CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The duty of government and community and private enterprise in developing the Small and Medium Enterprise sector are found in a variety of advanced, promising as well as developing economies (Ntiamoah, 2016). As the SME market cannot grow, particularly where clear potential exists, this would certainly be determined as a market failure for which efficient government intervention might enhance the market outcome (Labonte, 2010). Governments might play the considerable role by taking actions to minimize market failure and eliminate policy biases (Authority, 2006). Governments can likewise develop policy and environment for the SMEs sector to expand and play the role as drivers to its sustainability (Al Barwani et al., 2014).
SMEs are often in an unfavorable position in market competition, have problems in competing with large enterprises and continue to be endangering to market threats, which arise from their nature of business, i.e., small size and weak capability (Neneh, 2011). The vitality and competitiveness of SMEs and the comprehensive and coordinating social and economic growth can be improved, only if the government embraces suitable economic policies that are in accordance with the character of SMEs, effectively handle its relationships with enterprises, exercise macro controls of suitable incentive and timing, and create a reasonable, open and enabling external environment for enterprises of varied ownership (Ong'olo, & Awino, 2013).
Along with adopting appropriate economic policies many governments around the world provide needed marketing business sustain for their small enterprises. Government incentives are generally separated into two sections; financial and non-financial. Financial incentives are property loan, working capital, grant and tax. On the other hand, non-financial incentive can be found in forms of advisory, technical, promotional, management, networking, distribution and research and development. The application of the support is based upon the SMEs idea which implies they are compromising and has restrictions (Yusoff & Yaacob, 2010). Furthermore, Government supports in developed nations likewise comply with entrepreneurship idea on new start up business which SMEs highly need to be innovative, creative and versatile (ibid).
In an attempt to preserve rapid growth amongst new established small and medium enterprises, fiscal incentives come to be an important tool of government investment promotion technique, fiscal rewards can play an essential role in attracting and encouraging companies to expand supply by stimulating their spending power. Fiscal incentives available at the disposal of Nigeria government with which it can motivate the small and medium enterprise consist of: reduced cooperation tax with reduced tax, flat rate, tax exemption and tax stability agreement and subsidy or grant and tax holiday and investment allowance.
One of the most typically used incentive by the government is tax holiday, however this provision exempt companies from other tax liability, it likewise refutes some firms specific tax deductions over the tax holiday duration e.g., depreciation cost and interest expense having the tendency to offset a minimum of partially investment incentives. However, tax incentives are seen erroneously as easy incentives with a fairly reduced compliance concern e.g., no need to calculate income tax over the holiday duration. This understanding makes tax incentives more appealing at stimulating the growth and expansion of small and medium businesses.
It has been a great worry to all and sundry to promote the welfare of SMEs which the important sub sector has fallen short of expectation. The scenario is more troubling and fretting when compared to what other developing and developed nations have had the ability to achieve with their SMEs. It has been revealed that there is a high correlation between the level of poverty hunger, unemployment, economic well-being (standard of living) of the citizens of nations and the level of vibrancy of the particular country's SMEs. The time is now to do something surgical to the situation of our SMEs provided the aggravating degree of hardship in Nigeria and the need to meet up with the Millennium Development Goals. The decreasing level of Nigeria's per capita income, which decreased from $870 in 1981 to $260 in 1998, and $205 in 2004 in addition to a reduced level of agricultural, industrial and infrastructural development (irrigation, road and railway networks) all stand for disturbing indices, which likewise add to the dismal performance and contribution of our SMEs. It is against this background that this study set to investigate the effect of tax relief on the growth of SMEs in Nigeria by using SMEs in FCT Abuja as a case study.
1.2 Statement of the Problem
Although that the small and medium businesses have been critical to economic growth in Nigeria, yet has been observed that the goals of the government to achieving the effective use of tax incentives continue to be an unrealized dream. Among the following are a few of the real reasons for these under achievement. Fiscal indiscipline i.e., government failure to properly execute its tax policies, government grants little or no tax incentives, constant introduction of new levies e.g., signpost charge, vehicle particulars charge and high value added tax, change in system of government which lead to change in tax schedule and several taxes on a certain business. The above problems are significant reasons government has not had the ability to help the growth of the small and medium enterprises. Hence, the reason for this study on the effect of tax relief on the growth of SMEs in Nigeria by using SMEs in FCT Abuja as a case study.
