WORKING CAPITAL AND TAX PAYABLE: ANALYSIS OF INTERRELATIONSHIP IN MANUFACTURING COMPANIES

Abstract

Most of the manufacturing firms are blamed for the inability to fulfill their obligations to the government on working capital inadequacy and ineffective plan, control and monitoring which led to business failures, and profitability reduction which invariably reduced tax payable to the government in the past. To this effect, therefore, this study examined working capital effect on tax payable in Nigeria manufacturing companies. Ten manufacturing companies were selected from listed manufacturing companies in the Nigeria stock exchange jurisdiction from 2010 to 2022. The data sourced were: receivable, inventory, payable, profit before tax, and the firm size (the net asset of the companies) from published annual financial statement from 2010 to 2022. After the data arrangement, we employed panel data analysis to gauge working capital effect on tax payable in Nigerian manufacturing companies. We conducted unit root test (Panel) to examine the stationary of the variables. Pearson correlation, panel regression analysis, Feasible Generalized Least Squares (FGLS), and other post estimation tests like autocorrelation, heteroskedasticity test, and Hausman test was also launched to gauge the model suitability between random and fixed effect while Breusch – Pagan LM was further launched to select between random and Pooled OLS. The outcome shows that receivable, inventory, and payable are favourably significant to TAXPAB which ultimately divulges the significance of working capital components on tax payable. Conclusively, working capital significantly, statistically and progressively influences tax payable in Nigeria manufacturing companies. We further recommended that more efforts should be expended by manufacturing companies to effectively utilize their working capital in their custody because a goodexploitation of working capital enhances company’s profitability and augments the strength for markets competitiveness, firm value, and shareholders’ wealth.