For correspondence:-
Received: December 2, 2021 Accepted: March 26, 2021 Published: March 31, 2021
Citation: Direct Tax and Foreign Direct Investment. Account Tax Rev 2006; 5(1):1-14 doi:
© 2006 The authors.
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Abstract
It is critical to have appropriate tax policies to attract foreign direct investment in both developed and developing countries. In light of this, the study investigated the effect of a direct tax on foreign direct investment in Nigeria. The study specifically looked at the impact of direct tax components like petroleum profit tax, corporate income tax, education tax, and personal income tax on foreign direct investment in Nigeria. The study was motivated by the recent advocacy for increased foreign direct investment in Nigeria. The study covered direct tax and foreign direct investment data from 1981 to 2019, which totalled 38 years. Secondary data on direct taxation and foreign direct investment were sourced from the National Bureau of Statistics (NBS), Statistical bulletins of the Central Bank of Nigeria (CBN), and the Federal Inland Revenue Service (FIRS). The data collected were analysed using the ordinary least squares estimation technique. The study revealed a positive relationship between petroleum profit tax (PPT), companies' income tax (CIT), and personal income tax (PIT) on foreign direct investment to gross domestic product ratio (FDI_GDP). However, the outcome of the relationship was not statistically significant. Education tax had a negative relationship with FDI_GDP. The outcome was statistically significant. As a result of the above findings, the study recommended that tax policy on direct tax components of PPT, CIT, and PIT be improved to increase foreign direct investment in Nigeria. Meanwhile, education tax revenue should be used wisely to attract foreign direct investment in the Nigerian educational system. The study also suggested that additional research be conducted to determine whether increasing education tax revenue investment in the educational system will eliminate the negative relationship between education tax and foreign direct investment.
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