An Evaluation of Tax Incentives for Attracting FDI in Nigeria: A Case Study of Cross River State
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Background of the Study
Tax incentives are widely used by governments to attract foreign direct investment (FDI) by reducing the cost of doing business and enhancing profitability. In Nigeria, Cross River State has implemented various tax incentive policies to position itself as an investment-friendly destination, leveraging its natural resources and strategic location (Ekong & Bassey, 2024).
While tax incentives are intended to attract FDI, questions remain about their effectiveness in fostering sustainable economic development. Critics argue that overly generous incentives may lead to revenue losses without significantly increasing investment inflows. This study evaluates the role of tax incentives in attracting FDI to Cross River State, providing insights into their effectiveness and potential improvements.
Statement of the Problem
Despite offering tax incentives, Cross River State continues to face challenges in attracting substantial FDI compared to other states. Factors such as infrastructure deficits, security concerns, and administrative bottlenecks may limit the effectiveness of these incentives. Additionally, there is a lack of comprehensive studies assessing the impact of tax incentives on FDI inflows in the state. This study addresses these gaps by evaluating the effectiveness of tax incentives in attracting FDI to Cross River State.
Objectives of the Study
1. To assess the types of tax incentives offered in Cross River State to attract FDI.
2. To evaluate the impact of these tax incentives on FDI inflows.
3. To recommend strategies for improving the effectiveness of tax incentives in attracting FDI.
Research Questions
1. What types of tax incentives are available to attract FDI in Cross River State?
2. How effective are these tax incentives in driving FDI inflows?
3. What measures can enhance the effectiveness of tax incentives in Cross River State?
Research Hypotheses
1. Tax incentives have a significant positive effect on FDI inflows in Cross River State.
2. The effectiveness of tax incentives is moderated by the state’s infrastructure and security conditions.
3. Enhanced transparency and accountability in administering tax incentives improve their impact on FDI.
Scope and Limitations of the Study
The study examines tax incentives provided by Cross River State between 2023 and 2025, focusing on their impact on FDI inflows. Limitations include difficulties in obtaining data on private investments and isolating the effects of tax incentives from other influencing factors.
Definitions of Terms
• Tax Incentives: Financial concessions provided by governments to encourage investment.
• Foreign Direct Investment (FDI): Capital investments by foreign entities in another country’s economic activities.
• Cross River State: A state in southeastern Nigeria known for its tourism and natural resources
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