EFFECT OF TAX INCENTIVES ON MICRO AND SMALL ENTERPRISE IN LAGOS STATE

EFFECT OF TAX INCENTIVES ON MICRO AND SMALL ENTERPRISE IN LAGOS STATE

​​​​​​​BACKGROUND OF THE STUDY

Beginning in the early 1970s, the government of Nigeria steadily increased its influence over the private sector, promoting investment in important sectors and shielding newborn industrial companies from overseas competition. This is primarily owing to the Nigerian government's acceptance of MSEs as the economic engine and wealth generator, as well as a significant component in supporting private sector development and collaboration. The development of micro, small, and medium-sized enterprises is crucial to the growth strategies of most countries, and Nigeria in particular. In the past, the absence of a robust subsector for small and medium firms was a significant deficiency in Nigeria's economic growth. The modest progress made by the first generation of indigenous industrialists was nearly wiped out by the massive dislocated, traumatic development that occurred as a result of the structural adjustment program and the government's inability to effectively utilize its fiscal policy instrument for their growth.

According to Ezeh (2017), micro and small businesses in Nigeria have been viewed as fundamentally backward and a cog in the country's overall economic development for decades. As a result, there is a widespread view that such businesses should only be supported for social reasons, and not as a possible growth opportunity for the nation. Clearly, the benefits of helping small firms adapt and thrive have gotten far too little consideration. This mindset came from a mix of citizen and government views, as well as the nature of the small firm, which made its economic impact difficult to discern (Ezeh 2017).

In both developed and developing nations, micro and small businesses are regarded as the most important alternative sector for promoting socioeconomic growth and alleviating poverty. It is primarily responsible for attaining the objective via creating jobs, growing savings and wealth, and enhancing living conditions. MSEs are crucial because poverty and unemployment rates in these nations are far higher than in wealthy nations (Akpata 2016). In addition, MSEs may play a role in enhancing the socioeconomic status of the poor by facilitating them access to socioeconomic advantages such as education, good health, great housing, and nutrition via the generating of income (Akpata 2016).

The contributions that tiny enterprises may make in secret are gaining prominence. This is seen by the daily increase in the number of Nigerians attempting to put their unique ideas and abilities to practical use [by launching small businesses] (Ezeh, 2017). Global evidence demonstrates that small scale company is an excellent method for nurturing indigenous entrepreneurship, boosting job opportunities per unit of capital invested, and contributing in the development of technology. Due of their broad distribution, they offer an effective method for regulating rural-to-urban migration and resource consumption. Moreover, small enterprises contribute to the development of industrial links by producing intermediary goods for use by larger firms (Ezeh, 2017).

In an effort to maintain rapid growth among newly established small and medium-sized businesses, fiscal incentives become a crucial component of the government's investment promotion strategy. Fiscal incentives can play a significant role in attracting and encouraging businesses to expand their supply by boosting their investing capacity. The fiscal incentives at the Nigerian government's disposal for encouraging small and medium-sized businesses are as follows: lower collaboration tax through reduced tax, flat rate, tax exemption and tax stability agreement and subsidy or grant and tax holiday and investment allowance.

The government's most popular incentive is a tax holiday; nevertheless, this provision exempts enterprises from other tax liabilities and denies some corporations certain tax deductions during the tax holiday period, such as depreciation costs and interest expenditure, therefore partially offsetting investment incentives. Incorrectly, tax incentives are perceived as simple incentives with a minimal compliance cost, such as no need to compute income tax during the holiday season. This image makes tax incentives more alluring for promoting the growth and expansion of small and medium-sized businesses (Agyapong, 2016).

It has been of considerable worry to everyone that the crucial sub-sector has fallen short of expectations in promoting the welfare of MSEs. Compared to what other emerging and industrialized nations have been able to do with their MSEs, the situation is more troubling and concerning. It has been demonstrated that there is a strong association between the level of poverty, hunger, unemployment, and economic well-being (quality of living) of a country's inhabitants and the level of vitality of its MSEs. Given the escalating degree of poverty in Nigeria and the necessity to reach the Millennium Declaration Goals, the time has come to take drastic action to improve the position of our MSEs. The decreasing level of Nigeria's per capita income, which fell from $870 in 1981 to $260 in 1998 and $205 in 2004, as well as a low level of agricultural, industrial, and infrastructural development (irrigation, road, and railway networks) are all concerning indices that contribute to the poor performance and contribution of our MSEs (Agyapong, 2016).

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