Multiplicity of Taxes and Foreign Direct Investment: A Relational Analysis of Nigerian Tax Environment

Akinwunmi Abiodun Jelil

doi:10.11648/j.ss.20170604.11

Abstract

Governments of different countries have the constitutional backing to impose a plethora of taxes on both local and foreign entities doing businesses in their countries. It is common for a country most especially the developing one like Nigeria to impose all of these taxes instantaneously. Obviously, these taxes have important implications for investment and economic activity, including Foreign Direct Investment. The emphasis of this study is to examine the relationship between multiple taxes and Foreign Direct Investment inflow in Nigeria for the period 1996 to 2015. The study adopted the ex-post facto research design. Secondary data used was collected from Central Bank of Nigeria Statistical bulletins, National bureau of statistics publications and Central Bank of Nigeria Annual Reports. Descriptive analytical procedure and inferential statistics were employed. The descriptive statistics was used in explaining the characteristics of the variables while inferential statistics involved the use of multiple regressions for analysis and time series was used for estimation. From the findings, it is noted that there is an inverse relationship between multiple taxes and Foreign Direct Investment (FDI) in Nigeria; which implies that the higher the taxes, the less the FDI inflows into the country. The given high value of the R2 (0.858333) implies that a 85.83% systematic variation in Foreign Direct Investment (FDI) is explained by company Income Tax (CIT), Value Added Tax (VAT), Education Tax (ED) and Customs and Excise Duties (CED). The F-statistics with the value of 16.96471and P-value of 0.000017 shows that the model easily passes the F-test at 1%, 5% and 10% level of significance and this means that the hypotheses of a significant linear relationship between the dependent and independent variables taken together is validated by this study. It is therefore recommended that for Nigeria to secure a place as an economically viable nation in Africa, it must strive and achieve an internationally competitive tax system by eliminating all forms of multiple taxes in the country.

Highlights

Countries have recognized the importance of attracting foreign direct investment as a means of revitalizing their economies and stimulating growth
The emphasis of this study is to examine the relationship between multiple taxes and foreign direct investment inflow in Nigeria, for the period, 1996 to 2015
Our estimation model is extended with the addition of inflation rate and Education Tax which are peculiar to Nigeria : Foreign Direct Investment (FDI) = f(CIT, EDT, Value Added Tax (VAT), Customs and Excise Duties (CED), INF)

Summary

Introduction

Countries have recognized the importance of attracting foreign direct investment as a means of revitalizing their economies and stimulating growth. This has prompted many countries to work on developing favourable conditions to promote foreign direct investment but there are a variety of factors that influence foreign direct investment [36]. Governments are struggling to gain a competitive advantage in order to attract greater investment in their territory. They are doing this because it will create new jobs, will boost revenues from taxation, lead to the formation of local budget and will increase property value. Tax policies occupy a central place in the final destination of Akinwunmi Abiodun Jelil et al.: Multiplicity of Taxes and Foreign Direct Investment:

Methods

Findings

Discussion

Conclusion