Investment And Taxation In Period Of Economic Crisis

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Investment And Taxation In Period Of Economic Crisis


Abstract


The purpose of this study is to examine the role of investment and taxation in the period of economic crisis in Nigeria. A survey study method was adopted for this study. The sample consisted of 10 respondent from Two multi-national companies in Nigeria(Etisalat and MTN) and the sample size comprised of Kaduna branch of Etisalsalat (MTN) mobile communication with staff 135, out of which 30 person were drawn using the simply random selection technique in form of Hat drawn. The questionnaire was used to obtain primary data while secondary data was obtained from online journals and text. The analysis indicates the following results: (1) FDI into the oil sector contributes positively to economic growth as well as enhances revenue generation in Nigeria and facilitate employment generation. (2) Investment Facilitate the development of local industry. (3) The measures that could facilitate adequate investment and the taxation during economic crises are genuine efforts to engage in joint ventures that are beneficial to the economy and the needs to come up with more friendly economic policies and business environment, which will, attract foreign investment into virtually all the sectors of the economy. (4) In order to further improve the climate for foreign investment in Nigeria, the government must appreciate the fact that the basic element in any successful development strategy should be to encourage domestic investors first before going after foreign investors. The most effective strategy for attracting foreign investment is to make the Nigerian economy very attractive to Nigerian investors first with a review tax policy to encourage them.


Chapter One


Introduction

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:

  1. To examine the role of investment in the period of economic crisis in Nigeria.
  2. To examine the role of taxation in the period of economic crisis in Nigeria.
  3. To examine the relationship between investment and taxation in the period of economic crisis in Nigeria.

1.4 Research Questions

  1. What is the role of investment in the period of economic crisis in Nigeria?
  2. What is the role of taxation in the period of economic crisis in Nigeria?
  3. What is the relationship between investment and taxation in the period of economic crisis in Nigeria?

1.5 Hypothesis

  • 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.


Chapter Five


Summary, Conclusion and Recommendation

5.1 Summary

The study examine the investment and taxation in period of economic crisis. As such the general objective of this is to assess the impact of investment and taxation on the economic growth of Nigeria. Other specific objectives are: 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 measures that could facilitate adequate investment and taxation during economic crises.

A survey method was used for the study. The population consist of the entire staff of Two multi-national companies in Nigeria(Etisalat and MTN) and the sample size comprise of Kaduna branch of Etisalat and MTN mobile communication with staff 135,out of which 30 person was drawn using the simply random selection technique in form of Hat drawn. A questionnaires developed by the researcher based on likert 5-point scale was used for the study. Mean scores and sequences were used to analyzed the data based on the research questions. The analysis indicates the following results: First, FDI into the oil sector contributes positively to economic growth as well as enhances revenue generation in Nigeria and facilitate employment generation in Nigeria. Secondly, investment Promote entrepreneurship development in Nigeria as well as Facilitate investment in stock and increase government revenue generation as well as Enhances private sector participation.The analysis also indicates that investment Facilitate the development of local industry.Finally, The measures that could facilitate adequate investment and taxation during economic crises is genuine efforts to engage in joint ventures that are beneficial to the economy as well as the needs to come up with more friendly economic policies and business environment, which will, attract FDI into virtually all the sectors of the economy. The analysis shows that Nigerian government needs to embark on capital project, which will enhance the infrastructural facilities with which foreign investors can build on.


5.2 Conclusion

Given the above situation and the fact that Nigeria’s economic recovery efforts and growth requires major private sector investment in modern equipments that can industrialize the agricultural sector and the economy as a whole, then the Nigeria’s foreign investment policy should move towards attracting and encouraging more inflows of foreign capital by moving ahead with economic programmes that includes measures easier set-up and expansion of businesses. The government should consider moderate taxation for these companies as the country seek to move out of harsh reality in the economy.

In conclusion, in order to further improve the climate for foreign investment in Nigeria, the government must appreciate the fact that the basic element in any successful development strategy should be to encourage domestic investors first before going after foreign investors, considering the fact that they constitute the bulk of investment activities in the economy. Thus, the most effective strategy for attracting foreign investment is to make the Nigerian economy very attractive to Nigerian investors first with a review tax policy to encourage them.


5.3 Recommendations

The following policies are hereby recommended to policy makers and government, if it is desired that foreign investment contribute to the growth and development of Nigeria.

  1. The Nigerian government should encourage the inflows of foreign direct investment and contact policy institutions that can ensure the transparency of the operations of foreign companies within the economy.
  2. In evaluating foreign direct investment, the screening process should be simplified and improved upon. For example, export investment projects that consistently generate positive contribution to national income can be screened separately and swiftly, while projects in import competing industries should be screened separately.
  3. Efforts should be made to engage in joint ventures that are beneficial to the economy. Joint ventures provide for a set of complementary or reciprocating matching undertakings, which may include a variety of packages ranging from providing the capital to technical cooperation. The government should intensify the policy to acquire, adopt, generate and use the acquired technology to develop its industrial sectors.
  4. Efforts should continue, this time with more vigor at ensuring consistency in policy objectives and instruments through a good implementation strategy as well as good sense of discipline, understanding and cooperation among the policy makers.
  5. The Nigerian government needs to come up with more friendly economic policies and business environment, which will, attracts FDI into virtually all the sectors of the economy.
  6. The Nigerian government needs to embark on capital project, which will enhance the infrastructural facilities with which foreign investors can build on.
  7. The current indigenization policy should be pursued to the letter as a way of preventing absolute foreign ownership in the key sector of the economy.
  8. The Nigeria government should also carry out the liberalization of all the sector of the economy so as to attract foreign investors, so that the current efficiency and growth noticed in the telecommunication sector can also be enjoyed there.
  9. For Nigeria to generate more foreign direct investments, efforts should be made at solving the problems of government involvement in business; relative closed economy; corruption; weak public institutions; and poor external image. It is therefore advised that the government continues with its privatization programme, external image laundry, seriousness and openness in the fight against corruption, and signing of more trade agreements.

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