An Examination of Tax Incentives and Foreign Direct Investment Inflow in Nigeria: A Study of the Nigerian Export Processing Zones Authority (NEPZA)
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Background of the Study
Tax incentives are a common tool for attracting foreign direct investment (FDI), especially in developing economies. In Nigeria, the Nigerian Export Processing Zones Authority (NEPZA) oversees the administration of tax incentives in export processing zones (EPZs), offering benefits like tax holidays, duty exemptions, and repatriation of profits (Yusuf & Adediran, 2024). These incentives aim to create a conducive environment for foreign investors, promote export-oriented industries, and enhance economic diversification.
Despite the introduction of these incentives, Nigeria’s FDI inflows have been inconsistent, influenced by factors such as infrastructure deficits, policy instability, and security challenges (Okoro & Garba, 2023). This study evaluates the relationship between tax incentives and FDI inflows, focusing on the role of NEPZA in facilitating investment.
Statement of the Problem
Although tax incentives are designed to attract FDI, their effectiveness in Nigeria has been questioned. Critics argue that the incentives often fail to address fundamental issues like poor infrastructure, inconsistent policies, and corruption, which deter foreign investors (Adebayo & Musa, 2024). Furthermore, there is limited research on how well NEPZA’s incentives align with the expectations of foreign investors and their actual contribution to FDI inflows.
This study addresses the gap by examining the effectiveness of tax incentives under NEPZA in attracting FDI and their impact on Nigeria’s economic growth.
Objectives of the Study
- To assess the relationship between tax incentives and FDI inflows in Nigeria.
- To evaluate the challenges associated with NEPZA-administered incentives.
- To propose strategies for improving the effectiveness of tax incentives in attracting FDI.
Research Questions
- What is the relationship between tax incentives and FDI inflows in Nigeria?
- What challenges affect the effectiveness of NEPZA-administered incentives?
- What strategies can enhance the role of tax incentives in attracting FDI?
Research Hypotheses
- H₀: Tax incentives do not significantly influence FDI inflows in Nigeria.
- H₀: Challenges associated with NEPZA-administered incentives do not significantly affect their effectiveness.
- H₀: Proposed strategies will not significantly enhance the effectiveness of tax incentives in attracting FDI.
Scope and Limitations of the Study
The study focuses on tax incentives administered by NEPZA between 2018 and 2025, with an emphasis on their impact on FDI inflows. Limitations include access constraints to NEPZA’s proprietary data and the influence of external factors such as global economic conditions.
Definitions of Terms
- Tax Incentives: Financial benefits provided to encourage investment in specific sectors or regions.
- Foreign Direct Investment (FDI): Investment by foreign entities in the economic activities of a host country.
- Nigerian Export Processing Zones Authority (NEPZA): A government agency responsible for the administration of export processing zones in Nigeria.
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