ABSTRACT
This study focuses on the effect of tax incentives on foreign direct investment in the petroleum upstream sector in Nigeria. The study made used of an ex-post facto research design. The data collected were then tabulated and analyzed using the simple regression analysis. The results revealed the estimated coefficient of the regression parameter have a positive sign and thus conform to our a-priori expectation. The implication of this sign is that the dependent variables foreign direct investment is positively affected by tax incentives proxy by (investment tax allowance, non-productive rent, capital allowance). The study also revealed that there is a very high relationship between by tax incentives proxy by (investment tax allowance, non-productive rent, capital allowance) and the dependent variable that is foreign direct investment. Conclusively, firms’ enjoying tax incentives will generate more employment opportunities than firms in highly taxed regions. Conducive investment climate is a strong requirement for the flow of sustainable physical investment in an economy. Tax incentives positively influences the living standards and per capital income, and expand variety of goods available to consumers. It is recommended that tax incentives should be effectively implemented and efforts should be made by relevant tax authorities to ensure that firms to benefit from these incentives are adequately granted these incentives.
TABLE OF CONTENTS
Cover Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Abstract viii
CHAPTER ONE: INTRODUCTION
1.1
Background to the Study 1
1.2 Statement of the Problem 2
1.3 The objectives of the study 3
1.4 Research Questions 3
1.5 Research Hypotheses 3
1.6
Significance of the Study 4
1.7 Scope
and Limitation of the Study 4
1.8
Definition of Terms 5
1.9.
Historical Background of shell Petroleum Development Company 6
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 8
2.1.1 Incentives
put in place 8
2.1.2
Reduced Petroleum Profit Tax for Marginal Field
Operators 9
2.1.3 Reduced
Royalty Rate. 9
2.1.4 Gas
Utilization Incentive 10
2.1.5 Need
for Tax incentives 10
2.1.6 Investment Opportunities in the Oil
and Gas Sector 11
2.1.7
Tax incentives available to oil and Gas sector in Nigeria 13
2.1.8 Incentives and Allowances Accruable
to the IOCs 16
2.1.9 Investment Tax Allowance/Tax Credit 19
2.2
Theoretical Framework 20
2.2.1 Benefit Theory 20
2.2.2 The Cost of Service Theory 20
2.2.3 Ability to Pay Theory 21
2.2.4 Proportionate Principle 22
2.3
Empirical Review 23
CHAPTER THREE: METHODOLOGY
3.1 Research
Design 28
3.2 Area of
the Study 28
3.3 Sources
of data and Method of data collection 29
3.4 Model
Specification 29
3.5 Method
of Data analysis 33
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS S
4.1 Data
Presentation 34
4.2 Data
Analysis 37
4.3 Test of
Hypotheses 40
4.4
Discussion of findings 41
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary
of Findings 42
5.2
Conclusion 42
5.3
Recommendations 43
REFERENCES
CHAPTER ONE
INTRODUCION
1.1 Background to the Study
As
part of the effort to provide an environment that is conducive for the growth
and development of industries, inflow of foreign direct investment, shield
existing investment from unfair competition and stimulate the expansion of
domestic production capacity, the federal government has developed package of
incentives for various sectors is encouraging tax incentives in the petroleum
industry for overall development in Nigeria.
Tax
studies have become increasingly sophisticated especially during the past
decade and have yielded conflicting results as regards the tax matter. Some
studies focus on the cost and benefit of tax incentives while a few look at
whether public funds could have been better spent or if tax incentives were
economically justified. Tax studies offer little guidance to policy makers who
are concerned about tax rates and the effectiveness of employing tax incentives
as an economic and developmental tool (Aroh & Nwadioalor, 2009).
Tax incentive itself, is the use of
government spending and tax policies to influence the level of national income.
