Funding Of Federal Parastatals in Nigeria


Many scholars have given attention to various aspect of tax Holiday Scheme. Beginning with the classification scheme which give tax holiday scheme it place among the large families of fiscal incentives

In studying the objective scheme, attention is focused on the comparison of the various criteria that qualify one for the incentive benefit in various state and the relevance of such criteria to the general problem of economic development.

Then to consider the charge for the success of the scheme, there is usually an assessment of the adequacy for the registration and also the stability for the administration. Cost of the incentive scheme is determine by the analysis of the components of the fiscal sacrifice, while the measurement of the benefit from the scheme involve the use of various techniques. Finally the proprietary for the tax holiday has been called to serious question by some establishment. In this section of work, this issue is discussed under various headings



Fiscal incentives according to usher are based on the capital of the firm in either of its distinguishable form.

  • As money paid for durable item are in production
  • As present value of the future net cash flow


Donating the first concept of capital ASP, to develop a relationship between K and P as follows


P= rKe – t = rK


Where P = discounted net cash flow over infinity

R = giving rate of return on K

K = money paid for durable item used in the production \

T = time of production

E = Nigerian (2.817 aprax)


This relationship holds on the assumption that there are not cooperate tax and there are no risk and the firm ends in perpetuity.

The fiscal incentive subsidy is, on pr can depend on k ie s = f (k). This means that the amount of subsidy is calculated as a fraction of the total amount spent on the producers’ goods for the firm. Suppose such amount is said to be # 1M which is = # 0.001M (annually). Profit above the amount will therefore be tax duty. If the fiscal incentive subsidy dose not depend on K, then we have the relationship as s = f (k)

The subsidy can also depend on P that is on the streams of cash net flow of the firm broken into annual flow . I may also depend on the fraction of p , that is k (p) . in the first place s = f (p) and in the second case, S = (k(P)

Where S = F(P) , all the profit made will be expected from tax but where

S= F (K (p) , then only a portion of the profit will be tax exempt


Let P = # 10,000.00 and K = # 0.5, then for S = F (p)


S = # 10,000.00 and for S F (K (P)

S = # 10,000.00 * 0.5 = 500

Two conditions can emerge in the relationship between F (P) and F (k (p)

  1. Where F (P) > F (K (P) and
  2. Where F (P) < F (K (P) depending on whether we can now classify all fiscal incentive in the table below.


A = (p) = F (k(p)                            B F(P) = F (KSP)

Tax holiday                                   Export duties



S = F (F) tax credit investment                    Investment grant

S = F (K) tax credit investment

Allowance accerelleted



It will be noted however that tax holiday scheme will be classify as

Type B (1) because of the scheme

S= F (k) and F P = F (k) ( P)



According Hellen N.W. (1967) the objective of the tax holiday scheme is to influence the size of voluntary private investment into the desired sector of the economy of the country and apply it. He further said that given that government development policy is not faulted, guided investment could make for accelerated growth in he economic sector and combat structural development problem. Some structural criteria to which tax holiday incentive can be address to include.


  1. Development of the domestic market incentive can be granted to encourage firm to introduce new product in the domestic market to improve the output of product for which there is still low level of economic activity
  2. Diversification of the output incentive for product and this can be use to widen and diversify the industrial structure in Imo state.
  3. Balance regional development firm are usually included to allocate plant in region lagging behind though tax holiday incentive. But in general both the state incentive can be use to attract a concentration of plant with a view to increasing the economy growth in the state
  4. Balance of payment consideration in the foreign exchange has reputably played non developing countries. It therefore pay to promote fiscal incentive this time by tax holiday incentives and this go a long in helping the industry in the manufacturing of the agricultural raw material for production and foreign exchange.
  5. Reduction in unemployment: increased in the investment as a result of fiscal inducement ( some time coupled with the condition that indigenous labour must be used by the benefiting company) will reduce unemployment cetris – parisbus
  6. Better utilization of the existing capital: that a plan must work beyond the minimum capital level is sometime a condition for obtaining grant
  7. Incentive can be used to redirect the investment pattern. If the manufacturing is made more attractive than real estate investment or ordinary commercial venture, then capital will be redirt3d into manufacturing business



Giving the multiple objectives to be net by holiday legislation and the fact that the circumstances surrounding the financing of any beneficiary is unique. Flexibility in the application of the tax holiday incentive becomes necessary and the flexibility is possible where legislation provide only broad guide and allow the distractive agency direct emphasis towards the over objective should gray away at any point in time. In any case it must be specify by the legislation either in specific terms or in broad description what industry and what product should be considered infant pioneer at any point in time. What condition of the potential beneficiary must satisfy and the extent of benefit to which infant or he pioneer industry is entitled.

In term of various criteria to be met, much incentive legislation has similar provision while some differ markedly

This is obvious in the provision for the following three criteria

  • Type of incentive criteria: new and necessary investment is one that is different from any other enterprise now in the country. Where as in Mozambique, it is an industrial establishment installed for the first time in this province., while in Philippines , it is investment in an activity not yet operated in the commercial scats
  • Capital requirement: sometimes, there is provision for minimum domestic participation, Jordan Nigerian Lebanon and Iraq provide for minimum capital requirement
  • Legal form, location, structure of the investment potential beneficiaries may be business of a particular legal form



The exert amount lost in the government revenue as a result of tax holiday incentive cannot be measured precisely. The total gain form the scheme must be subtracted form the total sacrifice. However, some of he gain and lost cannot be quantified easily with respect to tax on profit on pioneer /infant industry forgone. It is generally agreed that


  • Such tax will not be fiscal sacrifice where that company investment are usually the incentive included , such without inducement , there would have been no investment and hence no profit to be taxed.
  • Such tax will not have a fiscal sacrifice where the pioneer/ infant industry would have made the same volume and pattern of investment without any fiscal incentive. However account should be taken of the fact that the induced pioneer/infant company must have made taxable profit in the investment in non pioneer industry and that the tax revenue lost is part of the fiscal sacrifice
  • The cost of administering the incentive scheme is easily calculated and make up part for the fiscal sacrifice. This magnitude of the cost is determined by the size of the composition and quality of the distributive staff. Among the gain of the holiday include the benefit that flows. The entire economy following compliance wit the tax holiday scheme (as may be required of them in the use of the local material in the advertising of the output.. in addition , account must be taken of the multiplier effect of investment by the induce infant industries in the econ9my investment n other sector which result for the incentives included investment are taxable and are also part of the incentive scheme

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