity of a tax via tax-to-base

elasticity.

According to Osoro (1993), the importance of taxation as a veritable

tool of economic growth and development depends on a proper tax

system which has the capacity to generate revenue through tax. This

implies that the tax system must be efficient and effective. This can be

achieved through various tax incentives. Tax incentives have the potentials of attracting both local and foreign investment if properly

harnessed. It is however unfortunate that most developing countries

like Nigeria have not been able to exploit the effectiveness of tax

incentives because of the need, perhaps, to meet the desires of the

electorates and the poor management of tax system. However,

considering tax incentives as a stimulator to revenue generation

implies that incentives may not be available to all citizens but rather

must be tailored to crucial sector of the economy. This would

emphasize to a large extent why in most developing country, where tax

incentives are especially common, are targeted at attracting foreign

direct investment and rarely to domestic investors.

The desirability of using tax incentives to facilitate new investment is a

necessary condition for developing an avenue for managing the

unsustainable fiscal deficits in Nigeria. Thus, effective tax systems are

not only central to promoting economic growth but also crucial for

achieving macroeconomic goals.

In this regards, this paper discusses principles of taxation and tax

incentives, the productivity impact of tax revenue generation on

Nigeria economy and Implications of tax incentives on the Nigerian

economy.