Effect of Tax Rates on Foreign Direct Investment in Nigeria (1994-2023)

The study examined the effect of tax rates on foreign direct investment in Nigeria. Specifically, the study explored the relationship between various tax components Company Income Tax (CIT), Personal Income Tax (PIT), Value Added Tax (VAT), and Capital Gains Tax (CGT) and Foreign Direct Investment (FDI) in Nigeria. The study adopted ex-post facto research design through the use off population comprising of the annual data relevant to taxation and FDI sourced from 1994 to 2023, obtained from the Federal Inland Revenue Service (FIRS) and the Central Bank of Nigeria (CBN). The regression results show that CIT and PIT have a significant negative impact on FDI and this might discourage foreign investors, making Nigeria a less attractive investment destination. High corporate and personal income taxes potentially increase the cost of doing business and reduce profit margins, leading foreign investors to seek more favorable environments elsewhere. Following these findings, the study recommends Nigeria government should consider reducing corporate tax rates or offering targeted tax incentives to foreign investors in key sectors by Simplifying the tax system and reducing the cost of tax compliance. Moderate personal tax rates and streamline tax procedures as this would foster investment-friendly environment and encourage skilled foreign professionals to work in Nigeria;

Tax rates are essential in shaping the investment climate

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