boundless-volume-1

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
based.
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
11
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
control.
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-