Tax policy among other being the basic objective of the encouraging capital formation for economic development.
Income that would otherwise be spent on non-essential is usually taxed out of their holder to mobilize enough savings to finance needed investment both in the manufacturing and social overhead capital.
However, in thud capital formation, sole development of the economy lies in the conflict between the need for high rate to raise enough capital for the government owned investment in utilities and infrastructures which are essential for development and industrializations and the need to keep tax rate low enough to encouraged private investor in industries and in agriculture.
In other to meet up with those conflicting demand, the approach is to combine high rate of tax with preferential treatment to categories of desired development activity (with penalty tax for undesired activities). At 45%, the company income tax rate in Nigerian as considered high enough could be an effective tool for any necessary deduction in the economic activity. But apart from the deriving, the must effective way of mobilizing capital , there is still he need to direct investment to the desired sector of the economy. Other dilemma here is that investment which meet the main motor of the private investor (capital profits) are not necessary those that bring about high social benefits. In fact before 1964, value added production was quit unattractive to entrepreneur. They regard trading and contract business as the quickest way of increasing the income. In addition, the British trading firm that dominated the economy with the assistance of the colonial government discourages diversified indoctrination in Nigerian to protect their own trading interest.
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