Tax Incentives & Microfinance Business in Nigeria: A Study of Selected Microfinance Banks in Rivers State

Abstract

This study is carried out to empirically ascertain the extent to which tax incentives would enhance realization of core objectives of regulated microfinance business in Nigeria with a focus on Rivers State. Research questions were raised, hypotheses formulated and related literature reviewed. Primary data were collected from the shareholders, managers, key employees, customers and external auditors of 19 Microfinance Banks in Rivers State through questionnaire and participant observation. The questionnaire before its administration was subjected to validity and reliability test. The test re-test method using the Kendall coefficient of concordance gave a result of 0.84 indicating a strong reliability of the instrument. The data generated were analyzed and tabulated, Spearman’s Rank Correlation Coefficient and Z test statistics were adopted in testing the hypotheses formulated. The findings are that tax incentives have significant and positive relationship with the business performance of Microfinance Banks in Nigeria. Despite high tax burdens other major factors militating against microfinance business in Nigeria are weak infrastructure, poor corporate governance and loan defaults. It is recommended that Government at all levels should grant five years tax holidays to Microfinance Banks especially at their infancy and vulnerable stages to enable them stabilize and effectively play the role of change agents in the poverty eradication, job creation and financial inclusion crusades. The Microfinance Bank Managers should also embrace annual tax planning as a way of managing their tax burdens with or without tax incentives.