This measure encourages the springing up and gradual growth of new enterprises
by the reduction of profit tax, which in turn encourages production, influences
the production level and curbs unemployment. So, the government should provide
such tax incentives in order to boost development which will bring about an
increase in employment opportunities and also cause an improvement in the
economy (Okafor, 2009).
Amadiegwu
(2008), a tax expert wrote that the objective of tax incentive is that by
borrowing rather than taxing, the government has a better chance of expanding
investment spending which is essential in enlarging production possibilities
and attaining a sustainable improvement in the standard of living of the
people.
Dotun
and Sanni (2009), stated that tax incentives can be targeted on the low income
earners, local and developing industries, farmers, which will increase their
savings and is necessary for higher investment. Tax incentives create
employment opportunities for the people, helps to fight economic depression and
inflation thereby increasing the equitable distribution of income and wealth.
Petroleum
represents a very important mineral in Nigeria economy. The economic well-being
of the citizenry is now completely dependent on petroleum. This means that
petroleum touches every facet of human life in Nigeria. Petroleum resources
have become more important than any other means of generating income to the
government in Nigeria.
1.2 Statement of Problem
The
Nigeria Government have over the year adopted one form of incentives or the
other for the companies operating in the country. This is aimed at encouraging
business growth and development in the private sector organization. In the
petroleum industry the issue of tax incentive has not really received a
positive attention because the people think that the sector is rich enough to
pay all taxes.
Though
there is little level of tax incentives in the oil sector, but this cannot be
compared what we have in the private sector organization. The problems faced
are in the area of negative relationship between taxes and the petroleum
industry’ is the ability to sustain itself and to expand, petroleum industries
are faced with the problem of high tax rates, multiple taxation, complex tax
regulations and lack of proper enlightenment or education about tax related
issues. Not minding other challenges that other industries are facing in other
developing countries like Nigeria; inadequate capital, poor technical and
managerial skills, environmental effects and the government regulations which
is most affecting the operation of industries in Nigeria especially this issue
of multiple taxation which is a worm eating deeply and the large chunk of
revenues generated by these small scale industries for their growth and
survival. These have led to an increase in record of dearth of industries in
Nigeria.
1.3 Objectives of the
Study
The
broad objective of the study is to examine the effect of tax incentives on foreign
direct investment in the petroleum upstream sector in Nigeria.
The
specific objectives of the study include:
i.
To determine the effect
of investment tax allowance on FDI
ii.
To examine the effect of
non-productive rent on FDI
iii.
To ascertain the effect
of capital allowance on FDI
1.4 Research Questions
The following are the research
questions of the study:
1) What
is the effect of investment tax allowance on FDI?
2) What
is the effect of non-productive rent on FDI?
3) What
is the effect of capital allowance on FDI?
1.5
Research Hypotheses
For
the purpose of the study, the following hypotheses was tested in null form
1) There
is no significant effect of investment tax allowance on FDI.
2) There
is no significant effect of non-productive rent on FDI.
3) There
is no significant effect of capital allowance on FDI.
1.6 Significance of the Study
The
study will be quite significant to the following group of people;
Petroleum Industry:
the study will enable industries to know the importance of tax incentives in
their industry. The study will help them to know the tax relieves and holidays
they are expected to receive. The study will also help the management of every
industry to know the importance of employing and training their staff on tax
matters in order not to pay higher tax than expected.
Government:
the study will help government to understand the contribution of industries in
economic growth and as such know the amount of tax charged to them to avoid
much tax burden that could affect their performance. This is because any
negative performance of industries will affect the economic growth of the
country.
Researchers and Scholars:
the study will serve as a reference
material to students and researchers for their future research and studies
respectively.
1.7 Scope / Limitation of the Study
The
focus of this study is rested on tax incentive in the attraction of investment
in the upstream petroleum sector. It evaluates the effect of tax incentives on
investment in the upstream petroleum sector with particular reference to Shell
Petroleum Development Company.
