INVESTMENT AND TAXATION IN PERIOD OF ECONOMIC CRISIS

INVESTMENT AND TAXATION IN PERIOD OF ECONOMIC CRISIS

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND TO THE STUDY

Investment inflow, particularly foreign investment is perceived to have a positive impact on economic growth of a host country through various direct and indirect channels. Domestic investment is crucial to the attainment of sustained growth and development (Ekpo, 1997).To invest is to allocate money (or sometimes another resource, such as time) in the expectation of some benefit in the future.

Generally, the expected future benefit from investment is called a return (to investment). The return may consist of capital gain and/or investment income, including dividends, interest, rental income etc. The economic return to an investment is the appropriately discounted value of the future returns to the investment.Investment generally results in acquiring an asset, also called an investment (Ekpo, 1997). If the asset is available at a price worth investing, it is normally expected either to generate income, or to appreciate in value, so that it can be sold at a higher price (or both).

Investors generally expect higher returns from riskier investments (Obadan, 2004). Financial assets range from low-risk, low-return investments, such as high-grade government bonds, to those with higher risk and higher expected commensurate reward, such as emerging markets stock investments.Consequently, many developing countries, Nigeria included, have offered generous incentives to attract foreign inflows, also geared towards the same end creating an investor-friendly environment. Some foreign firms have taken advantage of the incentives to satisfy their various motives of ensuring stable monopolistic control over sources of raw materials for their parent companies, access to control of local markets, utilizing low cost labour and realizing the possibility of higher returns, Nigeria also received very low proportions of global investment inflows, inspite of its being blessed with enormous human and natural resources (Obadan, 2004). This is perhaps because the economy was perceived by investors as a high-risk market for investment.The foreign investor may acquire 10% or more of the voting power of an enterprise in an economy through; incorporating a wholly owned subsidiary or company, acquiring shares in an associated enterprise, through merger or an unrelated enterprise and, participating in an equity joint venture with another investor. Investment incentives may be in form of low corporate and income tax rates, tax holidays, other types of tax concessions, preferential tariffs, special economic zones, investment financial subsidies, soft loan or loan guarantees, free land or land subsidies, relocation and expatriation subsidies, jobtraining and employment subsidies, infrastructure subsidies, research and development support and derogation from regulations, usually for very large projects (Obadan, 2004).

On the other hand, taxation is an essential part of a country’s investment and growth plan. Tax is a compulsory levy imposed on asubject or upon his property by the government to provide security, social amenities and create conditions for theeconomic well-being of the society (Appah, 2004; Appah and Oyandonghan, 2011). The funds provided by taxare used by the states to support certain state obligations such as education systems, health care systems, andpensions for the elderly, unemployment benefits, and public transportation. The researcher is of the opinion that both investment and taxation can be used as a tool for Nigeria development during the economic crisis.

INVESTMENT AND TAXATION IN PERIOD OF ECONOMIC CRISIS