The Role of Tax Incentives in Industrial Development and Economic Growth of Nigeria

This study explores the role of tax incentives in fostering industrial development and driving economic growth in Nigeria, with a specific focus on the consumer goods sector.
Employing an ex post facto research design, the research investigates the impact of tax holidays, investment allowances, and capital allowances on the Gross Domestic Product (GDP) between 2013 and 2022. Data were sourced from credible institutions such as the Central Bank of Nigeria (CBN), the National Bureau of Statistics (NBS), and other relevant agencies. The study employs descriptive and inferential statistical methods, including regression analysis, to determine the relationship between tax incentives and economic performance. The findings reveal mixed results regarding the efficacy of tax incentives. Investment allowances demonstrate a significant positive effect on GDP, indicating their potential as a critical tool for promoting industrial expansion and encouraging capital investments in Nigeria’s consumer goods sector. This suggests that investment allowances can effectively stimulate economic growth by reducing the financial burden on businesses and incentivizing additional investments. Conversely, tax holidays and capital allowances exhibit insignificant and, in some cases, negative effects on GDP, raising questions about their implementation and effectiveness in achieving industrial development goals. These results may indicate inefficiencies in the administration of these incentives or insufficient awareness among potential beneficiaries. The study highlights the importance of designing and implementing tax incentives that align with the broader national economic objectives. Effective communication and efficient administration of these incentives are crucial for ensuring their intended impact on industrial growth and economic expansion. Policymakers are urged to review the structural and operational frameworks of tax holidays and capital allowances to enhance their relevance and effectiveness. Additionally, the research emphasizes the need for increased transparency and stakeholder engagement in the design and delivery of tax incentive policies. The findings of the study recommended that; as the study highlights the significant positive impact of capital allowances on industrial growth, corporate managers should actively leverage these tax benefits to enhance investments in equipment and infrastructure, which will lead to higher productivity. Regulators should consider simplifying the eligibility criteria and extending the coverage of capital allowance schemes, particularly for smaller firms or new businesses entering the market. Policy makers are encouraged to strengthen the incentives surrounding capital allowances to stimulate long-term investments and boost economic output in the consumer goods sector.