AN ASSESSMENT OF IMPACT OF TAX INCENTIVE ON THE PERFORMANCE AND PRODUCTIVITY AND PROFITABILITY OF MANUFACTURING FIRMS IN NIGERIA
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- NGN 5000
Background Of The Study
Industrialization culminates in the long-term maintenance of firm production. It denotes the addition of value to a factor input and its efficiency, with additional input resulting in increased organizational performance. The ultimate impact of growing industrialization is projected to be seen in the production of employment for long-term development and economic diversification. Specifically, increased household consumption is a result of improved commodity value and price quality, as well as the growth of other primary sectors (Rapuluchukwu, Belmondo, & Ibukun, 2016). Despite these advantages, most African countries have relied heavily on primary products as their key export asset (UNECA, 2015), and the competitiveness of other industries (aside from agriculture), such as manufacturing companies, has remained a point of concern for policymakers and researchers. For example, there have been many demands for African economies to undergo systemic transformations from low-value-added activities to higher-value-added activities (IMF, 2016). Many major manufacturing companies have moved or restructured their activities, preferring to support the local market by producing poor quality goods (Uwaoma and Ordu, 2016). This indicates that many manufacturing companies, particularly those in Nigeria, are having performance issues, with many giving low profit alerts due to operating environment issues (Wadesango N, 2020). One of the main drivers of the high cost of doing business faced by manufacturing companies, and thus impeding their growth, was the issue of excessive taxation in the form of high tax rates, double and multiple taxation (Uwalomwa, Ranti, Kingsley, and Chinenye, 2016). Also, any of the issues faced by manufacturing companies, according to Uwalomwa et al. (2016), involve a difficult and unfavorable operational atmosphere owing to infrastructural deficiencies and a lack of funds to support capital projects such as expansion.
Excessive taxes in the form of high tax rates, double and triple taxation are often factors that stymie the growth of manufacturing businesses. While taxation is a significant source of government income, it can have a detrimental impact on manufacturing companies if it is not correctly implemented and managed. Higher tax rates deter companies from investing and expanding because they leave them with less capital to reinvest. Industrial performance, productivity, and profitability levels inevitably suffer as a result of this.
According to Uwalomwa et al. (2016), The Nigerian government has introduced a variety of tax incentives to promote the development of local manufacturing companies and other firms, with the primary aim of reducing the quantity of imported products in order to encourage investment, growth, competitiveness, and viability in the manufacturing sector. Tax holidays, tax reductions, capital credits, and benefits for exports and production areas are examples of such tax incentives. The majority of the tax incentives for the manufacturing industry were critical measures to reactivate dormant factories, raise the survival rates of those businesses, and, as a result, recruit thousands of unemployed workers (Fakile & Uwuigbe, 2018).
Hence, with the view of the above, this study was carried out to examine the impact of the tax incentive on the performance, productivity, and profitability of manufacturing firms in Nigeria.
1.2 Statement Of The Problem
The Nigerian manufacturing sector is critical to the development of the national economy, poverty alleviation, and collaboration with larger corporations. They are a significant source of local supply for both large companies and individual customers. They typically have extensive knowledge of local infrastructure, buying trends, and supply patterns (Adefeso, 2018). However, according to World Bank statistics, Nigerian manufacturers have experienced stagnation and declining income over the last five years as a result of a volatile operating climate (World Bank, 2016). Large manufacturing companies (from all sectors) are reported to have lost 70% of their market share in East and West Africa, owing largely to high operating costs (RoK, 2014, cited in Wentzel, 2017). The prospects for manufacturing companies are considerable, but the obstacles are also significant (Ekeno, 2010 cited in Philips, 2016). In general, the average growth percentage in the manufacturing sector has remained stable at three to four percent over the years.
Notably, researchers have conducted studies on tax incentives and their effects on the national economy, but none has looked at their impact on the output of manufacturing firms. As a result, this study seeks to fill this void by investigating the impact of the tax incentive on the performance, productivity, and profitability of manufacturing firms in Nigeria. The studies conducted by Onyango (2015), which explored the impact of tax incentives on the financial performance of five-star hotels, also revealed a research gap. Since it concentrated on five-star hotels, the report showed a conceptual void. Hence, this research will concentrate on manufacturing firms.
1.3 Objectives Of The Study
The primary goal of this research is to examine the impact of the tax incentive on the performance, productivity, and profitability of manufacturing firms in Nigeria. The specific objectives include:
(1) To examine the impact of tax incentives on the performance of manufacturing companies in Nigeria
(2) to examine the impact of tax incentives on the productivity of manufacturing companies in Nigeria.
(3) to examine the impact of tax incentives on the profitability of manufacturing companies in Nigeria.
1.4 Research Hypothesis
The following hypothetical statements will be tested in the course of this study:
H01: Tax incentives have no positive impact on the performance of manufacturing companies in Nigeria.
H02: Tax incentives have no positive impact on the productivity of manufacturing companies in Nigeria.
H03: Tax incentives have no positive impact on the profitability of manufacturing companies in Nigeria.
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