The role of tax incentives in a trio of Sub-Saharan African economies : a comparative study of Nigerian, South African and Kenyan tax law.

Abstract

This Thesis evaluates the role of tax incentives in promoting sustainable economic development in developing countries, comparing the South African and Kenyan experiences with that of Nigeria, with a view to suggesting ways in which Nigerian tax incentive law and policy may be improved. After a general introduction in Chapter 1, Chapter 2 considers the nature of tax incentives as policy tools for economic development, reviews typical forms of incentives and highlights traditional arguments for and against their use as found in the literature. While there is a general consensus among economists that tax incentives are generally ineffective and inefficient policy tools the use of which should be generally discouraged, this view has not been universally accepted among developing country policymakers. Chapters 3,4 and 5 present findings from bibliographical and qualitative research into the role of tax incentive laws, practices and policies in Nigeria, South Africa and Kenya (respectively). Chapter 6 considers important regional and international tax, trade and finance issues which constrain or otherwise influence the use of tax incentives by developing countries with particular reference to the circumstances of these three countries. Chapter 7 traces the evolution and critiques the content of contemporary Nigerian tax incentive policy. It finds that Nigerian tax incentive law and policy, while clear, is not entirely consistent, prudent or appropriate in view of contemporary development needs, available resources and national priorities. However, it also finds that Nigerian tax incentive policy may be significantly improved if certain lessons from the South African and Kenyan experiences are carefully considered and applied with an appreciation of the peculiar realities of Nigerian tax culture. In particular, Nigeria should target tax incentives to only those sectors where the benefits justify the attendant revenue loss; ensure that tax incentives are not only fit for purpose but are also cost-effective; dispassionately review the true economic rationales for tax incentives; count the cost of tax incentives to assess their cost-effectiveness; and adequately consult with the private sector. Further, Nigeria should: keep tax incentive policies and practices simple; use non-tax measures wherever possible to encourage growth in key sectors; and stripe for a dynamic, sustainable and responsive tax incentive policy. Finally, as tax policy is only as effective as tax administration allows, sufficient and sustained attention must be placed on improving the capacity, quality and effectiveness of Nigerian tax administration.