Abstract
Profitability has been the aim of every commercial enterprise but are often not actualized due to high costs and high Effective Tax Rates (ETR). In order to manage the effects of taxes on the profitability of firms, strategies are employed to plan the taxes. This research work focused on effect of Tax Planning Strategies on Profitability of manufacturing firms in Nigeria. <i>Ex-post facto</i> research design was adopted for the study. The main objective of the study was to examine the effect of Tax Planning Strategies on Profitability of Quoted Manufacturing Companies in Nigeria. The population of the Study comprised of 52 manufacturing companies quoted on the Nigeria Stock Exchange as at 17<sup>th</sup> December, 2018 with 46 as the sample size calculated using Taro Yamani’s formula. Data were collected from the audited annual reports of the sampled companies for a period of 10 years (2008 – 2017). The validity and reliability were based on the statutory audit of the financial statements. Descriptive and inferential statistics were used to analyze the data. The result revealed that there is no significant effect of TP on Return On Assets (ROA) of Quoted Manufacturing Companies in Nigeria. This is evidenced by the results of the test, <i>Adj.R<sup>2</sup></i> = -0.000527 and <i>F-Statistics</i> = 0.919439 and <i>P-value</i> of 0.431292. The Study concluded that tax planning strategies have both negative and positive effects on profitability of Quoted Manufacturing Companies in Nigeria. The study recommended that Tax Managers and Finance Officers should reduce thin capitalization and Capital Intensity to balance the source of income of manufacturing firms, while Research and Development costs should be properly managed to increase their contributions to profitability. Professional Tax Practioners should also be consulted for maximum benefit from tax planning.
Highlights
IntroductionProfitability is a major factor to be considered by every business enterprise if such an enterprise desires to continue to operate as a going concern and to the satisfaction of its stakeholders
The first model stated that tax planning strategies measured by Thin capitalization (TCN) and Capital intensity (CIY) have negative insignificant effect on profitability measured by Return on asset (ROA) while Research and Development cost (RD) has a positive insignificant effect on Return On Assets (ROA)
The regression estimates show that Thin Capitalization and Capital Intensity had negative effects on profitability while Research and Development cost had a positive effect on profitability
Summary
Profitability is a major factor to be considered by every business enterprise if such an enterprise desires to continue to operate as a going concern and to the satisfaction of its stakeholders. Despite how important profitability is to firms, it is always affected by costs. Profitability in no small extent, depends on the capacity of the company to grow its earnings and tame its cost profile through cost control techniques [30]. The study [43] stated that profit can provide power for a business’s sustainable development but that financial management is needed to achieve the desired profitability. While tax liability is a major expense in any firm (representing 20 – 30%) in the sources and application of fund in company’s financial statement [34]
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