are oftentimes viewed as unattractive

and unattainable.

The ability of government

to meet its economic goals

through tax incentives is

dependent on the parameter

on which such incentives are


Government can develop

tax incentives in any one

of the following ways or a

combination of all three in

increasing local patronage:

Investment-based incentives:

This tax incentive

approach is common in

Nigeria’s legislation. Here,

tax reliefs are tied to volume

of investments undertaken

by companies. Investment

allowance, rural investment

allowance, petroleum investment

allowance, investment

tax allowances and investment

tax credits are all types

of investment-based incentives.

The challenge with

investment-based incentives

is that they usually envisage

huge capital investment

which local industries may

not have and may not be

able to compete with their

foreign counterparts. They

also do not guarantee a winwin

situation for investors

i.e. an investor may invest

huge capital outlay in order

to benefit from an incentive

but may not be able to recoup

its investments.

Production-based incentives:Under

this approach,

tax incentives are

tied to production levels

achieved by companies.The

outcome of incentives of this

nature is that they are aimed

at improving the volume of

Made in Nigeria goods in

the market but lack emphasis

on actual patronage of these

products. So while a producer

or manufacturer of locally

made goods may embrace a

production-based incentive,

he or she is not guaranteed

to make sales where there

is no increased patronage.

Again, the investor ramps up


costs and does not achieve

the much needed advantage.

Supply-based incentives:

Under this approach,

the level of tax relief available

to a company is dependent

on the volume of

supply made.Supply-based

incentives have the potential

to create a win-win situation

for both government and

investors, due to the fact that

the incentive is based on

how well a company is able

to encourage the consumption

of its products. This

way, investors are motivated

to provide high quality

goods which are capable

of competing with foreign

equivalents and government

is able to tax the increased

revenue from more supplies.

While there have been studies

linking tax incentives

to increased foreign direct

investments, it may be difficult

to establish a direct link

between tax incentives and

supply since patronage of

goods are significantly decided

by customer behavior

which are outside the government’s


If government succeeds

in getting the needed investments

and is able to boost

production to a level that locally

made goods are available

for purchase, customers

still need to patronize these

companies by purchasing

the products. Hence, a stra-

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