The
study area of this research work is Shell Petroleum Development Company. This
is because this study tends to evaluate the effect of tax incentive on
investment in FDI were investment tax allowance, non-productivity rent,
royalties, and capital allowance remains the proxies of evaluation.
Thus,
this work is limited to only foreign direct investment in the petroleum
upstream sector in Nigeria whose data will extract in findings and drawing
conclusions.
1.8 Definition of Terms
Tax: Compulsory
levies imposed by the government on the citizens of a country to enable the
government provide basic amenities for them.
Investment tax allowance:
A tax
incentive offered to businesses to encourage capital
investment in which they can deduct
a specified percentage of capital costs,
including depreciation,
from taxable
income. Different from investment
credits which allows businesses to deduct investment costs directly from their tax
liability.
Non-productive rent: This is any payment to an
owner or factor of production
in excess of the costs needed to bring that factor into production. In
classical economics, economic rent is any payment made (including imputed
value) or benefit received for non-produced inputs such as location (land)
and for assets formed by creating official privilege
over natural opportunities (e.g., patents
). In the moral
economy of neoclassical economics,
economic rent includes income gained by labor or state beneficiaries of other
"contrived" (assuming the market is natural, and does not come about
by state and social contrivance) exclusivity, such as labor guilds and
unofficial corruption.
Royalties: A royalty is a payment to an owner for the use of
property, especially patents, copyrighted works, franchises or natural
resources
Capital allowance: Capital allowances
is the practice of allowing a company to get tax relief on tangible capital
expenditure by allowing it to be expensed against its annual pre-tax income.
Incentive:
Something that encourages you to do something or perform an action
Upstream sector: Involving
exploration and pre – production rather than selling and refining.
Investment:
this is the commitment and accumulation of fund with the hope of future returns
for commeasuring to the level of risk assumed.
1.9 Historical background
of Shell Petroleum Development Company
Shell Nigeria is the common name for Royal
Dutch Shell's Nigerian operations carried out through four subsidiaries primarily Shell Petroleum Development Company of
Nigeria Limited (SPDC). Royal Dutch Shell's joint ventures account for
more than 21% of Nigeria's total petroleum production (629,000
barrels per day (100,000 m3/d) (bpd) in 2009) from more than
eighty fields.
Thus, Shell started business in Nigeria in
1937 as Shell D’Arcy and was granted an exploration license. In 1956, Shell
Nigeria discovered the first commercial oil field at Oloibiri in the Niger Delta and started oil exports in 1958.
Furthermore, Shell Petroleum Development
Company (SPDC) is the largest fossil fuel company in Nigeria, which operates over 6,000 kilometres
(3,700 mi) of pipelines and flowlines, 87 flowstations,
8 natural gas plants and more than 1,000 producing wells. SPDC's role
in the Shell Nigeria family is typically confined to the physical production
and extraction
of petroleum. It is an operator of the joint venture, which composed of Nigerian National Petroleum Corporation (55%), Shell (30%), Total S.A. (10%) and Eni (5%). Until relatively recently. It operated largely onshore on dry
land or in the mangrove swamp.
In July 2013, Shell Nigeria awarded Kaztec
engineering Limited a $84.5 million exploration and production contract for the
Trans-Niger oil pipeline.
On March 25, 2014, Shell Nigeria declared a force
majeure on
crude oil exports from its Forcados crude oil depot which stopped operations
due to a leak in its underwater pipeline, a clause freeing the company from
contractual obligations as a circumstance beyond its control happened.[5] While it struggled repairing the pipeline,
Royal Dutch Shell announced a force majeure on Nigerian crude oil exports. Uzere
was the second place where oil was discovered. Olomoro was the third place,
before oil discovery spread across most places in the Niger Delta region.
Shell petroleum Development Company has its
head office at Rumuobiakani Port Harcourt Rivers State.
Click “DOWNLOAD NOW” below to get the complete Projects
FOR QUICK HELP CHAT WITH US NOW!
+(234) 0814 780 1594
Login To Comment