Effect of Tax Incentives on Small and Medium Enterprises (SMEs) Growth in Abuja

Abstract

This study examines the effect of tax incentives specifically, tax holidays, income tax exemptions, and investment tax credits on small and medium enterprises (SMEs) growth in Abuja. The study employed a survey research design method. The population of the study comprises of the entire 5,690 registered SMEs in FCT, Abuja. However, 374 registered SMEs were selected sample size using the Yamani's (1967) scientific approach to sample determination hence, simple random sampling technique was applied. The study adopts the Fiscal Policy Theory as its theoretical framework. The study employ a Structural Equation Modeling (SEM) approach via SmartPLS to analyzes the effects of these tax incentives on SME growth. Results indicate that tax holidays and income tax exemptions have a significant positive impact on SME growth while investment tax credits exert a negative but significant effect on SMEs growth. The study concludes that while tax holidays and income tax exemptions are effective drivers of SME growth in Nigeria, investment tax credits may require policy adjustments to better align with SME needs. Recommendations include expanding access to impactful incentives, simplifying application processes, and regularly reviewing incentive effectiveness.