Analysis of the Effect of Company Income Tax Policies and Foreign Direct Investment (FDI) in Nigeria

Abstract

The study examines the impact of company income tax (CIT) policies on foreign direct investment (FDI) in Nigeria over 34 years (1990–2023). The ex-post facto design was adopted, and annual time series data was sourced from the Central Bank of Nigeria (CBN) statistical bulletin, Federal Inland Revenue Service (FIRS), and the World Bank published statements. Employing both short-run and long-run Autoregressive Distributed Lag (ARDL) models, the study provides a comprehensive empirical analysis of the CIT–FDI nexus. Findings reveal a long run, CIT rate, GDP growth, inflation, unemployment, and exchange rates significantly influence FDI. In the short run, GDP growth, interest rate, government capital expenditure, and inflation fluctuations emerge as critical determinants. The study concludes that while CIT policies matter for FDI, their effectiveness is conditional on broader macroeconomic and institutional contexts. The study concludes that while CIT policy exerts a statistically significant influence on long-term FDI inflows, its efficacy is contingent upon broader macroeconomic stability and institutional coherence. A competitive and predictable corporate tax regime that is complemented by infrastructure development, monetary stability, and regulatory transparency is imperative for positioning Nigeria as an attractive destination for sustainable foreign investment. The study recommends periodic reforms to the CIT framework, reduction of tax rates to match regional benchmarks, and the creation of a stable, investor-friendly environment through infrastructural development and regulatory clarity. These insights provide strategic direction for policymakers aiming to enhance Nigeria’s investment climate and optimize tax revenues through sustainable FDI inflows.