CORPORATE INCOME TAX AND FOREIGN DIRECT INVESTMENT IN NIGERIA

Abstract

Corporate income tax has an impinging role on foreign direct investment in Nigeria, as investors usually consider the corporate income tax environment as criteria for investment decisions. This paper empirically examines the impact of company income tax on foreign direct investment (FDI) in Nigeria. The choice of the period was dictated by data availability as well as the fluctuating nature of FDI inflow in Nigeria during the period. Annual time series data covering the period 1986 to 2017 were sourced from the CBN Statistical Bulletin. A dynamic framework involving unit root testing, co integration and error correction modeling techniques was used. The empirical findings reveal that statutory company income tax has a negative relationship with FDI in Nigeria. Lending rate on loanable funds is positively and significantly related to FDI. Infrastructure (proxy by ICT) is found to be positively related to FDI, the impact which is however weak, due to the low level of infrastructural development in the country. Inflation (proxy for macroeconomic environment) is negatively and significantly related to FDI, given a t-ration of 1.72 (in absolute values) which was significant at the 10 percent level. The result also show evidence of a negative and significant relationship between the political variable and FDI in Nigeria. Against the backdrop of the foregoing findings, The study recommended that institutional reform of the tax policy to make it investment-enhancing, provision of good and reliable infrastructure, sound and stable macroeconomic policies that will tame domestic inflationary pressures and guarantee appropriate interest rates, and stable political and institutional environment that will enhance foreign direct investment in Nigeria Political stability.