1.3 Objectives of the Study
The main aim of this study is to investigate the effect of tax relief on the growth of SMEs in Nigeria by using SMEs in FCT Abuja as a case study. The specific objectives include:
i) To understand the long-term benefits of offering tax relief to small and medium enterprises by the government to the economy of Nigeria.
ii) To determine the impact of tax relief on business expansion in selected firms in FCT.
iii) To analyse the influence of tax relief on profit growth in selected firms in FCT.
iv) To examine the major problems, challenges and constraints, which have hindered the SMEs from playing the vital role in the Nigerian economic growth and development.
1.4 Research Questions
The following research questions are relevant to the study:
i) What are the long-term benefits of offering tax relief to small and medium enterprises by the government to the economy of Nigeria?
ii) What is the impact of tax relief on business expansion in selected firms in FCT?
iii) What is the influence of tax relief on profit growth in selected firms in FCT?
iv) What are the major problems, challenges and constraints, which have hindered the SMEs from playing the vital role in the Nigerian economic growth and development?
1.5 Research Hypotheses
The following research hypotheses are relevant to the study:
i) There is a significant relationship between offering tax relief to small and medium enterprises and economic growth of Nigeria.
ii) There is a significant relationship between tax relief and business expansion in selected firms in FCT
iii) There is no significant relationship between tax relief and profit growth in selected firms in FCT
1.6 Significance of the Study
The analysis of the quantitative data helps to observe the tax relief and the growth of SMEs. Analysis of the qualitative data helps to identify the major constraints, which affects the successful implementation of tax incentive. Generally, the results of this study could be useful to various stakeholders including:
Academics/Researchers
Findings from this study can assist academicians in increase of the prospectus with respect to this study by providing a deeper understanding of the major constraints that affect the implementation of government tax incentive on SMEs.
Micro and Small Enterprises
The findings of this study help MSME operators in FCT, to have a better understanding about government tax incentive and to identify their weaknesses which make tax incentive difficult to get to them. Identifying their weaknesses related to government incentive package programs, may facilitate corrective actions to be taken by the operators.
Governmental Policy Makers
The government can use the findings of this study to assist in policy reformulation, to ensure effective and efficient implementation process and to take appropriate corrective actions.
1.7 Scope of the Study
This study covers the effect of tax relief on the growth of small and medium scale enterprises in FCT, Abuja for year 2022 and it will be limited to the use of questionnaires and annual financial statement. The sample size is 100 selected SMEs in FCT, Abuja.
1.8 Limitations of the Study
The constraints of this study may be attributed to:
Inherent limitations of the analytical method of gathering information such as the un-cooperative attitude of the respondents.
Irrelevant or unreliable information obtained from oral interviews. This is based on the degree of the respondent’s truthfulness in answering the question’s raised during oral interviews. Some of the respondents thought that the research work is meant to expose their enterprise and thus, were not ready to give relevant information.
The writer was also faced with time constraint which involved appropriating her time between writing the project work and performing her academic function as well as meeting her social needs.
Also encountered was the problem of getting an exact from the school authorities for the purpose of the research work.
1.9 Definition of Terms
The following terms were used in this study:
Business growth: this refers to the increase in the size, value and financial performance of a firm or company.
Tax Relief: These are reliefs granted to tax payers or industries in form of an off-set from the total profit before tax liability is determined. In case of industries and firms, tax incentives are given inform of tax holidays which is established by the legislative authorities on such payment of taxes.
Tax Holidays: this is a temporary exemption of a new firms or investment from certain specified taxes, typically corporate income tax.
Tax: is a compulsory levy payable by individual economic units or corporate bodies to government without any direct quid pro quo from the government.
Small Scale Business: It is defined as any business undertaken, owned, managed and controlled by not more than two entrepreneurs, has no more than twenty employees, has no definite organizational structure (i.e., all employees report to the owners) and has relatively small shares of its market.
