An Examination of the Effect of Double Taxation on Foreign Investments: A Study of the Telecommunications Sector in Nigeria
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Background of the Study
Double taxation, the imposition of tax on the same income or financial transaction by two or more jurisdictions, remains a significant barrier to foreign investment in many developing economies, including Nigeria. The telecommunications sector, one of the most dynamic and rapidly growing sectors in Nigeria, has attracted substantial foreign investments over the years. However, the potential of this sector is undermined by the burden of double taxation, arising from overlapping tax jurisdictions, international transactions, and conflicting tax laws (Adeyemi & Okafor, 2023).
Foreign investors often face both corporate taxes in Nigeria and home-country taxes, leading to reduced profitability and a lower appetite for further investment. While Nigeria has signed several Double Taxation Avoidance Agreements (DTAAs) with various countries to address this issue, implementation gaps and inconsistencies persist (Obasi & Emmanuel, 2024). This study explores the impact of double taxation on foreign investments in Nigeria's telecommunications sector, focusing on how it influences investment decisions and overall sectoral growth.
Statement of the Problem
The telecommunications sector in Nigeria is critical to economic development, contributing significantly to GDP and job creation. However, the sector faces challenges that deter foreign investments, with double taxation being a key factor. Despite efforts to mitigate this issue through DTAAs, foreign investors continue to report difficulties due to unclear tax regulations, administrative bottlenecks, and inconsistent policy enforcement (Ogunleye, 2023).
These challenges reduce Nigeria’s attractiveness as an investment destination, particularly in the telecommunications sector, where global players seek regulatory clarity and fair tax treatment. This study investigates the effects of double taxation on foreign investments in this sector, with a view to providing actionable recommendations.
Objectives of the Study
- To assess the impact of double taxation on foreign investment decisions in Nigeria's telecommunications sector.
- To evaluate the effectiveness of Nigeria’s Double Taxation Avoidance Agreements in addressing double taxation issues in the sector.
- To propose strategies for minimizing the effects of double taxation on foreign investments in the telecommunications sector.
Research Questions
- How does double taxation affect foreign investment decisions in Nigeria’s telecommunications sector?
- How effective are Nigeria’s Double Taxation Avoidance Agreements in mitigating double taxation in the sector?
- What strategies can minimize the effects of double taxation on foreign investments in the telecommunications sector?
Research Hypotheses
- Double taxation significantly reduces foreign investments in Nigeria's telecommunications sector.
- Nigeria’s Double Taxation Avoidance Agreements are insufficient in addressing double taxation issues in the telecommunications sector.
- Strategies for minimizing double taxation will significantly enhance foreign investment inflows into the telecommunications sector.
Scope and Limitations of the Study
The study focuses on the telecommunications sector in Nigeria and examines the effects of double taxation on foreign investments from 2023 to 2025. Limitations include reliance on secondary data from industry reports and potential biases in investor surveys.
Definitions of Terms
- Double Taxation: The levying of taxes by two or more jurisdictions on the same income or transaction.
- Foreign Investments: Capital investments made by non-residents in a country’s economic sectors.
- Telecommunications Sector: The industry involved in the provision of communication services such as voice, data, and internet.
